Knowledge Area Review (KAR 015) Virtualisation in Financial Services

Knowledge Area Review (KAR 015) Virtualisation in Financial Services
October 2014

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Virtualisation in Financial Services - Content
Section Component Description 1 Critical Frameworks What do we mean by Virtualisation? Drivers of virtualisation The decision to virtualise 2 Key Case Studies Selection of Best Practices cases around the globe 3 Key Articles Key published articles

Business models in Financial Services are evolving from vertical to layered, to platformised to virtual Era Encyclopaedia for The Financial Services Industry Dimension B2B B2B2C E2E Ecosystem to Ecosystem Industry Structure B2C P2P Business Model Vertical Layered (end to end) Platformised Virtualised “Execution” Market In-house Outsourcing Offshoring Extended Enterprise Agile Enterprise Financial Services Customer Centricity Products Solutions Advice Insights Outcomes Channel Physical Copper Wireless / Digital Omni Context sensitive uni-channel HAL 9000 Geographic scope Local Regional Multi Domestic Multi National Global Balkanised Capability Improvement Anecdotal case studies Performance bench marking Capability Trajectories Platformised IP Open source brokered agile enterprise Consulting Extract

Virtualisation is largely occurring horizontally and vertically
End to End Value Chains comprised of functions ... Transaction Processing ... Client Services ... Product Classes Credit Cards 1 Payments Consolidation benefits highly dependent on the level of global standards/regulations vs. local specifics Debit Cards Home Insurance Auto 2 Economies of scale/scope vs. process excellence Source: ICG analysis

What is driving virtualisation?
TECHNOLOGY STANDARDISATION GLOBAL DELIVERY CUSTOMER BEHAVIOR Incumbent FI’s are finding it increasingly difficult to deliver a universal set of needs Regulation increasing in breadth & specificity Historical systems landscapes are challenged by faster pace of technology change Complex organisations Increasing capital requirements Increasing product and services breadth Technology standardisation and commoditisation is increasing ability of suppliers to deliver focused scale offerings at lower cost Increasing standardisation: technology, communication, device Building blocks for deconstruction of FS value chains largely in place, banks and attackers enabling free exchange of information & value Scale-free competition of smaller businesses with large incumbents; Emergence of major platform houses and interoperability standards Customers are becoming more demanding – they don’t care how the outcome is assembled only that they get the outcome Customer expectations rise, decreasing loyalty and increasing shopping behaviour (trading up/down) Customers better informed Value of incumbent brands diminishes Consumers and businesses gradually shift FS buying behaviour from consolidation towards open markets Customers looking for wrappers and packaging of solution components Source: ICG analysis

Challenges faced by product issuers
Global delivery: increasing complexity and cost for product issuers Increasing complexity of regulation Regulatory compliance continues to become more complex (consumer protection, AML, FATCA, Privacy etc), and places an increasing burden upon financial institutions. Compliance represents a significant cost for small issuers, and may use up a significant component of the (already stretched) development budget Faster technology and innovation cycles Market leaders and nimble new entrants continue to introduce product and service innovation (in particular via digital channels) driving heightened consumer expectations Issuers are facing competitive pressure to match product innovation cycles Many issuers operating with outmoded or legacy systems may need to decide whether to replace, to workaround or else to outsource Challenges faced by product issuers Data privacy, fraud and operational risk Data security and fraud represents an increasing challenge to product issuers who need to have sufficient risk mitigation solutions in place to avoid data theft and leakage Return on capital In-house models may not longer represent the most efficient deployment of capital, due to CAPEX, OPEX and balance sheet demands in running competitive end-to-end business Source: Capgemini: “Should Issuers Outsource or Process Inhouse”; ICG analysis

Technology standardisation: driving aggregation models
Full-service industry giants Enables aggregation for scale businesses (eg. credit cards) Under wholesale model, industry giants leveraging their existing technology and operational infrastructure to provide upstream services to other financial institutions (including direct competitors) Under white-label solution, provides alternative distribution channel giving access to customer base sitting outside core brand Specialist aggregator models driving scale outsource solutions over traditional core banking functions (eg. transaction processing) Includes membership based models established as mutual structures to facilitate scale models for members FIs Functional specialists provide outsourced service solutions for ancillary functions Examples include: call centre, loyalty program management, plastic and statement production, collection White-label model (B2C) Wholesale banking services (B2B) Transaction aggregator models Member-based model Vertical niche plays Functional outsource models Source: ICG analysis

The virtues of virtualisation
Virtualisation models may provide product issuers with a range of business benefits, including: Low-cost: efficient and scalable business operations resulting in improved cost to income Value-add: access to market-leading functionality, or other value-added services (eg. analytics) Omnipresence: expanded range/reach and integration of multiple platforms Source: Capgemini: “Should Issuers Outsource or Process Inhouse”; ICG analysis

Breadth & Depth of Standardisation Transaction Intensity
Three Drivers of Virtualisation A potential framework for understanding potential for virtualisation Breadth Local Global Breadth & Depth of Standardisation Degree of standardisation of products, contract terms, transactions, change events; Variety (complexity) of offer & relevant customer data is a counter force Reach of standardisation across geographies High transaction volume tends to lead to to greater opportunity for automation Over time, as technology becomes more affordable, and end-to-end processes or functions are being automated from the bottom up (functional level); Increasingly complex markets & transactions are being automated Markets with high pace of change in the offer, competitive dynamic & regulation require significant continuous investment in change making it difficult for smaller institutions to afford to compete, creating market opportunities for vendors High fixed cost business, with transaction intensive elements already automated with low rates of change tend to make poor business cases for virtualisation Depth Transaction only Value Chain Volume Few Txn Many, many Low Value Txn Transaction Intensity Value Few Large $ Transactions Many, many High profit Txn Offer Slow, Mature High & Dynamic Pace of Change Competitors Slow Rapidly chaniging Regulation Slow Rapidly chaniging Source: ICG analysis

Consumer financial product hierarchy Product Class/ Type / Component
Retail Banking Products & Services Risk and Wealth Products and Services Adjacent Services Loans Banking and savings Cards and Payments Services and touchpoints Risk Wealth Advice and Services Home Loans Standard Line of Credit Package Offset Reverse Home equity loan Low doc Transaction Cash management Evetyday banking Credit Card Basic Rewards Premium Transaction channel Cheque BPAY Money order ATM Digital General Home and Contents Car Landlord Travel Loan Protection Investment Shares Funds Annuities Hybrids Alternative investments Financial Planning Advice Digital Banking Mobile apps Digital payments Omnichannel Social Networking Personal Loans Term loans Line of credit Personal overdraft Deposits Term Deposits Savings Online Savings Debit Card Travel and FX Relocation Foreign currency FX Travel money International transfer Life TPD Income Superannuation Retail Corporate SMSF Private Banking Education Seminars Webinars Financial education Youth products Other loans Secured/ unsecured car loans Asset loans Other Cards Prepaid Travel Card Digital Services Online Mobile Gearing Margin Loans Structured Products Platforms Wraps Insight Cashflow management tools Data access Budgeting and savings tips Goal-setting Overdraft Personal Temporary Equities Broking Source: ICG analysis

Within consumer financial products high potential for virtualisation across credit cards, insurance and online broking Size of bubble= intensity of change Transaction Intensity Depth & Breadth of Standardisation Debit Card Deposits General Insurance Life Insurance Transaction Account Home Loans Credit Cards Personal Loans Managed Funds Wraps and Platforms Private Banking SMSF Full Service Broking Investment Loan Superannuation Financial Planning Online Broking

Business Banking Product/Service Hierarchy Product Class/ Type / Component
Traditional Core Banking Products & Services Extended Shelf Financial Products 4C) Emerging IT enabled Adjacent Services Capital Access Transaction Banking Payment Trade Service Risk Markets Wealth Std. Loans Secured Unsecured Overdraft Line of Credit Revolving Account Transaction Savings (time & performance) Fx Accounts Cash In/Out Money Order Foreign currency xchange Traditional Letter of Credit Import/Export Confirmations Security & ID KYC ID / Sign-on Device (card) Derivatives Futures Swaps Other Foreign Exchange Fixed term Term Deposit Bank paper, Commercial Paper Market Access Social Networking Collaboration & Service clubs Foreign market Introductions Asset Finance Vehicles Specialised Equipment Physical Cash Business Deposits Lock Box Domestic Debit Pmt Bill Present Bill Pay Direct Debit Collections Invoice finance Signatures & Authorities PKI / signatures Guarantees Stand-by LoC Docu. Credit Surety (bonds) Commodities Money Market funds Education Closed MOOC Invoice / Receivables finance Factoring / forefeighting Consolidation Sweeping Pooling Liquidity Mgmt Collection Credit Pmt Credit card Corp card Open Account Inventory Prepayment Visibility Transactions, balances General Insurance Exchange traded instruments Structured Money market Trust funds ETF’s Staff Services Onboarding Payroll Specialised & Syndication Bridge finance Control & Advice Positive Pay Forecasting Cross-border Pre-paid Travel X-border payment Structured trade finance Advice Capital Structuring Life Insurance Interest Rages Employee Super Insight Benchmarking Analytics Consulting Equity issuance Debt issuance Alternative finance (PE, VC) Advisory e-Currency Merchant Acquiring Terminal Digital services Trade Credit Insurance Specialised: Carbon, emmisions Securities Trading Software & Platform services Supply chain orchestration Trade & Customs documentation Market-places Source: ICG analysis

