Smarter lending leads to Business Agility

Lending Business Agility
Mike McChesney
Global WebSphere Business Agility Tiger Team

Smarter Lending
© 2011 IBM Corporation

Agenda
Lending Business Agility
Mike McChesney
 IBM POV- Dynamics in
Banking/Lending
Global WebSphere Business Agility Tiger Team

 WHY BPM

 IBM BPM in Lending

 IBM Capabilities and Architecture

Smarter Lending
© 2011 IBM Corporation

Business Agility for Smarter Lending

There are dramatic forces of change across financial institutions…

ECONOMY TRUST
Weak conditions impact Rebuilding trust and
investment decisions and confidence across the
reduce need for financial system is critical to future
services growth and stability

COMPETITION REGULATION
Intensified competition Radically increased
with increased oversight ushering in a
M&A, divestitures and new era of increased
entrance of non-bank government intervention
service providers

CLIENTS CAPITALIZATION
Rapidly evolving Mature markets and
expectations for emerging markets alike
offerings, service focus on rebuilding their
unbiased advice, and capital reserves
convenience © 2012 IBM Corporation Smarter Lending 3


….Impacting the world‘s most complex system.
• A global system moves more
than $74T of money each day
• A financial supply chain that is Financial
massively interconnected and institutions
interdependent
• Public and private partnerships Compliance
Surveillance
and monitoring

are suboptimal cross-border Soundness
Regulators Supervisors
and within borders Stability

• System requires 24/7 Laws and
continuous flow of information rules Standards

• Rapid increase in types of data Policy makers
entering financial system from
―real economy‖ digitization
• A criminal element that grows
more sophisticated
• In total the system
intermediates the needs of
billions of people in 190
countries in thousands of
languages.
An adaptive system
evolving organically

© 2012 IBM Corporation Smarter Lending 4


The need and opportunity for progress are clear…

50% 93% 25 billion
Percentage of of the 285 million Global trading systems
customers who would electronic attacks are are under extreme
give their bank only focused on the finance stress, handling billions
two chances to fail sector, and well over of market data
before considering half were detected by messages each day.
a change in banks. third parties

90% $1M in fraud 21x
reduction eliminated more >
>

in manual each month messages >
>

process
Streamlined operations: Large US Retail Bank: Automated trading:
Bank of New York Mellon Financial Crime TD Bank Financial Group

The bank streamlined On the second day of IBM developed a first-of-a-
operations to achieve a production, the new system kind system capable of
90% reduction in manual prevented $500k in a single consuming, analyzing and
touch points in the check- transaction, a additional acting on real-time market
clearing process—cutting $733k of activities in the first data while maintaining sub-
processing errors and month and confirmed $1M on millisecond response times
required remediation. a monthly basis. even under extreme data
loads.


With a unrelenting focus on the client the imperatives for
financial services are threefold…
CAPITAL AND LIQUIDITY COST AND COMPLEXITY RISK AND TRANSPARENCY

Capital Cost base Risk exposures
 Raise capital through public and  Evaluate headcount &  Address risk
private investment compensation models, scenarios, stress testing
 Reduce leverage  Rationalize recent mergers & and model input weaknesses
acquisitions  Improve governance models

Liquidity
Strategic simplification Risk portfolio management
 Utilize government liquidity
 IT Modernisation  Ensure comprehensive, accurate
facilities
 Leverage alternative forms of  Outsource non-core components and timely data
 Create a risk-based culture
financing
Partnerships
M&A  Reduce the IT/business Transparency >
>
disconnect  Analyze and report enterprise- >
 Jettison all but core assets / >
restructure business model  Standardize vendors wide risk positions
 Connect to new utilities  Proactively create transparency
 Reduce government ownership
for regulators, shareholders and
over time (if applicable)
clients



TowerGroup Top 10 Technology Initiatives for
Consumer Lending (2011)
Business Drivers Strategic Responses
•Unprecedented regulatory compliance change •Shift to nondiscretionary compliance IT projects
•Regulators seeking standardized, transparent •Continue improving risk management
processes and rationalized data •Delay new IT and core systems replacement
•Weak economic recovery; sovereign debt crisis •Reexamine core processes and channel choice
•Flat to declining loan demand and revenue, housing •Promote information transparency and clarity
market dynamics •Focus on customer segmentation, evaluation, and
•Asset-backed securities (ABS) investor information retention
requirements/lawsuits
•Ongoing FSI failures and consolidation
•Burden of distressed asset management/lawsuit
Top 10 Technology Initiatives for Consumer Lending (2011)

New, maintenance, Integrated credit, Core lending systems Data management for Analytics and
and replacement collateral, and fraud transformation business intelligence optimization for
technology for risk management loan decisioning
compliance

