Case Study. Efficiency gains, a streamlined organisation and huge risk reduction. We took down 35 old systems and brought in Avaloq all in one go.

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1 essential for banking Case Study Efficiency gains, a streamlined organisation and huge risk reduction We took down 35 old systems and brought in Avaloq all in one go. Stuart Newey, Head of UK Business Improvement, Coutts

2 Avaloq at Coutts UK Improving service and performance by moving the business closer to the client Coutts, the private bank and wealth manager owned by RBS, extended its Avaloq deployment from the Coutts International operations in Switzerland to the core UK business. A quick and successful implementation has helped the bank make major savings, put more staff on the front line, bring profitable products to market faster, and improve service to its clients. Developing a Strategy for the 21st Century If there is one thing that should never intrude into the relationship between a bank like Coutts and the wealthy individuals who are its clients, it is the awareness of just how much behind-the-scenes effort goes into making it all work. It should never occur to the client, for example, that there is a direct link between the power and flexibility of the IT infrastructure that makes the bank tick and the quality of service he or she experiences. Private banking clients may have many different assets and accounts and many different aspects to their relationship with the bank, but they should never be aware of the processes and technology that are needed to bring all these together. The client comes first, and the bank s ability to present its front-line staff with an integrated single view of the client is not an IT issue it s an essential for proper customer service. Private bankers need to be able to take a holistic view of their clients needs, with all the elements and information right there at their fingertips. And that was never going to be easy when Coutts held its client data across a spread of seven different core systems. It was about three things: improving customer experience, creating efficiency and reducing risk. When Ju rgen Pulm began the task of designing a strategy to bring Coutts IT operations into the 21st century, that s exactly what he found. There were seven core systems, and 70 systems altogether. Many key processes required manual intervention and straightthrough processing (STP) rates a key measure of banking efficiency were poor. Investment in the Coutts IT systems had been far lower than industry averages for more than a decade. Ju rgen Pulm, Chief Technology Officer for The Royal Bank of Scotland, Wealth division

3 IT was absolutely under-invested, says Pulm. I was amazed by the lack of spend. And if you ve spent that little for a decade, a lot of things don t work well. So one of the things which was extremely important for me was a much higher STP rate. That was vital because I wanted a much more efficient shop I was amazed by the number of people I inherited but also because I didn t feel at all comfortable with the large number of process breaks and manual interventions that were needed. It was about three things: improving customer experience, creating efficiency and reducing risk. The time was 2008/2009 and RBS Group, along with the rest of the industry, was suffering the traumas of the credit crunch and the international banking crisis. It was not, generally, a good time to be seeking backing for a major investment project. But although the group, as a whole, had been through tough trading conditions in 2008, Coutts itself had actually had a highly profitable year, generating the highest return on equity across the whole of the RBS Group. Coutts was able to contribute a large chunk of net liquidity, which the group needed, and its management also had a credible plan for growing the business, all of which made investing in a new core banking system for Coutts a very attractive proposition. New product implementation was important for us, so to be able to get something new out in nine weeks, rather than nine months, is a huge bonus. Stuart Newey, Head of UK Business Improvement at Coutts Building on the Success at Coutts International in Switzerland Although Ju rgen Pulm was based in Zurich, he was in an unusually strong position to drive a radical overhaul of the Coutts UK IT systems. As Chief Administration Officer and, before that, COO for Coutts International, he was already the man responsible for finance, operations and IT for the bank s non-uk operations, in Switzerland, Hong Kong, Singapore and the Isle of Man. And since early 2008, the Swiss hub that was successfully supporting all these Coutts International operations had been based on a new core banking system provided by Avaloq.