Collective impacts of emerging industry dynamic on Business Banking
Traditional Core Banking Capital Access, Transaction Banking, Payment, Trade, Service Extended Shelf Financial Risk, Markets, Wealth Emerging IT Services Wealth 1. Global Financial Crisis & Resulting Regulation Reduced availability of credit borrowers Higher capital and operating costs for banks Lower returns for depositor Banks shift to customer centricity (capital lite) Regulators lower barriers to exit Emergence of iT enabled services to directly match supply and demand of capital Compressed margins for banks But rapidly growing forced ‘retirement’ saving increases integration of wealth & comm. banking Alternative lenders secure new data sources to provide predictive behavioural insights Gov’t incenting & participating in alternative capital markets via venture & sovereign funds IP connectivity creates opportunity to increase richness & reach between the supply/demand of capital Reduced cost to build businesses, & dramatically potential to scale business and reach (cross border instances) Enabling business models which directly match investors & capital demand; Dis-intermediated access to investors and customers New intermediaries emerge to cut-out banks in FX transactions and other commodity markets; Ability to scale business models across borders, around the world Information based services like benchmarking, and analytics Increased externalising of plug-n’-play services Battleground for wining merchants – funded offers & location based services Growing presence of mid- sized borrowers Shift of commerce to Asia (imports, exports) Growing regionalisation vs. globalisation Potential for economic stability, with increased volatility along the way - Potential for shift in global Reserve currency Growing demand for FX, capital mobility Growing demand for wealth products in Asia Growth in alternative capital sources Growth in capital exchanges, non-bank intermediaries Prepared to shop Digital access/mobility Always on convenient access requirement Value-added info Direct access Info on a page/ipad Direct Cloud services (accounting etc.) intermediate bank relationship Virtual currencies Loyalty monetisation Emergence of ‘consortia based information services’ such as AIMIA, Argus & Quantium 2. Technology 3. Macro Economic Shifts 4. Customer Behaviour Source: ICG analysis 15

Within business banking products high potential for virtualisation across merchant acquiring, payments and trading products Size of bubble= intensity of change Depth & Breadth of Standardisation Transaction Intensity Customer ID & KYC FX Account Standard Lending Domestic e-Payments Derivatives Trading Advisory Pensions & SuperAnnuation Specialised Lending Collections/Recoveries Traditional Trade Finance Foreign Exchange Credit Cards Global Custody Cash Management International Payments Exchange Traded Funds Merchant Acquiring Open Acct. Trade-Finance Equity Trading OTC Trading

There are a range of virtualisation models, from blended to white-label product issuance
Scale of Operations Outsource In-house Model Functional Sourcing Full Operational Outsource White-label virtual model Outsource Model Description Key functions performed internally – business hosted through proprietary client and data management system Third party provides support for specialist non-core functions only (eg. debt collections, card manufacture) Typically utilised by scale institutions for core businesses Mix of in-house and full- service outsourcing model. Basic processing operations are performed in a self- administered structure and resides on a vendor platform. Selected outsource of operation functions (eg. call centre, rewards program management) while other operation functions performed in-house. Full end-to-end outsource of operations and servicing to specialist provider or scale institution. Ownership retained over product issuance, regulatory compliance, risk management and P&P Service Fee arrangement White label provider assumes responsibility for legal and financial ownership of business, product issuance, risk management and balance sheet. Outsourcing institution retains brand, and responsibility for origination, and in-branch servicing only Commercial Model Service Fee arrangement Upfront/ongoing commission or profit share arrangement Ancillary Functions Ancillary Functions Ancillary Functions Ancillary Functions Functional Responsibility IT systems IT systems IT systems IT systems Data management Data management Data management Transaction Processing Transaction Processing Transaction Processing Servicing Servicing Legal / Compliance Legal / Compliance Balance Sheet Product Issuance Risk Management Source: ICG analysis

Four decisions to make Whether to outsource? (product/ function analysis) 1 What outsourcing / virtualisation model? (business model for sourcing) 2 Which outsourcing provider? 3 How to ensure ongoing success 4 Source: ICG analysis

Degree of Standardisation (consistency internal/external)
Whether to outsource? Use a standard approach to identify value available from internal improvement v. outsourcing Internal Improvement Opportunity 3 Criteria Standardize, Lean Consolidate 1 Quality Level Activity Screen Automate using STP Process Complexity 2 Target Operating Model Business Architecture Map activities and classify to identify analytical focus Workflow, BPR Labor Productivity variance 3 Pool workflow, routing Core Strategic importance Compare potential sourcing savings value to process improvements Prioritize & aggregate model choices Non-core Sourcing architecture Internal Unique Standard Elements Common 3 Criteria Degree of Standardisation (consistency internal/external) Internally consistent Aligned with firms business & organisational model Proximity requirements 1 Size Outsourcing - Onshore 2 Process readiness Outsourcing - Offshore 3 Organizational readiness Source: ICG analysis

Whether to outsource? Screen to identify best improvement lever and estimate value potential for internal improvement 1 2 Quality (Input/output error rate) Process complexity (Task or skill ambiguity) 3 Labor Productivity (Range & σ2 ) If process quality is low improve through redesign 2 models for redesign IF productivity variance is high, and source of quality issue is internal  identify & leverage best practice IF productivity variance is low  Conduct e2e lean redesign across boundaries to simplify and improve input quality including Plus change in ownership to consolidate under common governance Improve performance transparency through targets and metrics Assess inherent complexity of process and tasks for STP and automation potential Clear, defined expected outcome Judgment or unique business/reg. knowledge required Documentation, training manuals exist? Inputs and interfaces between counterparties automated? Metrics to measure success? If complexity is low  Assess opportunity for STP automation (e2e), if not feasible move to next lever Pool labour to address supply/ demand capacity mismatch If labor productivity var. is low  create center of competency, use workflow and BPR engine to automate simple tasks If labor productivity var. is high  pool labor, multi-skill to address supply demand mismatch; segment process flow and apply skills based routing to optimize highest skilled labor High Quality Processes Complex Tasks Simplify, Standardize, Consolidate STP Automation Workflow and BPR Pool & work based routing Source: ICG analysis

Outsourcing/offshoring applicability diagnosed in 4 steps
Whether to outsource? Outsourcing/offshoring applicability diagnosed in 4 steps Activity screen Sourcing architecture assessment Skill Availability Process Complexity Low High Process Readiness 2 Sourcing opportunities need to be compared against process improvement value Common Standard off-shore Onshore On site Assess Possibilities 1 Benefit Evaluation 4 Core Strategic importance Assessment of Process complexity Skill availability Non-core Benefits 3 Internal Unique Standard Elements Common Org. Readiness Estimate size of the prize Group processes by potential sourcing model Resulting cost benefits Operating costs comparison Assess potential investment Degree of Standardisation (consistency internal/external) Assess processes along sourcing possibility criteria Location Similarity Size Organizational requirements Cultural requirements Assessment of Cultural requirements Organizational requirements Source: ICG analysis

Economies of scale differ for each function along the value chain Example credit cards
Whether to outsource? Issuing sales, marketing & credit risk Contract Initialization/ Maintenance Transaction Processing Client Account handling (statements) Exception handling (charge back, fraud, bad debt collection) Client services (call center) Support functions to issuer Contract Initialization/ Maintenance Transaction Processing Scale factor: 65-75% unit cost transaction volume Client services (call center) Scale factor: 90-95% unit cost transaction volume Scale factor: 75-85% unit cost transaction volume Source: ICG analysis

Whether to outsource? Each function, chain must be evaluated for its current and potential degree of commoditisation Banks often commence their virtualisation journey with selective outsource of commoditised functions As the outsourcing relationship matures, more complex functions can be outsourced Source: Capgemini: “Should Issuers Outsource or Process Inhouse”

Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Whether to outsource? For banking products with large fix cost base, outsourcing is an attractive option for sub-scale players Economies of scale Source: ICG Analysis

Example: credit cards outsourcing
Whether to outsource? Example: credit cards outsourcing Outsourcing of processing activities is common in credit cards As issuers decide which functions to keep in-house and which to outsource, they need to review activity from the perspective of their own capabilities and what third party providers have to offer Source: Capgemini: “Should Issuers Outsource or Process Inhouse”

