Tackling a Banking Business Process One Document at a Time

January 30, 2006

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You’d think you couldn’t wring another ounce of improvement out of an already optimized process. But the motivation is high to do so if that’s what your profit margins are predicated upon.

Unisys Payment Services and Solutions (UPSS), based in the Netherlands, faces an uphill climb. Its business — to process remittance documents and the check-like giros for banks — is in a declining market. With each passing year, more people rely on Internet banking, and the numbers that do so skew up the lower the age segment. In fact, UPSS general manager Rob Fopma estimates that his business in document processing is declining about 15% a year.

Yet his customers, the largest banks, such as Rabobank and ABN AMRO, have signed fixed price contracts that guarantee the rate they’ll pay per transaction now and in future years.

UPSS General Manager Rob Fopma Since UPSS has fixed expenses, it has done everything it can to lower its cost base. This article demonstrates how, even in the most optimized activities, there can be process improvements, and how client organizations can negotiate more strongly when there’s declining business activity in a functional segment.

Optimizing Processes

Last year, UPSS handled 120 million documents for its clients, the largest banks in the Netherlands. According to Fopma, that involves processing the documents, scanning them, doing recognition on them, “repairing” problem documents, then doing keying, clearing and settlement. If fraud is involved, the document is returned to the bank for follow-up. After a document is process, it’s archived for seven years. (Fopma claims that the Unisys ES7000 server managing the storage of roughly nine billion document images is the largest commercial SQL database in the world.) The company has 150 people on staff, the equivalent of about 110 full-time employees.

Giros are like checks, in that they’re used for payments. But there’s a difference. Whereas a check is delivered to the recipient and processed by the recipient’s bank, the giro goes into the payer’s bank, which deposits the funds into the recipient’s bank. A customer fills out the document, sends it to his or her bank, which then forwards the document physically via courier to UPSS for the clearance part of the process.

At its essence, the engagement is a fairly simple outsourcing chore. The process is stable, highly optimized and well automated. In fact, it takes little management effort on the client side. Rabobank, for example, has only one or two people who work with the service provider, which typically involves meeting once a month for service level agreement reviews. (Fopma said the SLA allows for five errors per 100,000 documents processed; they’re running at only three errors.)

Still, said Fopma, UPSS manages to achieve 10% to 15% process improvement year over year. It has been doing so for seven years. When he started in the business in 2003, UPSS processed 1,000 documents per hour per full-time employee. Now that count is up to 2,100 documents per hour per person.

How does UPSS squeeze more process improvement out of something so routinized? It’s a combination of applying new technologies to the work and enforcing new rules for staff.

He said the company has installed new cameras that can take clearer pictures of the documents. It has also improved the recognition software. Both changes have resulted in a reduced number of documents that require human intervention.

On the shop floor, there is what he calls, “very high discipline.” Workers get a 10-minute break once an hour, with everybody taking it at the same time. There’s no personal usage of phones of any kind.

When UPSS won a contract from ABN AMRO to provide the same services, its team leaders went to the new client site, which it had taken over, for six or seven weeks to evaluate operations. The newly acquired staff performed drastically slower. With their counts thrown into the mix, the average went down from 2,100 to 1,500 documents processed per hour per person. Staff “were too proud to let that happen,” said Fopma. Now the average is “very close to 2,100 so the [new rules] worked.”

Payment Processing Isn’t a Slam Dunk for Unisys

Unisys runs a check and payment processing business in the UK too, albeit one that handles more than processing paper documents. Intelligent Processing Solutions Limited (iPSL) is a joint venture set up in 2000 among Unisys, Barclays, Lloyds TSB and HSBC. This is the same struggling operation that in mid-2005 CEO Joseph McGrath announced the company would sell its stake in for being “the single biggest drag on margins.” Instead, Unisys recently wrung concessions from its partner banks that will, according to the company, increase revenues by $150 million over the 2006 to 2010 timeframe.

What’s next in line for improvements? Fopma said the focus will be specifically on alpha-numeric field recognition this year; next year UPSS will concentrate on numeric fields. In other words, when a company is doing routine but highly detailed work, achieving an edge requires detailed scrutiny.

Of course, continual process improvement doesn’t have infinite potential. In fact, Fopma points out, “if you have a very high rate of recognition [by the equipment], it’s also very difficult [for the unreadable documents] to be recognized by people.” That means the speed of keying will go down.

As that happens, new areas will be examined — such as how Rabobank gets documents to UPSS for processing. The courier delivery system may be replaced, Fopma said, by having banks do scanning at branch offices and then delivering the documents to UPSS digitally. The banks’ motivation would be the savings they’d gain by not paying for the courier service. Another option is for individuals to be able to send the documents directly to UPSS. That already happens at a few banks — though it’s invisible to the consumer, who thinks he or she is mailing the giro to the bank.

The Drivers behind Contract Negotiations

Rabobank signed its original agreement for document processing with Interpay, one of Europe’s largest payment transaction processing companies, on April 1, 2004, set to expire at the end of 2008. Interpay turned around and immediately sold its document processing business to Unisys, which took over operations under the name of UPSS. In August 2005, UPSS set about getting Rabobank to renew the contract, which it did in fairly short order.

Why such a quick push for renewal?

In the third quarter of fiscal 2005 UPSS had won a five-year, $30 million contract with ABN AMRO to perform the same type of work. That deal took a year to finalize — after competing against three other service providers, including Siemens Business Services.

UPSS faced a possible situation in which it might have had only a single primary client in 2009 — unless it could renew its agreement with Rabobank.

The service provider sweetened the offer to Rabobank by adding value — in the form of new fraud prevention technology. “We told them… [it] was only beneficial if we could do that until the end of 2010,” explained Fopma.

The UPSS fraud prevention system looks at handwriting in documents — in other words, signed giros — to verify the identity of a signer. It checks each document to make sure the handwriting matches existing samples. Various algorithms guide the process to signal whether an unauthorized person has filled in a handwritten document or made changes.

Brian Daly, a Unisys spokesman, said the fraud prevention solution is “a combination of Unisys/UPSS’ own thinking and development and software from a provider called Kappa.” He said another company, DIA, “tailors the software to our specifications in the Netherlands. Then the whole package is integrated with the intelligent character recognition (ICR) software UPSS uses in its primary process.”

Applying the fraud prevention solution for another client, Fortis Bank, resulted in preventing Û500,000 worth of paper fraud within the first six months. Fopma said the fraud prevention system can provide ROI in under a year. It became part of the Rabobank service with its contract renewal.

The Search for New Markets

UPSS is looking for additional business. Currently, the only other major bank doing its own document processing in the Netherlands is ING Bank. UPSS hopes to woo it as a customer.

But the company has also begun looking across borders, particularly to Belgium and West Germany, where it is in talks with large banks in those countries.

It also wouldn’t mind capturing a bit of ABN AMRO’s foreign check business. About 85% to 90% of the one billion foreign checks going through ABN AMRO are processed in the US; but that still leaves 10% or 15% being processed somewhere else in the world. Yet, the challenge is that physical documents shouldn’t be sent over a physical distance longer than 300 kilometers, according to Fopma. The digitization of the process would change that equation dramatically. “As long as you have the image, you don’t need the document anymore.”

It’s also possible that UPSS will enter the electronic bill payment market. More likely, said Fopma, is for UPSS to gain a foothold in the more modest digital signature business. Currently, banks maintain signature books containing bank employee signatures, which are sent to corresponding banks as needed to verify signatures on documents and then kept on file, by law, for 10 years. Fopma envisions a day when that is all digitized and maintained by a central database in the Netherlands, run by UPSS.