4 The Swiss model works, so that's what we're going to deploy in the UK. Stuart Newey, Head of UK Business Improvement at Coutts The Avaloq Banking Suite, itself developed in Switzerland, had already proved its worth and flexibility. It had simplified and speeded up many aspects of the Coutts International operation, though it had not yet been adopted by any bank for use in the UK market. Pulm knew Avaloq and its technology from his own past roles in private banking with Deutsche Bank and Julius Bär. And he already knew that Avaloq was an unusually careful and principled company. The first time I had looked at Avaloq was 1998, when I was COO for private banking at Deutsche Bank, he says. I could see Avaloq was not a fully mature product, but it was a really good concept and a modern platform for the time, so we would have liked to implement Avaloq for Deutsche. But then something really interesting happened with this small start-up company. They declined us as customers! You can still hear the amazement in Ju rgen Pulm s voice as he remembers the moment. Most small companies, if they had the chance to win Deutsche Bank as a client, would go ahead and do whatever it took to sign that contract and then hope they could rise to the challenges. Avaloq didn t. That told me something very important about the culture of that company. Based on his recent experience with Coutts International and the Avaloq system in Switzerland, Pulm had a shrewd idea that this was the way to go. And he found the ideal partner for this huge project when he teamed up with Stuart Newey, Head of Business Improvement for Coutts in the UK. Newey was looking for all kinds of improvements in operational efficiency, speed, flexibility, risk reduction, the ability to serve clients better and the ability to launch new products fast. He had been watching the success of the Avaloq implementation in the Coutts International business and felt he appreciated the pros and cons of the system. So, when Pulm and Newey put their heads together and looked at the alternatives investing in trying to re-engineer the Coutts UK legacy systems or moving forward with a more modern and sophisticated system that would underpin future developments the decision did not take long. It was easy to assemble a business case for radical change, and the re-engineering option, briefly favoured by RBS Group IT managers, did not stand up to serious scrutiny. It took three months of careful study and comparison, but Pulm and Newey were soon convinced that relying on Avaloq was the right path to follow.

5 Doing stuff on top of Avaloq is never difficult. Ju rgen Pulm, Chief Technology Officer for The Royal Bank of Scotland, Wealth division A Successful UK Implementation The implementation of Avaloq in the UK began with what was effectively a trial run. Coutts owns a small, full-service Scottish bank, Adam & Co, based in Edinburgh, and this was used as a pilot site. Implementation began in spring 2009 and took a year, yielding a number of useful change management lessons and pointers. For one thing, it was clear that Adam & Co staff had not been given enough time and information to get used to the idea of the changes. The Coutts UK project leaders took note and scheduled a long series of roadshows, presentations and training sessions during the build-up to the wider Avaloq implementation. Once Adam & Co was running smoothly, Newey and Pulm were ready to move on to tackle the complexities of Coutts and a far more complex implementation project that was destined to last around 18 months, leading to a go-live date at the end of March As a starting point for the original Coutts International implementation in Switzerland, Coutts had made use of Avaloq s model bank, which has parameters and best practices built in. When it came to the UK implementation of Avaloq, nearly two years later, the bank was keen to take advantage of that experience. We had already been through the process of taking that theoretical model bank through into something that worked in the Swiss implementation, says Newey. Adding the UK business on top was going to be a significant effort, but it helped that it was based on something you knew actually worked. We said The Swiss model works, so that s what we re going to deploy in the UK. The only things we ll change are where there is a regulatory requirement or where UK market practice dictates it things like BACS and CHAPS payments, and, of course, cheques, which most of the world would see as a historical anomaly. Everything else is a no, and that can only be changed with the approval of the Executive Committee. So we aligned the business to the system. Not everyone liked that, but we had very strong executive buy-in to support our approach. Immediate Positive Impact on Coutts Business For Ju rgen Pulm, the Avaloq implementation at Coutts was an impressive demonstration of how three important and apparently contradictory factors in setting up a global operational support service can be accommodated in an IT infrastructure tuned to real business imperatives. In designing the new target operating model for the back office he hence was able to deploy a three-pronged approach. Whatever is directly relevant to the client needs to be kept as close to the client as possible, he says. Client account opening, for example, is something we have basically decentralised close to where our client is. Then there s consolidation, which is mainly what we did in the UK in particular in consolidating down from several different UK processing centres into two major hubs. And the third concept is centralisation into specialised centres of excellence. So we took everything which was STP and which only needed control frameworks and exception handling and we centralised that in Switzerland. This three-pronged approach has allowed Coutts to play to its strengths while driving costs down and keeping workloads balanced and under control.