Strategic / comprehensive integration Infrastructure sharing
Maximum level of consolidation in payments highly dependent on standardization of schemes and formats Whether to outsource? Strategic / comprehensive integration Infrastructure sharing Tactical integration Operations Operations Operations Infrastructure X-border Trade Finance Infrastructure Infrastructure Trade Finance Country A Country B Counry C Trade F. X-border High-value X-border High-value High-value Country A Country B Country C Domestic € Domestic Domestic Domestic Domestic Consolidation of key market interfaces in the Group S.W.I.F.T., CLS, etc. Selective consolidation of redundant nostro account relationships Consolidation of x-border payments processing platform and trade finance processing Consolidation of interfaces to EBA-Step 2, TARGET, and others Consolidation of non-€ clearing and bundling to global clearer (money center bank) Consolidation of static data mainte-nance and other admin. tasks Consolidation of individual domestic payments platforms Consolidation of respective account-related services (for example, claims management) + + + + + + Source: ICG analysis

Which outsource model? Virtual models require a seamless customer experience across all touch-points Channels (Self & Assisted Service) Sales & Servicing Product Processing Offer & Product Mgmt Information Mgmt Corporate Mgmt Online Marketing, Campaign Mgmt Decision Mgmt Transaction Accounts Lending Deposits/Savings Master card/Visa Loan Insurance Wealth and GI Credit cards Business banking /Leasing Debit Utilities Customer Segment-tation Operational Customer Info Mgmt Strategy Payments ATM Collateral Offer Design & Mgmt Finance IVR Analytical Customer Info Mgmt Lead & Opportunity Mgmt Contract & Account Mgmt Custody Mailhouse Collections Pricing Mgmt Sourcing Channel Mgmt & Platform Debit Origination/Data Capture Servicing (Enquiries, Complaints) Cross-Product Processing Reconciliation. 3rd Party Info Mgmt Retail Branch Needs Analysis, Illustration, Modelling Document Production Statements & Billing New Prod. Develop-ment HR Call Centre Pricing Market Data Mobile Banking Commissions Product Lifecycle Mgmt Property Customer Relation-ship Mgmt Settlement & Fulfilment Broker Interest Calc MIS Strategic Sourcing IT Services Access/Information Portals & Authentication External Gateways & Portals Enterprise Services Risk Mgmt Performance Mgmt Resource Mgmt Compliance Supporting Technology Services Process Mgmt, Workflow Content & Document Mgmt, Imaging Integration Services Infrastructure & Network Security Source: ICG functional banking model

Which outsource model? The evolution of outsourcing from ITO to KPO The emergence of Knowledge Process Outsourcing Low Complexity High Complexity ITO (IT Outsourcing) BPO (Business Process Outsourcing) KPO (Knowledge Process Outsourcing) From ito to KPO KPO enables clients to unlock their top-line growth by outsourcing their core work to locations that have a highly skilled and relatively cheap talent pool KPO is about “intellectual arbitrage”. This differentiates KPO from ITO or BPO, both of which emphasize cost arbitrage. KPO is characterized by niche offerings, highly skilled staff and a relatively small scale. It cuts into the traditional “core competencies” of many organizations Knowledge processes are fundamentally different from business processes, with clear differences in process complexity, skill sets and scalability Organizations with experience in outsourcing IT and business processes have a shorter learning curve when entering into KPO Activities that are analytical skills-intensive are expected to be increasingly outsourced going forward as KPO providers prove their execution capabilities. Activities that require high domain expertise will likely be at the lagging end of the outsourcing curve as service providers make concerted efforts to acquire these skills. Decisions about outsourcing may be accelerated to preserve and increase competitive advantage “Boutique” providers will likely leverage KPO to create new services and offerings The KPO industry’s staff qualifications and skill-set requirements are significantly different from those of the BPO industry. This requires KPO providers to develop specialized recruitment and retention strategies The location selection for KPO should take into account the nature of knowledge process work, skill sets, and supporting educational and certification organizations which are expected to produce a supply of talent in the selected location India is currently the leading country providing KPO services. However, other countries have the potential to capture significant KPO market share, by better leveraging the depth and maturity of existing skill sets, and in some cases, their non-English language capabilities. Within the KPO industry, legal and compliance departments are currently under resourced and inadequately empowered. This has implications for managing insider trading, conflicts-of-interest, intellectual property and professional indemnity liabilities Source: “Knowledge Process Outsourcing”, KPMG 2008

KPO IN FINANCIAL SERVICES DRIVERS
Which outsource model? Offshoring/Outsourcing evolution The emergence of Knowledge Process Outsourcing KPO IN FINANCIAL SERVICES DRIVERS From ITO to KPO KPO represents the latest step, in a continuous multi-decade process of value creating strategies, with respect to a typical financial institution’s back and middle offices The existing capabilities of ITO and BPO captives and third-party vendors to handle outsourced work The availability of high quality and often certified talent (as opposed to sheer numbers) in offshore locations Moves to extend sourcing strategies beyond traditional comfort zones The relatively standardized nature of the analytics involved in KPO activities Global recognition of standards, qualifications, skills and experience required to perform analytical functions The continuing push towards global sourcing by many banking and insurance organizations, in the march for greater efficiency and improved economies of scale Improved remote project management capabilities, owing to an increased sophistication in telecommunications and other enabling technologies Source: “Knowledge Process Outsourcing”, KPMG 2008

KPO in the financial services industry
Which outsource model? KPO characteristics in financial services Geographical footprint of the financial services KPO industry KPO in the financial services industry Top KPO destinations Insurance and actuarial Equity research and investment banking Corporate credit, structured and project finance Group-wide shared function Retail banking and marketing Key insights Positive-correlation between sourcing maturity and geographic diversification A number of demand side, supply side and macroeconomic drivers will aid the process of the geographical expansion of the KPO industry Although India remains the number one KPO destination, our research suggests other countries possess the necessary characteristics which qualify them as potential financial services KPO destinations over the next few years Source: “Knowledge Process Outsourcing”, KPMG 2008

Ito, bpo and kpo service provided
Which outsource model? Offshoring/Outsourcing evolution Global financial services organizations continue to consolidate and establish shared service captive centres for KPO activities Kpo rise drivers Ito, bpo and kpo service provided A realization of the relatively standardized nature of the analytics involved in typical KPO activities, their underlying methodologies and software platforms The ever increasing global harmonization of standards, qualifications, skill sets and experience requirements for undertaking analytical functions A seemingly unstoppable push towards global sourcing strategies at most major banking and insurance organizations Technology and telecommunication developments, including advances in information security, have enabled the globalized delivery of services, and has reduced the reluctance to outsource and offshore Source: “” Swamy and Associates, Knowledge Process Outsourcing”, KPMG 2008

Which outsource model? Offshoring/Outsourcing evolution The KPO industry is distinct from the BPO Industry with clearly separating factors Key insights Key difference between bpo and kpo KPO is knowledge intensive while BPO involves common processes with standard procedures and templates Intensity and complexity of KPO work varies, demanding different skill sets Different skill sets across KPO activities Source: ”Swamy and Associates, Knowledge Process Outsourcing”, KPMG 2008

Outsourcing Road Map – Mix of deals in Australian Financial Services
Which outsource model? Offshoring/Outsourcing evolution Outsourcing and Australian Banks – Present and Future Outsourcing Road Map – Mix of deals in Australian Financial Services Currently traditional IT (ITO) still constitutes 60% of outsourcing arrangements, with product related BPO and analytical activities still underdeveloped areas Source: Swamy & Associates, CIRA, Citigroup, 2011

Which outsource model? Offshoring/Outsourcing evolution Current outsourcing relationships amongst Australian banks ANZ westpac NAB CBA BOQ ANZ has adopted a ''captive'' offshoring strategy where it directly employs staff in lower-cost Asian countries Recently opened new ''operations hubs'' in Manila (credit risk) and the Chinese city of Chengdu to go with a long-established centre in Bangalore Selected BPO giant Genpact to demonstrate its abilities to run human resources and back office services, as a precursor to plans to outsource work in the future Areas that will be outsourced: Learning and development Workforce administration Payroll functions Benefits administration Technology systems to manage and analyse employee data MLC, the wealth management division, is on the hunt for a third party provider as it is possibly considering outsourcing its IT and back office services that includes Technology Portfolio management Credit control Self-managed super funds Sent an expression of interest to 10 potential tech suppliers, including IBM, Accenture, HCL Technologies, and Wipro Only one of the big four that has not opted for much offshoring Saved tens of millions of dollars over the past 12 months thanks to Amazon Web Services' cloud computing capabilities Currently outsourcing ITO to HP Looking to change to four possible candidates: Capgemini Dimension Data Indian player HCL Technologies Source: secondary research

