Shared Communication Services Cut Transaction Times, Costs

Straight-through processing cuts brokers’ transaction costs by 90% Call your stockbroker and order a sale. How long before the proceeds are deposited into your account? As things stand, it can take up to three business days. That’s a long time in this Internet world—a headache for customers and brokers alike. So major Canadian brokerages have banded together with a carrier, Bell Canada, to achieve "straight-through processing," that is, end-to-end automation of the transaction. The project, already in advanced development, promises to knock 90% off the processing cost of a securities transaction and eliminate almost all of the payment delay. These are impressive gains. What’s more, this approach is applicable to many industries. The specialists call it "shared services," a term often used for unification of back-office functions across a diversified corporation. The central feature of the brokerage project, however, is somewhat different—it’s the utilization of new communications technologies to transform a business process. What Are Shared Services?Traditionally, the shared services concept involved identifying common, repetitive back-office processing activities performed throughout the organization, and then shifting the responsibility for performing these activities to a dedicated, specialist centre. The examples cited in this article use the term in the somewhat different sense of integrating the communications involved in customer-contact services not only for large differentiated organizations (like the fed-eral government) but also communities of small organizations that share common functions (like the brokerage industry).And the project offers something else worth noting: a new model of how a carrier works with business customers. Customer RequestThe brokerage project began when a company, which already used Bell for 99% of its telecom needs, told the phone giant it wanted a solution to the lack of communications standards in the world of capital markets. At time of writing, the project is still enveloped in secrecy, and none of the participating companies can be named.Because there is no common transaction interface, trade of a stock involves a bunch of phone calls and faxes, and a long paperwork trail documenting the process. "The process between the broker and the exchange is mostly electronic, but it’s the front-end interaction that causes time delays. This is why it can take three days for you to get money into your account ," explains Blair Makin, Bell’s enterprise group VP of industry solutions. "We asked how could this industry move to straight-through processing. We began to look at shared services as one of the things Bell could do to make a difference to how this community interacted," Makin says. Industry ConsultationBell began consulting with major brokerages, traders and mutual fund companies. It also called in an applications-software developer called End-to-End. The government is preparating legislation to mandate straight-through processing in the brokerage industry, and this added urgency to the task. Through these efforts, Bell developed a platform called Institutional Trade Management Service. The service uses a common protocol called Financial Information eXchange (FIX), which is being widely adopted by the international trading community. The project was inherently risky, Makin says, because "you have to convince an entire community to come on board, but it is far more exciting when you get a positive result." It took a major sales effort to win over individual firms, and then to the community as a whole. "We got our first few brokers or service providers in that community to adopt the platform, and then we got some of the institutions to bring some of their customers on board, and then it steamrolled forward." The finished service is thus the achievement of the whole industry, together with the service provider. "We have created a standard of service and a management and flow capability that facilitates communications within this entire community—right from the bid process through the order and all the post-trade activities, such as notices of execution, allocations and confirmations," Makin says. "We don’t execute the trade, but we facilitate communication of the order flow in the middle." Instead of coping with different order-management systems from 10 different firms, "institutional brokers can interact through one system that connects them all." As a result, unlike in the past, the service provides a common way for an institutional trader to communicate with others involved in the trade and to manage post-trade activities. Brokers and institutional traders will no longer have to worry about making many phone calls to numerous brokers, or dealing with proprietary point-to-point systems, emails, faxes or spreadsheets. The system also allows brokers to add more applications, related for example to foreign exchange transactions, that each trader would previously have adopted separately on his own platform. Now the applications can be outsourced and unified. Bell’s platform can connect any system to any other system while applying the right privileged management and security protocols, all over managed IP. Security is provided by Bell Security Solutions Inc, while InfoStream Technologies Inc., which Bell acquired in 2004, provides long-term transaction storage. Makin says the Institutional Trade Management Service enables a trade to be processed almost in real time. As well, the current cost of about $88 for processing a trade tumbles to an estimated $6 to $8, he says. Bell bills users of its platform either on a transactional basis or on the volume of orders flowing through the system. Federal Government Leads in Shared ServicesShared services can be adopted not only by communities of interest, like Canada’s brokerages, but by large distributed organizations. It is, therefore, no surprise that our largest organization, the federal government, is well down the shared services road, working with both Bell Canada