Enterprise content Refined view of Redefining and Multichannel lending Mobile lending and
and process customer relationship restructuring core and servicing servicing
management and value processing IT and realignment
operations

Source: TowerGroup



Mortgage Industry Trends
The ugly, the bad, the good
The ugly…..
 Loss Mitigation and Foreclosure
 The politics of housing and the future of the GSE‘s
 No private securitizations

The bad…
 Changing regulatory environment
 QRM
 Origination cycle times

The good…..
 New book is best ever with high quality loans and high borrower FICO scores
 Low rates keeping volumes up
 Survivors are poised to capture new opportunities in a consolidated market
 New business models



Customer Satisfaction Declines As Loan Application Timelines
Increase (2008-2010)

(Days From Mortgage Application To Loan Closing)

757 739 734 Customer Satisfaction
Rating (1)
52.1
46.9

30
+16.9

+7.5

Source: JD Power, TowerGroup analysis
(1) Customer satisfaction rating measured on a scale of 1 to 1000



… But banks are bottlenecked by growing IT complexity and
lack of capacity to meet the demands of the business
 The need for visible and flexible
connections across the lending ecosystem (customers,
vendors, partners)
 Proliferation of rigid packaged
and "homegrown" loan applications
 Exploding volume of unstructured information

 Time to market to capture market opportunities

 Lending platforms vs. product silos

 360 degree view of the customer

 Common rules across platforms and products

 Real time decisioning

 Process standardization and reuse

 Collaboration with business users
IT organizations must deliver shared and
 Measured on business outcomes reusable solutions more quickly and at lower
cost



Why IBM Business Agility & Smarter Lending?

INSTRUMENTED INTERCONNECTED INTELLIGENT SMARTER LENDING

+ + =
Financial products are A smart bank is built A smart bank enables A smart bank
decomposed and on systems that the rapid, intelligent anticipates client
managed at the advance processing to analysis of a vast mix needs and delivers
atomic level, allowing better automate of structured and innovative products
the participants to transactions with unstructured data to more quickly and
measure, control, sen counterparties, partne improve insight, consistently than the
se and respond rs and suppliers to enable informed competition. It can
quickly and precisely enable innovation judgment and fight respond nimbly to
based on a ―single across the value abuse. changes in market
source of truth.‖ chain. conditions.



McKinsey 2012 Survey: Process is King

Even in their dreams, they put process above creating new products and services!
McKinsey 2012 Technology Survey of 927 IT and non-IT Executives, December 2011
13


IBM is the Undisputed Leader in All Things Process

IBM #1 in BPM
with 24.7%
market share

IBM #1 in Rules

14


Challenges of Traditional Process Management

 Processes inside applications
– Processes are rigid and costly to change
– IT changes needed lag far behind
– With passage of time, changes may no longer be relevant

 Processes that span applications and organizational
boundaries
– Any changes have implications across all applications
– Inefficient and ineffective processes remain long after the need for
change has been recognized

 Managed manual processes
– No automation exists to enable on-the-fly process changes
– No automation exists to trigger processes based on events or patterns

 Ad-hoc processes
– Most systems are not equipped to capture ad-hoc work
– Most ad-hoc processes often not tracked or monitored
– Costs remain hidden and ad-hoc processes remain ad-hoc

Opportunities for business optimization and business innovation are lost



Business Chaos Begs for Process Improvement
Customer
Service Finance 1. Informal tasks and
Account
Administration
and Ops communication (e.g. Paper
or email)
Executive
Management 2. Inefficient working
environment spans systems
3. Inconsistent prioritization
4. Inconsistent decision making
Invoice 5. Incomplete or inaccurate
Reconciliation
Teams data flow between systems

3‘rd 6. Lack of control over system
Party and business events
Services (exceptions)
Passport
7. Poor visibility into process
Oracle performance
8. Tribal Knowledge
QA Customer Problems:
• Cannot grow efficiently
• Poor customer satisfaction
• Limited visibility

16 © 2012 IBM Corporation Smarter Lending 16


Process and Decision Management Bring Order to Chaos

Finance 1. Automatically prioritize and
and Ops route work
Risk Management
Teams
Account Executive 2. Guide users through
Administration Management decisions
3. Standardize resolution
across geographies
Customer
Service 4. Leverage existing systems
and data
5. Monitor for business events
and initiates action
6. Real-time visibility and
PROCESS process control
7. Automate decisions
8. Reduce errors and improve
accuracy
9. Improve consistency across
geography, channel, division
…
Customer Benefits:
• Huge reduction in manual
interactions
• Faster Issue Resolution
• More flexible, responsive
systems