Which outsource model? White Labelling Successfully launching a new white-label business demands a focus on three key areas Key areas Key framework 1. Identify the white-label sweet spot Scope of white-label capabilities is expanding Adjacent capabilities in the commerce lifecycle are next in line There are now numerous examples of white-label offerings focused on loyalty and rewards management, digital couponing, analytics and mobility Further expansion is now coming in fraud, risk management and compliance 2. Solve for unmet customer needs White-label offerings must be laser-focused on solving customer problems The business and operating model should be designed around existing customer use cases that remove customer cost or risk, or that enable new customer facing capabilities that can drive customer revenues Properly designing the offering around customer value helps drive initial sales and create a foundation for sustaining long-term customer relationships 3. Design for rapid and seamless integration White-label businesses must rapidly on-board and integrate with new customers Requires an intimate knowledge of customers’ business needs, processes and technology infrastructures. Getting the integration process right lowers the switching costs for customers, increases on-boarding speed for new businesses, and shortens time to market so all stakeholders realize benefits faster Source: “White Labeling: “White Hot” Opportunity for Payments Players”, Accenture 2014

The perils and risks of outsourcing / virtualisation
Ensuring success Description Mitigant Transferring business functions or entire business lines to an external provider inevitably results in a reduction of control over multiple facets of the business for example : Customer service Compliance Product/IT development and release cycle Brand representation Loss of control risk can be mitigated (though not eliminated) through appropriate contractual provisions and SLAs, and backed by a strong governance structure. Outsourcing organisation should retain sole responsibility for brand representation - no use of brand permitted without consent. Loss of control Customer experience and consistency Ceding control over customer service to a third party impacts on an organisation’s ability to offer a seamless and consistent customer experience across all products and channels and potentially creates friction across customer interfaces. Outsourcing solution should be carefully developed so that it results in a seamless customer experience. Customer interfaces wherever hosted should display consistent data. Call centre handoffs should be minimised. Threat to security and confidentiality If the outsourced function involves sharing proprietary or customer data there is a risk that data security may be breached or compromised. Can be managed through careful selection of outsourced service provider, and appropriate penalty clauses which trigger in the event of breach. Outsourcing is difficult and costly to reverse and results in a lock-in to the strategic growth pathway (innovation and technology development roadmap) and financial performance of the white label provider. Risks include: Technological obselescence Financial risk (bankruptcy etc of service provider) Bad publicity, ill-will etc. Difficult to mitigate this risk, however outsourcing party should retain right to terminate contract in event of material breach (including financial stress/bankruptcy) Strategic lock-in Source: ICG analysis

Seamless platform connectivity
Ensuring success Customer experience and consistency On-line customers are used to a high quality cross platform customer experience Pain points to avoid Key decision drivers Description Voice of the Customer Description Voice of the Customer Product Delivery Not in-time delivery Not leaving a delivery sticker Not following up with the client in case of missing delivery “I wasn’t at home when the shoes were delivered – and they didn’t’ let a note. No way for me to track down the shipping” Seamless platform connectivity Easy to use ecommerce platform Easy to use payment method Easy check out form “Paying through PayPal on Livingsocial was extremely easy and quick – just a click away!” “Asos had by far the cheapest prices – for exactly the same item!” Product fit On-line product delivery requires simple products to be understood The more details and explanation provided, the better “How do I make sure I’m not underinsured?” Price and Service Cheaper price easily wins Not the only decision maker though – service is important too “I don’t understand which loan fits me better” “Wine wise prepared an amazing birthday package for my friend – and delivered it on time!” “I expected this shoes to be red, not orange!” Customer Care Representatives with bad accents / difficult to understand Long waiting times No tracking of customer claims “I spent one hour on the phone for the second time – and I had to repeat my story all over again!!” Product Description Good and reliable product description Videos showing the product Review by former clients “It was easy to compare several items, and the video description helped a lot” Online customers are used to a constantly improving customer experience, since every website keep innovating and simplifying processes Source: ICG analysis

Key Success Factors – White Label Partnership
Ensuring success Key Success Factors – White Label Partnership Partnership Compatibility Trust can be most easily maintained between organisations that operate in different parts of the value chain – and aren’t direct competitors (although there are exceptions eg Westpac broking services outsourced to CBA) Partners should have compatible cultures and operating rhythm Strategic Alignment Each partner should be clear about its goals and key drivers – and these should be respected by the other partner Consider macro-level goals, granular outcomes and key success factors – and make these transparent Financial Sustainability Financial terms sustainable for both parties under various market scenarios (excessive clawbacks/ penalties might mitigate risk for one party but are unlikely to sustain an effective partnership) Financial terms should be aligned to each parties’ business objectives (eg. a volume-based bonus won’t be an effective driver for an organisation entering into a partnership for service-related rather than financial objectives) Seamless Customer Experience Outsourcing solution should be carefully developed so that it results in a seamless customer experience. Customer interfaces wherever hosted should display consistent data. Call centre handoffs should be minimised. White-label provider branding should be eliminated or limited to minimum legal requirements. Structured customer comms through change process. Collaborative relationship management and effective governance SLAs should be agreed and monitored Appointment of relationship manager for both parties Joint goal-setting. Regular meetings to monitor progress and each partner’s objectives. Customer and financial non-financial metrics Known escalation points. Source: ICG analysis

White Labelling How to select the right white label partner
Ensuring success White Labelling How to select the right white label partner Key insights Key framework Vendor selection requires a multifaceted, multistage methodology to evaluate not only what a service provider can do, but also how it’s done Searching for the right vendor can be tedious. Many providers that meet defined criteria prove unsuitable for myriad reasons. Months of studying prospects, conducting site visits, and negotiating costs may result in frustration and the temptation to quickly close a contract that ends in dissatisfaction A well-organized vendor selection process usually spans 6–12 months and ranges upward of 2% of the annual cost of the project Costs associated with vendor selection include analysis and documentation of requirements; creation, distribution, and evaluation of Request for Proposal (RFP); contract negotiations; and development of service level agreements (SLAs). Then there are the project leaders, staff, outside consultants, and lawyers who need to be paid Organizations should stick to a well-established methodology that clearly defines each step of the journey At the end of the process, the goal is to select the best service provider for delivering the desired outsourcing outcome Source: “Financial Times”

Westpac and Virgin Money Australia
Ensuring success White label arrangements can fail to meet expectations when success factors not met Westpac and Virgin Money Australia Woolworths and HSBC In 2003, Westpac and Virgin Money Australia signed a 5-yr partnership to issue VMA-branded credit cards (Westpac as issuer) Despite originating 560,000 account in five years (achieving 6% market share), the deal was not renewed Reasons for termination included: Westpac’s financial returns under the partnership structure were insufficient to justify ongoing investment Westpac’s strong growth of its core cards business meant that the VMA card was less strategically relevant Deepening competition between Westpac and VMA across cards and other products (mortgages and super) Outcome: Virgin elected not to buy-out the portfolio, which inn was re-branded by Westpac as “Westpac Ignite”; Virgin subsequently launched a competing card in partnership with Citibank In 2009, Woolworths and HSBC launched a 5-yr partnership to issue Woolworths-branded credit cards (HSBC as issuer), with option to renew At a global level, HSBC Global announced in May 2011 a significant overhaul of its business including reducing the presence of white label offerings globally based on a reassessment of capital allocation. In 2014, the Woolworths card scheme was terminated. It is understood the decision to sell was related to the global strategic realignment. Outcome: Woolworths conducted an RFP process and selected Macquarie Bank as issuer. Macquarie purchased the $360M balance sheet from HSBC, adding to its suite of white-label card products. Source: internal analysis, secondary research

Full Operational Outsource White-label virtual model
Case studies: Outsourcing Providers The map shows the identified case study by solution and product simplicity Functional Sourcing Full Operational Outsource White-label virtual model Low PRODUCT CLASS STANDARDISATION High

Full Operational Outsource White-label virtual model
Case studies: Outsourcing Users The map shows the identified case study by solution and product simplicity Functional Sourcing Full Operational Outsource White-label virtual model Low PRODUCT CLASS STANDARDISATION High

Providers: Amerisource Offers a private label bank servicing program for asset-based lending and A/R factoring Business proposition Key insights Founded in 1984 ,one of the leading provider of working capital financing for growing businesses throughout North America Offers an innovative private label bank servicing program for asset-based lending and A/R factoring One of the largest and most sophisticated back-offices in the business Depository relationship and lockbox of all borrowers stay with the client bank Private label branding, including dedicated phone lines Product offering Source: “

Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Providers: The Bancorp Provides private label banking and technology solutions for non-bank companies The bancorp clients Creates customized banks for hundreds of affinity partners, setting a new standard in financial services innovation. Provides private-label banking and technology solutions for non-bank companies ranging from entrepreneurial start-ups to those on the Fortune 500 The Bancorp's private-label programs focus on four main business segments: Healthcare Solutions Payment Solutions Payment Acceptance Institutional Banking These "branchless banking" programs enable members, employees and customers of affinity partners to access online banking services, customized for them, under the affinity partner’s brand In addition to these programs, The Bancorp offers a full array of lending services Commercial Lending Fleet Management Leasing and Government Guaranteed Lending 120 established relationships with a variety of clients nationwide Source: secondary research

