Bank Network Management as a Sustainable Process?

Blog post Larry Goldfarb 2020-10-12

Why is Sustainability Important

Here is a riddle, what can transform a cost draining operation into a modern, exemplary, process that can attract investor interest? Sustainability, that’s right, the same Sustainability that is the “E” in ESG, Environmental, Social, and Corporate Governance; it refers to the harmonious coexistence of human development and the environment in the workplace and can take many forms including “Green” technologies (i.e. technology that is overtly sustainable), conservation, and renewable energy. Consumers pay a premium for environmentally friendly apartments, organic vegetables, lacking harmful pesticides, and biodegradable plastic bag to name just three. More importantly for the thesis of this blog, Sustainability has become an important priority for companies all around the world because it is a focal point in the way the investment community makes investment decisions; it is also known as Responsible Investing. For example, most major Investment funds have Responsible Investment programs in which they address how their investments are meeting their standards of Sustainability. So, it stands to reason that corporations, where investor sentiment drives everything from CEO behavior to financing decisions to where a company locates its offices, should begin to look for ways to inject environmental responsibility into their operations.

Sustainability and Global Network Management

One of the least Sustainable activities that a financial institution performs is managing its network of Agent Banks. Institutions rely on Agents in countries where they do not have a physical presence to perform services such as safekeeping securities and cash – especially where countries have currency controls and export quotas – accepting deposits, providing loans and disbursing cash. Regulators require institutions to supervise and control their agents thus the need for Global Network Management (GNM) . GNM has traditionally been an Excel, SharePoint, Outlook driven manual effort intensive exercise primarily because it is, for the most part, a cost driver and does not typically earn management support for automation initiatives. It is not uncommon for banks to have regional-based analysts and managers flying to the Agent Banks to perform due diligence. The process is supported by a global team to evaluate the risks and perform management reporting. The result is a staff centric process that is both environmentally unfriendly and unsurprisingly, a heavy cost generator. Features of a typical process include:

  • Heavy travel to the Agent Bank to perform onsite due diligence
  • Bespoke Corporate data centers to run the enterprise applications
  • Work models that discourage collaboration and instead support inefficient email communications and effort duplication
  • Long hours of manual effort (i.e. Input, review and evaluation without taking advantage of previous efforts to date)
  • One off reporting and analysis requiring significant human intervention to transform and publish the data

These elements confirm a process that is decidedly Unsustainable. For instance, independent electronic communications, according to a recent study focused in the UK, generate 22 million metric tons of CO2 per year, equivalent to many thousands of yearly auto emissions. Moreover, a 2012 study of almost 40 years of data showed that reducing working hours by 10% leads to a 14.6% decline in the carbon footprint. Also, a Study by Pike Research, a clean technology market intelligence firm, claims that eliminating data center usage and adopting cloud computing could lead to a 38 percent reduction in energy usage in the world’s data centers by 2020. Finally, there’s general agreement that airline travel adds significantly to world carbon emissions. What is even more interesting is that the same issues that create a large environmental footprint make GNM costly and inefficient. Spreadsheets and disaggregated communications such as Email, Enterprise applications using inhouse data centers, teams of risk managers aggregating and analyzing data, and staff creating bespoke management reports are just four examples where an Unsustainable process meets a headcount intensive, cost draining operation. In short, this is an operation that is in drastic need of a rethinking.

Sustainability as Cost Savings

Up to now, I have been a bit circumspect about how to remedy Network Management’s high expense spend and environmental irresponsibility. I believe the answer is automating many aspects of the GNM process. In fact, when purposeful technology is focused on GNM, firms have been shown to produce both 50% savings and an almost 100% payback by the end of the first year. The system that I am suggesting incorporates the following components, all of which are both highly Sustainable and currently in the process of being adopted by a select few Network Managers:

  • Artificial Intelligence to simplify the due diligence, account approval and recertification processes
  • Expansive Automation to allow for the utilization all available resources and previously provided information to both shorten the process and reduce the amount and periodicity of agent bank visitation
  • Centralized Document Management / Repository eliminating duplication, facilitating collaboration, and reducing the scope of the yearly review year on year
  • In System Communications simplifies requests and clarifications reducing duplication and therefore the number of messages
  • Deep Analytics, dashboards and reporting to provide transparency across the organization and reduce the amount of bespoke management reporting
  • Cloud Infrastructure, such as AWS or Google Cloud, to both reduce the need for onsite data centers and provides full disaster recovery and backup

The reason GNM teams have been able to experience such significant savings and paybacks is because managing a far-flung network of Agent Banks without automation as noted above, is like using a coal fired steam engine as opposed to a battery powered electric motor. By using automation and current technology ( e.g. cloud computing), you are in effect shrinking and simplifying a most unwieldy and inefficient process.

While the cost benefits can be quantified by the organization, the sustainability advantages can be leveraged to show a pattern of environmental responsibility that can be broadcast to employees, customers, and investors. In short, by systematizing Network Management, you are transforming a cost draining unit into an efficient, environmentally friendly organization that can be both highly cost efficient and a business and investment driver.

In subsequent blogs, I will dive deeply into some of the ways companies use automation to achieve both cost reduction and Sustainability.

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