and other telco providers. Probably one of the best examples of shared services undertaken by the federal government is Secure Channel. Bell Canada and a consortium of other companies such as IBM, Microsoft and Entrust are helping the government with this initiative, which operates on two levels. Secure Channel is, first, a network that connects departmental data centres so that information can be securely exchanged between them all. Second, it provides services on demand to all of the government departments, such as e-pass, which allows citizens to deal with federal agencies over the Internet. Bell has helped develop an extension to the platform that provides secure electronic forms. "It will take a document and move it from place to place through a business process," says Blair Makin, Bell’s enterprise group VP of industry solutions. "It disassembles the requirements, sends all the appropriate information to all the different departments or places, and allows it to be assembled and redistributed back to where the final sign-off requirement is needed." Makin notes that this capability can be used for a wide variety of citizen-to-government interactions, assuring security and privacy while improving workflow. "It can reduce the time it takes to process a citizen’s request from what historically would have taken weeks and sometimes months down to days, if not hours," he says. Ken Cochrane, CEO of Public Works and Government Services Canada’s Information Technology Services Branch, points to e-pass as an example of a shared service that should help the government reach more Canadians more efficiently, with faster response times. The e-pass is a Public Key Infrastructure-enabled certificate, meaning that individual citizens or businesses are given a user ID and password that allows them to do secure business with the federal government online. "If you wanted to look at your tax account, you could go online through e-pass. You use your user ID and password (given to you in the e-pass certificate) to gain access to your tax account," says Cochrane. "You see a whole suite of information about past taxes, RRSP room, and those kinds of things. If you wanted, you could request a reassessment online, or do a whole host of things online with the Canadian Revenue Agency, and it is all secure right through to the back end." Broad ApplicabilityBell is looking to apply the "shared services" approach to other areas, such as health care, other financial institutions, public safety and information exchange, and even for use within its own organization on the retail side. In the financial services sector, for example, Bell is developing a solution that would enable mortgages to be more easily processed. It will incorporate all compliancy requirements, including credit checks, and standardize the approach for approving mortgages to create efficiencies for the banking and other mortgage-granting communities. It may also eventually enable money to be almost instantly transferred from a bank account in one country to another country, without the present 30-day hold period. In the health care arena, the platform could smooth out problems associated with the interchange of documents among health institutions. (For a discussion of how the federal government is applying the "shared services" approach, see the box below.) Bell’s Strategic TurnBell’s focus on shared services is an example of its corporate strategy. The company is shifting emphasis from supplying simple connectivity and is delving into more advanced undertakings—in this case developing a type of IT platform. Makin considers Bell’s approach distinctive for two reasons. First, the telephone giant is developing standardized applications to help entire communities that share services so they can more efficiently reduce paperwork, delay, and associated costs. Second, Bell is concentrating on end-user interaction—whether it be an individual consumer to a business, a citizen to government, a business to a business, or a business to government—as long as it involves a wide community. "We define shared services as either being for a highly distributed customer, such as a financial institution, or a community that has the same interests," Makin notes. "We are focusing most of our attention in terms of shared services on the front-end business to the end user as opposed to the historical approach of dealing with the back office type of functions related to finance.... We still do some of the more historical outsourcing of business processing, but that’s not where our shared services focus is." Makin says Bell’s move to supply IT services is transforming its customers’ perceptions. "People see Bell as a strong connectivity supplier, but now we’re adding other IT-type capabilities." Customers never considered Bell as an IT supplier, and "it was almost revolutionary in their minds," he says. However, Bell officials say the telco isn’t trying to solve all its customers’ business process problems. Nor is it targeting local implementations within an office building or two. "We’re very focused on things that have high intrinsic value in improving the business process of an entire industry or a large customer," says Makin. "We’re not going to be the IBM or the HP of the world that will do back-office systems. We are focusing on areas that are highly distributed by nature, and that need to get out to a mass populace." Lesson for UsersThe idea of entire industries developing integrated services is hardly new. Banks interlinked their teller machines decades ago. But present-day technology permits such integration for a much wider range of industries and processes. The hard part is unifying all the industry players, service providers, and software developers around a common project. It is in this sense that the partnership of Bell and the brokerage industry in developing the Institutional Trade Management Service provides an example worth close study.

Shared Communication Services Cut Transaction Times, Costs

News | October 26, 2005

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