Cardholder agreements
Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Providers: Web Bank Offers closed-end and revolving private-label and bank card financing programs WEB BANK Product offering Headquartered in Salt Lake City, Utah FDIC-insured, state-chartered industrial bank that provides customized consumer and commercial financing solutions on a nationwide basis Full range of banking activities including making loans, issuing credit cards, and taking deposits that are federally insured Philosophy is to provide personal touch, direct contact with management, quick decision making and flexibility paired with sophisticated financial solutions. Offers the advantage of financial solutions that can grow a business, support capital investments, fund ventures, increase profitability from customers or increase geographic customer base potential. Can assist with varied financial solutions and fiscal management The Bank originates and funds primarily consumer and commercial (small to medium size business) private-label (closed-loop network) and bank card (i.e. MasterCard/Visa) programs The following is a high-level breakdown of product offerings that are supported by the Bank: Cardholder agreements Source: secondary research

Key benefit of the saxo white label program
Providers: Saxo Bank Offers multi-asset trading, risk management and trade settlement technology to financial services firms Saxo bank Key benefit of the saxo white label program Saxo Bank has more than a decade of experience in White Label Partnerships In 2013, Saxo Bank established 10 new white label partnerships Most of them with large financial and banking groups - including Standard Bank, Africa’s largest bank White label solution for highly standardised products Won the “Sell Side Technology Award 2014” A bank will retain complete control over its customers using the platform and 100% ownership of all client and prospect information A fully branded and customised trading solution accessible seamlessly across multiple devices Customer access to their trading account with the same login from a desktop, any internet browser, smartphone and tablet A multi-asset offering with +30,000 financial products, allowing banks to customise their offering within FX (spot, forwards and options), Stocks, CFDs, Commodities, Futures, Contract Options and Single Stock Options Flexibility and control to distribute liquidity from all asset classes with pricing tailored to defined customer (sub)-segments and markets The possibility for large counterparts to provide their own liquidity/execution and custody in agreed asset classes to end customers via the White Label platform and liquidity model technology Effective risk management through automated margin profiles (stop outs) and real time reporting Specialised tools for client administration, risk management and real-time/end-of-day reporting Dedicated Relationship Management and White Label Service teams across IT, Trading/Markets and back-office working in three time zones clients Source: “White Label Cloud-based trading technology for banks and brokers”, Saxo Bank

CAN business proposition to banks
Providers: Capital Access Network (CAN) Outsourcing small business lending platform to banks in US & Latin America Key insights CAN business proposition to banks CAN constitutes the largest, non-bank alternative capital provider to small businesses in the US The company uses its own real-time platform and risk scoring models to provide capital to small and medium-sized businesses in the US and Latin America and has funded over $2 billion in capital to SMB’s under the brands New Logic Business Loans and Advance Me Advance Me: makes merchant cash advances tied to future credit-card sales New Logic Business Loans: offers financing to businesses based on Capital Access's own risk-scoring models. CAN uses a variety of data points to deem a business worthy of credit or capital apart from the traditional criteria Proprietary underwriting algorithms churns through its vast data stacks of historical merchant demographic, firmographic, psychographic and social and behavioral profiles seeking and seasoning new behavioral and synthetic risk indicators and recombining those indicators into new risk scorecards Typically will give merchants and businesses anywhere from $2,500 to $250,000 in working capital Customers range from medical practices, to shoe stores to auto repair shops to clothing, accessory and home product online retailers CAN gives banks a similar ability through a newly launched daily remittance platform. Existing clients are: AvanzaMe Dominicana “Major" bank in the United States (name not disclosed) “What Capital Access has come up with is a new way to analyze small-business credit. Instead of waiting 30, 60, 90 days after a quarter is over to get the financial statements, they can get data daily and get into the heartbeat of a business to figure out how it's doing” Robert Seiwert, American bank Association Vice President Source: secondary research

Providers: First Data Offers electronic commerce and payment solutions
typical Card Transaction Flow Structure First Data Corporation is a global payment processing company headquartered in Atlanta, Georgia, United States Product portfolio includes merchant transaction processing services; credit, debit, private-label, gift, payroll and other prepaid card offerings; fraud protection and authentication solutions, credit reporting agency services (through First Data Merchant Services Corporation); electronic check acceptance services through TeleCheck; as well as Internet commerce and mobile payment solutions Developing with card issuers a new technology, called tokenization, that replaces cardholder information such as account numbers and expiration dates with a unique series of numbers that validates the customer’s identity Creating software for merchants so that they can accept payments on the new phones Providing the backbone of the Apple Pay system “Our overriding purpose is to help clients grow their businesses, and a key driver of that is through technology allowing card issuers and merchants, large and small, to bring new payment options to their customers, including revolutionary trends in mobile payments” Frank Bisignano, chief executive of First Data Source: Capgemini Analysis, 2012; August, 2012

Providers: Genpact Major business process outsourcing specialist
Key insighs Business proposition Multinational business process outsourcing and information technology provider Formerly GE business unit, spun off in 2005, renamed GenPact 73 delivery centres around the World Specialised in Financial Services Usually provides services to outsource the following areas: workforce administration payroll functions benefits administration technology systems to manage and analyse employee data Source: secondary research

Providers: Fundtech Leading provider of financial technology to banks and corporations
Business proposition Products overview Leading provider of financial technology to banks and corporations of all sizes in the Americas, EMEA, and Asia-Pacific It was founded in 1993 and was publicly traded on NASDAQ until November 2011, when GTCR, a Chicago based leading private equity firm, acquired the company merging it with Bankserv (a former competitor) Develops transaction banking solutions that it offers as either a software license or Software as a Service (SaaS) Major product lines are: payments and liquidity management; cash management, financial messaging through the world’s largest SWIFT service bureau, financial supply chain including: electronic invoice presentment and trade services; remote deposit capture; merchant services such as credit card gateways; and mobile banking Thousands of financial institutions and companies around the world rely on Fundtech to improve operational efficiency, increase revenues, and to provide greater competitiveness through business-to-business services Source: secondary research

Macquarie wrap solution range Macquarie wrap FuA growth
Providers: Macquarie Bank Badged platform creates white labelled solutions for planners and wealth managers Macquarie wrap solution range KEY insights Offers a range of wrap solutions that adviser groups or wealth managers (e.g. ING Australia) can white label to avoid the expense of building or importing their own platform Each solution offers different reporting, access, portability and investment options tailored to type of investor Macquarie Wrap Manager caters for larger clients with range of 300+ managed funds, direct equities and margin lending Macquarie Wrap Accumulators specifically designed for smaller clients with 100 managed funds Macquarie SuperOptions offers further reduced services for small low touch clients with 30 managed funds Life insurance offered across all platforms within super Full custodial service enabling seamless transfer between platforms without capital gains implications Advisers can dial their remuneration up and down (establishment fee, monthly fee, transaction fee) depending on client relationship for all three solutions It also has a reputation for service excellence Rapid response: 80% of the 11k calls received each month are answered within 20 secs Highly proactive Contact Centre identifying and solving failed redemptions, trades or cheques Strategic business manager and training relationship managers offer tailored advice to advisers Technical services team provide expert tax, super and social security advice Macquarie has also benefited from the halo effect from its Cash Management Trust which forms the cash hub of many of the leading market platforms Macquarie wrap FuA growth Source: Macquarie Bank website

Ondeck business proposition
Providers: OnDeck One of the fastest growing provider of non-bank business loans Product offering Ondeck business proposition Launched in 2007, OnDeck uses data aggregation and electronic payment technology to evaluate the financial health of small and medium sized businesses and efficiently deliver capital to a market underserved by banks Through the OnDeck platform, millions of small businesses can obtain affordable loans with a fraction of the time and effort that it takes through traditional channels OnDeck proprietary credit model looks deeper into the health of businesses, focusing on overall business performance, rather than the owner's personal credit history The OnDeck system also provides a critically needed mechanism for financial institutions and other business service providers to efficiently reach the Main Street small business market OnDeck has deployed more than $1 billion in capital to tens of thousands of businesses across approximately 700 different industries The company grew 150% in 2013, and was recently named #11 on Forbes' 100 Most Promising Companies in America list and was listed on the Inc. 500/5000 for a second year in a row Earned an A+ rating with the Better Business Bureau OnDeck is financed by some of the nation's leading venture capital firms, including Google Ventures, SAP Ventures, RRE Ventures, Institutional Venture Partners and Tiger Global partners Source: secondary research

