Banking on Process Improvements - A Local Advantage

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By Dian Schaffhauser

If you've ever wondered what the alignment of business with IT looks like, the Bank of Philippine Islands (BPI) provides an example. This is a story about a sizable organization that sought out a process improvement for both internal and external reasons and, along the way, implemented a system to improve a particular process within the operations of its customers as well.

BPI, the second largest Philippine commercial bank, has 900-plus branches and 6,000 cash management customers across the islands. A dedicated team of project managers develops new products and services for the cash management activities of its clients, including disbursements, billing and account access.

These operations require a lot of back and forth shuttling of data, such as payroll processing. In the past, this has often been a manual operation: Clients would present paperwork to branches with the payroll instructions. Eventually, disks replaced paper, but it was only with the introduction of Web services, which could accept uploads, that the physical delivery aspects of the activity disappeared. But even then, according to the cash management group's manager, Suena Manalang, "Under the old system somebody would have to prepare the file, send the file to us either via the Internet or via the branch, and then when the file got to us, somebody would check and authorize if the file was OK."

The Business Process Challenge

This process may have worked fine for the smallest clients, but not for the largest – particularly multinationals that might employ thousands of people. Those companies demand straight-through processing, with applications – SAP, Oracle, J.D. Edwards – that can talk directly to the bank's server, without human intervention.

These accounting systems already handle the transaction validation and approvals, said BPI's channel manager, Ma-an Calilong. "What we [wanted to eliminate] was the need for them to do those processes again – the extraction of the file, the approvals in another bank’s platform. So, from their accounting system, once they have signified approval of the transactions, it would automatically go to the bank for processing."

The problem, said Manalang, is that, "There are a lot of risks involved when we do an encrypted file transfer between [ourselves] and [our] client." The vulnerability of the file transfer process itself was always a red flag area for the bank's auditors.

Besides the security of the transaction, another risk was ensuring data integrity – so that no data would get dropped during the digital journey from the client's systems to the bank's systems or vice versa. The same issue had surfaced at the bank regarding its internal file transfers between servers and mainframes.

A Technical Solution to the Rescue

Driven by the need to address the problems identified by the auditors, the bank's IT group discovered Connect:Direct, a product developed by Sterling Commerce specifically for point-to-point file transfer in high-volume environments.

Deployment of the solution initially, said Calilong, was not difficult, but it did require a lot of training for the five people involved. "[Security] certificate management was something new," she said, "so we had to develop procedures to put that in place."

Also, the software is "highly parameterized," said Jonathan Paz, cash management team lead. "It allows itself to be used in a variety of ways, so it remains for the users to figure out how the system will be configured." Each initial implementation of a file transfer between applications A and B, for example, requires configuring a unique set of parameters.

Training and set-up of the infrastructure for running Connect:Direct took BPI about six months. Also, the bank had to appoint somebody as a security manager. As Manalang explained, "We already have people who are in charge of information security. So, it is a matter of adding the security manager function in Connect:Direct to the functions of those people who are already doing it."

Pilot Project Results

Once the installation was in place at BPI, it began seeking a client willing to undergo a pilot project. That turned out to be a large manufacturing client, which BPI declines to name. The only requirement for them was to set up the client software, called FTP+, on a PC. Testing took a week or two. From there, said Paz, "It's more of a fire-and-forget kind of mechanism."

That implementation finished in August 2006, and the bank is working to get additional clients on the system. A major reason for delay, according to Calilong, is the security set-up approvals that clients would need to do. "They have to ensure that all security controls are in place [on their end] before actually using the product," she said. "They have to have security measures in place that will secure the payroll file from tampering," Paz added. "Once the file gets into FTP+, we guarantee file integrity all the way up to implementation."

Cost is not much of a factor. The set-up fee charged to the clients is just a few hundred dollars, Manalang said. After that, there is a minimum maintenance fee for continued use of the product.

The bank expects to have at least 10 major clients using the system by the end of 2008; three to five have begun the implementation process. One motivator driving adoption: a trend in the Philippines among multinational companies to "regionalize," appointing a foreign bank – such as Citibank, HSBC or Standard Chartered – to work with a local bank, such as BPI. Those larger banking operations require straight-through processing as a matter of course.

Process Improvement as Best Practice

"Slowly but surely, this is becoming a treasury best practice – especially among our multinational clients," said Calilong. "Foreign banks have this, the likes of Citibank, HSBC, Deutsche Bank. But BPI is the first local bank that offers this. It is definitely an advantage for us."

BPI's pioneer client reports to the bank that the people who used to perform the manual uploads have been allocated to other functions. "Instead of doing those manual processes, they get to do more value-added functions," said Calilong. "People who used to do, let's say, the extraction of the payroll file, the uploading – and even the approvers who are really the executives that have to log on the Internet in order to approve the transaction – all of those manual processes are eliminated… A lot of steps have been eliminated."

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