The Essential BPM Capabilities
• Modeling

Finance Customer Executive
and Ops Service Management • Monitoring

Account • Automation
Administration
Risk Management
Teams
• Governance

• Optimization

• Rules

• Business Data

• Documents

• Events

• Integration

• Collaboration

• Analytics



BPM Capabilities Agenda
Process Discovery/Analysis/design Process orchestration and Active Content

Decision Services-Rules and Events Process Visibility



The BPM Lifecycle Empowers Business and IT to Collaborate and
Continuously Optimize Processes
Deploy, Execute, and Change
 Automate processes to improve operational
efficiency and profitability
 Adapt and collaboratively respond to change

Process Discovery Continuously Optimize Monitor, Analyze,
and Modeling Predict and Act
Sales Operations Partners Finance
 Assess, capture, and  Monitor implemented
analyze core processes process performance
 Align business strategy End-to-End Processes
 Track metrics to
and IT execution measure and optimize
business operations
 Guided optimization
Governance and Compliance
Manage and reuse shared services to streamline development and deployment
Maintain business and IT consistency as well as organizational and regulatory policy



Process Analytics and Social Collaboration in Real Time

4

1

3
Performance
Data Warehouse

1. Single BPMN model drives
monitoring as well as execution
2. Data analysis performed
2 continuously on-the-fly
3 Real-time visibility. to tasks,
SLAs in jeopardy
Process Server
4. Visualize ―hot spots‖ on diagram
BPMN Rules Monitoring BPEL ESB and drill down for insights
and optimization
Out-of-box Configurable Optional
Process Portal Business Space Microsoft Add-ons


Rules and Events Enable Optimized BPM Solutions
Automate, manage and govern operational decisions

Event Management: Implements Action: Upsell to other
Event: Customer Loan
Request pattern detection based on an event products/services
history – as data set evolves, what of
interest is transpiring?

Business Event Processing

Automated Evaluate and Automated
Detect Events: Detect Create Actions:
Enrichment Enrichment
Patterns

Call out for a decision How can we ‗personalize‘ the offer based on client behavior?
What terms and conditions should we offer the client?
Rules Processing
Business Rules Management:
Rule Flow Implements a decision model -
Business Rules given a snapshot view of
Decision Tables data, provides decision services
representing best course of action



Extend Visibility with Business Activity Monitoring
Understand up-to-
minute business
Identify
performance by
trends, forecast
monitoring KPIs
events, make
smart choices

Detect, respon
d rapidly to
change

Continuously
improve key
Customize business
dashboards processes
easily

Rebalance human
workload on the fly
Leverage
mobile
devices



Instrument “Shadow Processes”

IBM Business Monitor

Oracle BPM Third Party Decision Anything!
Solutions Connections Services



BPM Projects from Inception to Production in ~90 Days
• BPM Analysts (1)
• Engagement Manager (1)
• Infrastructure Specialists (1)

• Add BPM Developers (2) • Add Technical Architect (1) • + Infrastructure Specialists (1)

Weeks Week
Week 1 Weeks 2-3 Weeks 4 to 10
11 to 12 13

Detailed
Discovery Iterative Development with frequent Playbacks Test Go Live
Requirements

Agreement on Agreement on Agreement that Technical
Agreement on Data,
Checkpoints Project Scope & Process Flow and Process Meets Validation and User
UI, and Integrations
Goals Routing Business Goals Acceptance

PLAYBACK 0
“Define the Process”

• As-Is and To-Be Process
Maps
• User Stories
• Problems and Pain Points
• KPIs/Metrics/SLAs PLAYBACK 1 Series PLAYBACK 2 Series PLAYBACK 3 Series
• Opportunities for “Build the Process” “Connect into the “Refine the Delivery”
Improvement Infrastructure”
• Process Triage • Author the Business Process • Model Corner Cases
• Process Charter and ROI Model • Data Flow Through • Expanded Search Capabilities
• Define the Roles / Participants • Other Systems of Record • Build Metrics and Performance Reports
• Define the Data Elements / • SMTP (Tuning and Measurement)
Variables • Data Warehouse • Other types of Processing Automation
• Configure the Screens • LDAP / SSO • Feedback from Playbacks
• Model the Rules across the • EAI
Screens and Model
Playbacks = Running the process for an audience of 1+. The main playbacks are for sign-offs of the whole Business+IT team. There are more frequent
playbacks, daily/weekly etc., for smaller audiences throughout the project.


Agenda

 IBM POV- Dynamics in Banking

 IBM BPM

 IBM BPM in Lending

 IBM BPM Capabilities and Architecture


Smarter lending leads to Business Agility

Smarter lending leads to Business Agility

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