Bendigo Community bank initiative
Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Providers: Bendigo Bank Bendigo Bank provides an end to end solution for Community Banks Bendigo bank Bendigo Community bank initiative Bendigo Bank is an Australian financial institution, operating primarily in retail banking; has over 400 branches The bank's national headquarters is in the city of Bendigo, and it has regional headquarters in Melbourne Docklands, Ipswich, Queensland and Adelaide, South Australia Community Bank is an innovative franchise program in which the local community owns and operates a Bendigo Bank branch (which is separately incorporated) and Bendigo Bank (BB) provides all the banking infrastructure and support BB provides the coverage of its banking licence, a full range of banking products, training of staff and ongoing support BB and the community company are each entitled to agreed portions of the revenue of the local Community Bank® branch and the local company is responsible for paying branch running costs When the local company begins to make a regular operating surplus, after the payment of branch running costs, and BB’s share of the revenue is received, the remaining funds are available to be reinvested back into the community through dividends to shareholders and grants to community groups and projects More than 305 Community Bank branches right across Australia from Alice Springs in the Northern Territory, Augusta in the West and Dover in Tasmania The program was a response to the massive closure of bank branches in rural areas. BB has since extended the program to areas that have bank service The essence of the Community Bank concept is in sharing the responsibilities and rewards between the community and BB Communities across Australia have accepted the responsibility of providing start-up capital and making their branches successful - and are increasingly reaping rewards that aren't just limited to banking Source: secondary research

Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Providers: Copal Amba Provides custom research services (information, analysis, insight) to the financial and corporate sectors Key insights Copal amba advantage Market and quality leader in the research and analytics offshoring space Moody’s acquired Copal Partners in 2011 and Amba Research in 2013, creating Copal Amba Provides custom research services (information, analysis, insight) to the financial and corporate sectors Supports more than 200 institutional clients through a team of 2,600 analysts – hedge funds are the majority of the clients Nine delivery centres are located in proximity to scalable talent pools Clients have saved more than $1.5 billion over the past 11 years by using dedicated near and offshore Copal Amba teams, who take on large portions of research and analytical activities Offers services in 9 different categories Investment Banking Investment Research Quantitative Services Market Research Commercial Lending Analytics Strategy Services Business Support Training Services Source: secondary research

Insource capabilities
Providers: Citibank Australia Offers white label capabilities that have enabled growth via co-issuance partnerships Business model Insource capabilities Growth via partnerships Without a significant branch footprint and in order to reach segments not traditionally aligned to Citi’s brand position, Citi Australia has relied on a white label partnership model to drive growth across its cards portfolio. Partners now represent 1/3 of Citi’s 1 Million card base. Citi offers an end-to-end white label solution for its suite of credit card partners, including product issuance, risk and balance sheet management. Other cards providers offering white label issuance include Macquarie Bank and GE Money Underwriting, risk and balance sheet Citi Admin Support / Back end Servicing White label cards business End-to-end operations and servicing is outsourced to Citibank, who has developed large scalable infrastructure for managing partner portfolios Partners institution remain responsible for new account acquisition – Cards white-label partnerships typically operate under upfront commission and revenue share model Source: internal analysis, secondary research

Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Providers: Avaloq International leader in integrated and comprehensive solutions for wealth management, universal and retail banks Avaloq customers Offers ITO and BPO solutions Launched its BPO offering in September 2011 Reputation for the highest standards in engineering excellence Invests more in R&D than any other provider for the financial industry Unique 100% success rate in its implementation of banking solutions Avaloq Banking Suite is consistently designed throughout and delivers strong technical performance Only independent provider for the financial industry to both develop and operate its own software Business process and IT outsourcing solutions are offered from Avaloq’s BPO centres in Switzerland and Germany Employs more than 1,400 banking and IT specialists and has a global customer base of more than 100 financial institutions in over 20 countries worldwide, including tier one banks Headquartered in Switzerland, Avaloq has branches in Berlin, Frankfurt, Geneva, Hong Kong, Leipzig, London, Luxembourg, Paris, Singapore, Sydney and Zurich Development centres in Zurich and Edinburgh as well as a development support centre in Manila Forged a new strategic partnership with Banque Internationale à Luxembourg (BIL) to become the first BPO provider in the Benelux and the French market Source: secondary research

Users: major European bank Generating technology impact for a major European bank (Genpact client)
challenge impact Develop an efficient processing solution for a new business model Major European bank moving away from high-risk, high-margin business activities toward lower- risk/lower-margin ones Needed to focus on per-transaction costs in order to reduce fixed costs in its post-trade operations and technology environment. Bank sought to consolidate to a shared platform and process framework through implementation of a single, efficient multi- asset trade processing solution to accommodate the new business model solution Managed services delivery from a ‘virtual captive’ center Transformation was initiated as a large, traditional technology implementation with a limited scope, to gain cost-effectiveness, speed and flexibility Scope expanded to process all back- office asset classes on the new shared platform in a managed services mode from a “virtual captive” center, achieving unprecedented economies of scale. Back-office platform configured to process multiple asset classes, irrespective of front-office systems used Source: “

Users: major North America retail bank Generating operational impact for a large North American retail bank (Genpact client) challenge impact Strengthen global operations and drive process improvement A large North American retail bank was facing an increasingly competitive market as well as escalating costs resulting from changes in its business model and the regulatory landscape Challenges: maintaining operational excellence, improving the customer experience, enacting better organizational controls, and mitigating regulatory risk solution A globally distributed ‘virtual captive’ model Through a collaborative planning process, all business units were engaged and common goals identified Decided to employ a “virtual captive” operating model covering all functions and business lines Created operational excellence framework utilizing Lean Six Sigma management practices— one of the first transformations of its kind and scale in the banking industry A multi-location model spanned the Americas (transformation, re-engineering and IT), India (transactions processing and technology), and the Philippines (voice operations) along with onsite re-engineering support Source: “

Outsourcing to treasury one
Users: DAWN An example of how outsourcer are dis-intermediating banks connection with corporate customers Key insights Outsourcing to treasury one South Africa’s Distribution and Warehousing Network (DAWN), is a major manufacturer and distributor of hardware, sanitary ware and engineering products The group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology DAWN selected TreasuryOne to support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management TreasuryOne performs mainly three different tasks: Basic Treasury Operations Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations Centralised all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows Technology Support DAWN has 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management Strategic Treasury Development Controlled process to review and close bank accounts Team able to net the flows moving through bank accounts at appropriate levels for approval, thereby reducing fees by reducing the number of physical flows and aligning the account structure with improving cash forecasts Source: secondary research

Lending club and union bank
Case Study: DAWN Integrates Outsourcing Services into Treasury OperationsHanre Bester, DAWN - 7 May 2014South Africa’s Distribution and Warehousing Network, aka DAWN, is a major manufacturer and distributor of hardware, sanitary ware and engineering products. This case study describes how the group used a cost-effective, low-risk strategy for outsourcing elements of its treasury operations to support the growing demands of its core business and strategic goals. DAWN uses its outsourcing partner’s professional resources and expertise in a broad range of front and back office activities, and for hosting underlying technology.How useful was this article?(5=high) Average 4 out of 5ShareShare on Share on printShare on linkedinShare on twitterShare on facebookShare on googleMore Sharing ServicesThe growth of DAWN’s domestic and international business has inevitably increased the scale and complexity of the group’s financial risk exposures. The business imports raw materials and finished goods, and has been growing its exports to several countries. Strategically, DAWN recognised the value of developing a treasury operation to deliver best practice results in cash, foreign exchange (FX) and debt management and also to provide a secure platform for future growth. South Africa has only a limited pool of qualified corporate treasury executives, so DAWN’s finance management team decided to evaluate a possible outsourcing solution to support its corporate evolution. Outsourcing is a common business practice in South Africa. In finance and treasury, it offers a solution for FX risk management by providing strategy design, advisory services and market execution. FX is a significant requirement for DAWN, but as the finance team’s experience and understanding grew, members determined that there is much more to treasury than FX. The group decided to seek an outsourcing partner who could support its objective to build a high-quality treasury operation that protected financial assets and earnings, managed its cash effectively, helped to rationalise bank relationships and enabled DAWN to progress from basic cash management into more effective working capital management - in turn leading to asset and liability management for the whole enterprise and ultimately the establishment of an internal bank. The finance team selected Pretoria-based TreasuryOne as outsourcing partner, having determined that it was best-placed to deliver the width and quality of treasury services to support DAWN’s needs and vision. The professional relationship with TreasuryOne is outlined below in three sections: basic treasury operations, technology support and strategic treasury development. Basic Treasury OperationsDAWN’s finance team and TreasuryOne work closely together, so that outsourced treasury activities are closely integrated with DAWN’s core operations. DAWN developed a treasury policy document over four years; with TreasuryOne’s assistance, the policy has now been implemented and provides the framework for all daily treasury operations. Required hedges are planned by both parties and then executed in the markets by TreasuryOne’s dealing team, who seek the best available rates. DAWN uses outsourcing for front and back office operations, which includes the transaction settlement process as well as issuance and management of confirmations. The team has further advanced this process to centralise all foreign payments and inflows within treasury, which also facilitates the compliance and regulatory requirements governing foreign payments and inflows.The process integrates the use of SWIFT to retrieve and download daily statements for all relevant domestic bank accounts and DAWN is now rolling out the platform for its international businesses. Outsourcing has enabled the team to take advantage of SWIFT’s robust and secure bank messaging facilities. The solution also uses SWIFT-based confirmation matching services, to provide a high level of control in the construction of DAWN’s daily cash position, and for general treasury operations. Automated use of SWIFT’s MT940 message format has accelerated the process, and eliminated error-prone manual efforts. A key part of the back office process involves reconciling the downloaded bank account information against transactions anticipated in the cash book. The process is also automated and rules-based, and allows the back office to identify, research and correct any differences between the bank’s records and DAWN’s. Reconciliation optimises treasury control, providing a sound basis for accurate cash positioning and for planning the day’s dealing. The cash forecasting solution adopted for liquidity management involves DAWN subsidiaries submitting their projected cash needs and surpluses to central treasury over the web. The intercompany relationship between the subsidiaries and DAWN and its treasury as internal banker is augmented by implementation of various intercompany loan transactions, i.e. long term loans, bridging finance loans and current accounts with the supporting legal agreements’ terms and conditions.Technology SupportDAWN’s executives enjoy 100% real time visibility of its treasury processes, positions and exposures through direct access to the supporting technology system - a critical factor. Outsourcing fees encompass all related technology costs, including hardware, maintenance, database management, back-up and recovery and upgrade management. Consequently, executives need not be concerned with day-to-day system operations, and can concentrate on finance management. Importantly, the system is securely hosted by Exordia. System access is web-based and available 24/7, allowing the finance team to manage and monitor according to its needs, and request reports as required. The system complies with high audit standards, in security, segregation of duties and lock-down of automated treasury processes. The audit trail captures each database change: the record for every event defines the change; identifies the specific individual responsible; and records the date and time of the action. Strategic Treasury DevelopmentAs the business relationship with DAWN’s outsourcing partner has evolved, the team has been able to focus on the more strategic issues of its longer-term treasury vision. Key to achieving this has been a semi-permanent senior treasury professional from TreasuryOne, with executive experience at several major South African banks and corporates, joining the team. She has added value in bank negotiations and the design and delivery of treasury strategy. She works as a team member, offering the group more than an outside consultant could. This involves, for example, expert understanding of DAWN’s position as a certain type of client for a specific bank, which is very valuable in negotiating the appropriate pricing arrangements for delivering different banking services. As much as the transactional relationship is valued between DAWN and its banker, treasury follows a ‘best product and best price’ approach in securing the most efficient financial product from the banking community.The outsourcing partner performs a range of operations, and is responsible for delivering high-quality results. Additionally, they can provide the team with other kinds of expertise, training and consulting as and when needed. DAWN’s operations are being streamlined and optimised, with the team looking to achieve further savings and efficiencies by closing more bank accounts, reducing the number from around 60 to There is a controlled process to review and close bank accounts and the team is able to net the flows moving through bank accounts at appropriate levels for approval, thereby also reducing fees by reducing the number of physical flows and also aligning the account structure with improving cash forecasts.Overall, the group’s treasury positions are now easier to understand and the team can act on them effectively. Members have a clear view of the evolving cash position, and consider cash to be the primary health indicator for the business. They can interrogate the business model and navigate the way forward to the group’s longer-term objectives, including the establishment of an internal bank to provide treasury services across the business. DAWN is transitioning from basic cash management into longer-term working capital management, and from there to full asset and liability management for the entire enterprise. In this way, treasury can maximise the value it contributes to the group; and this is being achieved effectively as a direct result of the way outsourcing of some treasury operations and functions is used to complement in-house activities. DAWN’s Standard & Poor’s (S&P) credit rating has improved to A- long term and A2 short term as it has been able to negotiate effectively and professionally to improve and restructure financing both for working capital and longer term capital expenditure, to support the group’s expansion. The management team is working on increasing use of the capital markets, through commercial paper and medium term note (MTN) issuance, and possibly also using private placements. DAWN is seeking to optimise financing through a combination of bank facilities and capital markets debt, and to reduce funding risk by diversifying its investor base. ConclusionOutsourcing as described has proved to be highly beneficial for DAWN, which now enjoys cost-effective and sophisticated front and back office treasury operations, supported by powerful technology, and backed-up by the high quality professional expertise and service width of our outsourcing partner. A key benefit of this arrangement is that the group has been able to accelerate the practical realisation of its vision for treasury development. Back to top Users: Lending Club Lending Club and Union Bank Enter Into Strategic Alliance Lending club Lending club and union bank Lending Club is an online leading credit market place, and the average loan amount is $14,000 Utilises technology and innovation to reduce costs and offer borrowers better rates and investors better returns More than half of Lending Club's funding comes from individuals, although some is coming through brokers and wealth advisers Since facilitating its first loan in May 2007, Lending Club has more than doubled annual loan volume each year By using technology and automating processes online, Lending Club matches creditworthy borrowers with investors looking for yield Borrowers benefit from rates generally lower than credit cards, and the platform’s investors have enjoyed solid returns As of March 31, 2014, more than $4 billion in personal loans have been originated through the Lending Club platform, helping more than 290,000 consumers to achieve their financial goals. In March 2014, Lending Club launched a small business loan platform to help small-business owners access affordable credit The Company has been prominently recognized as a leader for its growth and innovation, including being named one of Forbes’ America’s Most Promising Companies three years in a row, a 2012 World Economic Forum Technology Pioneer, and one of The World’s 10 Most Innovative Companies in Finance by Fast Company in 2013 Union Bank will purchase personal loans through the Lending Club platform, and the two companies will work together to create new credit products to be made available to both companies’ customer base Union Bank is one of the largest 20 USA banks This strategic relationship brings together Lending Club’s low operating cost and Union Bank’s strong balance sheet and large customer base Lending Club has previously struck deals with 10 other banks to buy its loans, but Union Bank is by far the biggest “"This relationship will allow Union Bank to invest in high quality assets while bringing new products to our customers” "Lending Club delivers an excellent customer experience and has established a reputation for innovation. We are excited to work with this innovative organization” James Francis, Union Bank, VP Consumer Lending Source: secondary research

Users: Moven A financial control app linked to a debit card account
Business model Outsourced functions How does it work Launched in February 2013, raised $2.4M in funding Founded by Brett King – financial educator and book writer Tracks spending analysis across all your bank and credit accounts Records individual transactions, monthly totals by category and how that compares with an individual’s typical spending Pay friends with Facebook, and mobile Direct deposit and transfer money from external accounts Provide Moven MasterCard debit card and mobile payment sticker Real time updates and Alerts Debit Card/ PayPass Sticker Issuer CBW Bank Bank Account Insurance FDIC Payment Capabilities Banking and Technology capability Bancorp Most of the function are outsourced Offer connection to $40,000 ATM, all managed by external partners Branchless Payment services outsourced to a third party Minimized customer interaction thanks to a mobile app Source: internal analysis, secondary research

Users: Mpesa M-Pesa is the financial arm of Safaricom, an African Telco Player
Business model Outsourced functions M-Pesa has progressively introduced a whole range of banking products M-Pesa customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets acting as banking agents Operated by Safaricom, a Telco player which is not classed as a deposit-taking institution Currently most advanced payment system in the World Saving and Credit (M-Shwari) CBA Micro Finance (M-Kesho) Equity Bank Technology Management IBM International Money Transfer Western Union M-Pesa is a virtual player that leverages Branchless banking system Every function of the company is outsourced, except Marketing and Sales (where it leverages its Telco know how) Source: “Overview of Successful Mobile Banking Initiatives from Around the World”, Amarante Consulting 2013

Users: Tigo Ghanaian mobile phone operator providing life insurance to its clients
Business model Outsourced functions How does it work Launched in Ghana in 2011 by Tigo, a Telco player, serving one million people Successively launched in Tanzania and Senegal in 2012 Based on the subscriber’s monthly airtime usage Tigo Family Care Insurance provides life insurance coverage of up to GHS 1,000 (US$ 520) for the Tigo subscriber and one additional family member More than 300 claims have been paid to date through the Tigo Cash service, which provides easy and safe money transfer throughout Ghana, Tanzania and Senegal Recently launched a new promotion, ‘Xtra Life’, which allows a subscriber to double the free life insurance cover by paying 5 Gp (US$ 0.03) per day via mobile airtime; with this added innovation Tigo subscribers can enjoy up to GHS 2,000 (USD$ 1,040) Underwriting Vanguard Life Admin Support Bima MicroEnsure Most of the function are outsourced Tigo is just leveraging its customer base, every other function is outsourced Administration and Underwriting services are completely outsourced to a “Best in Class” third party Sign-up leverages any Tigo service Centre around the country Planning to make a wide range of affordable and reliable insurance services available to the mass market Source: internal analysis, secondary research

Users: Portfolio Partners Switching from different outsourcing suppliers to a single one
Business model Outsourced functions Custody JP Morgan Statutory Accounting Unit Pricing Trade Matching Fund Accounting Tax Reporting Trade Reporting PPL is a Melbourne- based manager of unit trusts and is owned by the UK’s Morley Fund Management, the asset management arm of Aviva plc. Portfolio Partners has been outsourcing several of its back and middle office functions since 1996 in a contract signed with RBC Dexia to cover unit pricing, tax and regulatory reporting and trade matching At the same time, the statutory funds operated by Aviva Australia have been administered by JP Morgan through an historic relationship with Bankers Trust PPL is in the process of shifting its outsourcing account to JPMorgan only “Switching to a single provider of back and middle office services will streamline our process and cut down communication time.” “By outsourcing our back office and some of our middle office functions, we have been able to redirect energy and spend to areas which help us to generate investment performance – in other words, areas of core focus” Tony Burrill, director of operations at PPL Source: “A Guide to Custody and Outsourcing in Asia”, Asian Investors

Users: Deutsche Asset Management Australia (DeAM) Easing the transition to an outsourcing supplier by reallocating the employee to the outsourcing partner premises Business model Outsourced functions Custody State Street Fund Administration Unit Pricing Regulatory Reporting Custodian Reconciliation Performance Reporting Fund Accounting Tax Reporting Unit Registry Trade Matching and Routing Corporate Action Processing Accounting DeAM appointed State Street as the provider of DeAM’s middle and back office administration services in September 2003 State Street provides a set of services for A$16 billion of DeAM Australian assets under management for their local unit trust and segregated mandate business To achieve the most efficient back and middle office model, State Street recommended a “lift out” of DeAM’s processes to create a single operating model within State Street Involved Deutsche’s middle office staff being employed by State Street to continue to operate the existing systems while remaining within the fund manager’s premises – the idea being that this would minimize disruption to DeAM’s front office staff and clients State Street migrated to its internally developed middle office systems, procedures and premises in 12 months The aim of the deal is to give the Australian division of DeAM access to State Street’s global outsourcing model while providing some consistency and ability to integrate with other DeAM/State Street outsourcing arrangements from around the world Source: “A Guide to Custody and Outsourcing in Asia”, Asian Investors

White label supplier (Depending from the product)
Users: Tesco Bank Offers insurance product leveraging white labels providers Business model Outsourced functions Underwriting White label supplier (Depending from the product) Admin Support / Back end Payment Capabilities Tesco Bank is a retail bank in the United Kingdom which was formed in 1997, as part of a 50:50 joint venture between the Royal Bank of Scotland and Tesco, the UK's largest supermarket Tesco later acquired the RBS shareholding, which resulted in the bank becoming a wholly owned subsidiary The bank offers a range of insurance, credit cards, loans, savings, mortgages and travel products A unique selling point of Tesco's banking products is that the bank is able to leverage its large customer base to cross-sell financial services products, as customers can accumulate Tesco Club card points when they purchase finance products As of September 2013, the bank has around 6.5 million customer accounts and policies For insurance products underwriting and administration, they use different suppliers: Car Insurance: different provider Home Insurance: different providers Pet Insurance: Royal and Sun Insurance Life Insurance: Aviva Source: internal analysis, secondary research

BBVA and Ondeck partnership advantages
Users: BBVA BBVA Compass teams with OnDeck to bolster bank's small business offerings BBVA Compass BBVA and Ondeck partnership advantages BBVA Compass is a subsidiary of BBVA BBVA is a customer-centric global financial services group founded in 1857 The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage BBVA Compass is a Sunbelt-based financial institution that operates 684 branches, including 352 in Texas, 89 in Alabama, 78 in Arizona, 62 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share BBVA Compass has been recognized as one of the leading small business lenders by the Small Business Administration and was recently awarded the 2013 Celent Model Bank Award for its new core banking platform Under the agreement, BBVA Compass will market OnDeck loans to its small business banking customers Quicker loans delivery to SME The OnDeck Score(TM) analyzes thousands of data points -- from cash flow to public records to social data -- to assess the health of a small business BBVA will use the OnDeck Score and exclusive technology to provide qualifying business clients with loans up to $250,000, six- to 24-month payment terms, and funding in as fast as one business day OnDeck will make the loans and collect repayments Partnership reasons Banks don’t make a lot of money on relatively small loans: underwriting a $50,000 loan takes a similar amount of work as underwriting a $5 million loan and is far less profitable OnDeck’s loans are easier to get than bank credit. There’s an online application process, and the company promises short-term loans of as much as $250,000 that can be approved within minutes The loans are also more expensive, with effective interest rates that can be multiples of what bank loans cost OnDeck proprietary credit model looks deeper into the health of businesses, focusing on overall business performance, rather than the owner's personal credit history Source: secondary research

Users: Business Bank of Texas (BBT) Outsourced E2E banking platform and no teller counters
BBT product offering BBT Online Commercial Banking Remote Deposit Receivables Management Payables Management Commercial Lending Certificate of Deposit Rates Specialised bank focusing exclusively on banking services for business Other than traditional banking services, the bank provides commercial lending options, cash management, and concierge services Online, remote banking business model to keep overhead, service rates, and fees low while enabling 24/7 online banking and remote deposit capture Relationship officers in Austin, San Antonio and Dallas BBT uses Precision Computer Systems' (PCS) Vision end-to-end core banking platform, opting for an outsourced implementation Good fit within the bank's commitment to keeping overhead as low as possible While banking regulations permit 50 % of capital to be in nonearning assets, BBT has just 5 % of its capital in nonearning assets More than 95 % of the bank's deposits are received via RDC Business customers run checks through a tabletop MICR reader/scanner at their own locations, producing check images The check images are submitted through a Web-based application and processed through PCS IT systems quotes “When we apply for a loan or a line of credit we have an answer within days instead of weeks” Mark Marlow, MKC “The savings is so sognificant with BBT that it’s enough to pay for a staff member” John Eagle, VP Controller, AMBA “Our customers [serve as] our branches. We don't have a teller counter” We don't own anything” Ed Lette, CEO and Chairman, BBT Source: secondary research

Relevant Articles and Additional Knowledge References
Source Data Title Accenture 2014 White Labeling: “White Hot” Opportunity for Payments Players International Journal of Advances in Computer Science and Technology A single sign-on based integrated model for e-banking services through cloud computing Callidus Cloud Key Bank and Callidus Cloud Team to Provide Operational Excellence Dukascopy Welcome to Dukascopy Bank EY Banking on Technology: Perspectives on the Indian Banking Industry Business banking: redesigning the front office Copalamba Lveraging outsourcing in credit functions: stay competitive in a complex business environment Saxo Bank White Label: cloud-based trading technology for banks and brokers Trestle Group Consulting BPO in Swiss Banking: current situation and prospects Novantas Review Customer Analytics: unlocking growth Banking.com Outsourcing and retail banking: digital innovation and the future Oliver Wyman 2013 Celent model bank 2013: Case studies of effective use of technology in banking IBM Cloud computing for banking Commercial banking: Where are you placing your bets?

Source Data Title Redhat 2013 inG-di Ba future proofs, migrates from solaris to Redhat enterprise linux Banking.com Innovation: both homegrown and outsourced Lendkey The New Software-as-a-Service Era Firstdata Outsourcing for Innovation Tata Consultancy Services Agility in Financial Services: White labeling to Improve Time-to-Market for New Products Capgemini Should Card Issuers Outsource or Process In-House? Garph Virtual banking by commercial banks and customer satisfaction in zimbabwe Banking Tech Celent study says banks should put outsourced payment infrastructures into the cloud PWC 2012 Time for an upgrade: five things you need to know to make your commercial lending transformation a success Global Trends in the Payment Card Industry 2012: Acquirers Challenges & Opportunities for Merchant Acquirers Accenture 2011 Next generation SME banking Citigroup Australian Banks: saying hooroo to the outsourcing guru Temenos Case Study Metro Bank

Source Data Title Seven Seas 2011 Outsourcing the cloud Platform Computing 2009 Research Report on Virtualization and Cloud Computing in Test/Dev Environments Accenture Achieving high performance through tailored outsourcing solutions from Custom BPO Services De Nederlandsche Bank 2007 Size matters: economies of scale in European payments processing Celent 2006 Virtual Vaults: They're Not Just for Cash Anymore KPMG 2008 Knowledge Process Outsourcing: unlocking top-line growth by outsourcing “the core” Asian Investor 2004 A Guide to custody and outsourcing in Asia Bank Systems and Technologies 2003 Net Bank’s new niche: small business Bank Marketing 2000 Big banks, big bytes

Knowledge Area Review (KAR 015) Virtualisation in Financial Services

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