6 Done. Bang. Finished. Complete. I never thought it could be done so fast. Stuart Newey, Head of UK Business Improvement at Coutts The shift to a horizontal IT architecture, with the heavy lifting all performed in Switzerland, has resulted in materially lower cost and significantly faster time to market for the business. It has also enabled a significant improvement in front to back staff ratios. The overall aim, of course, is to analyse the value chain intelligently and achieve the optimum mix between client orientation, labour costs and STP to match the real needs of the business. As well as handling the traditional banking and investment needs of long-established clients, one of the key benefits Coutts has identified is the ease and speed with which new ideas can be put into practice and new products can be launched. New product implementation was important for us, so to be able to get something new out in nine weeks, rather than nine months, is a huge bonus, says Stuart Newey. And I m not talking about nine weeks Avaloq development. I m talking about nine weeks from Can I do this? via How much will it take?, That s quite a good idea, Let s do it and Let s write the marketing material to Done. Bang. Finished. Complete. I never thought it could be done so fast. Pulm offers one specific example, where an actual comparative costing was worked out for the introduction of a 90-day notice savings account. Under the old system, this would have cost 105,000 and taken 16 weeks to set up. With Avaloq, it was done in two weeks, at an actual cost of 6,000. Where the Avaloq system has been asked to support specialist add-ons from other suppliers, a straightforward interface has made this fast and painless. We were able to add these things quickly and cheaply, because Avaloq offers a really easy interface, with very accessible and wellstructured data, says Pulm. Doing stuff on top of Avaloq is never difficult. For both Newey and Pulm, the biggest challenges of the Coutts Avaloq implementation were not the technical demands but the change management issues. Without rock-solid senior management buy-in from the start, so many compromises could have complicated the exercise. Even at the last gasp, when it was decided that a single Big Bang was the best way to take the new system live, any other option would have created a huge amount of extra integration work and potential risk. Only firm top-level support made it possible for the change team to insist on an instantaneous changeover, in the face of numerous calls for phased implementation. It was quite a scary thing to do, says Stuart Newey. Literally, one Sunday afternoon we re-pointed all the clients debit cards, took down the online service, brought the new online up, took down 35 old systems and brought in Avaloq all in one go. We turned the entire bank off and then back on again.

7 In the end, the savings are impressive, but the key dimension is risk. The key benefit of moving to Avaloq has been a huge reduction in risk for the Coutts franchise. Ju rgen Pulm, Chief Technology Officer for The Royal Bank of Scotland, Wealth division Significant Business Benefits Asked to sum up the advantages Coutts gained as payback for the risks and effort of installing a new core banking system, Newey points to three areas that formed the main planks of the original business case. We said we were going to reduce our back office headcount by up to 500 people and close one of our UK operations centres. We wanted to grow our new product income by bringing new products to market faster. And we wanted to improve front-line effectiveness, he says. We ve done all three of these, though the impact of new product income and improved customer service is more gradual than the effect of the large-scale staff savings. The single view of the client means the person in the front line is able to hold a more intelligent and informed conversation and can add value by spotting additional needs or extra areas where we can support the client. A single view of the client also means an immediate and measurable efficiency gain of 7 per cent in preparing for client meetings. Client mailings, which used to involve drawing on reports from up to 14 different systems, now need just one information source. Ju rgen Pulm believes the major back office efficiencies that followed from the change to Avaloq can now be carried further, too. We have taken out more than one third of my UK operations staff. And my personal view is that I can take out at least another percent, on top of what has been done already. So you will end up with a staff reduction of somewhere in the percent range due to this implementation. And there s a less obvious payoff. It really simplifies the organisation. If you take out so many people you are in a much better place in terms of managing and responsiveness. In the end, the savings are impressive, but the key dimension is risk. The key benefit of moving to Avaloq has been a huge reduction in risk for the Coutts franchise.

8 About Coutts Coutts is a private bank and a wealth manager with three centuries of experience, providing customised solutions for its clients. Coutts is the Wealth division of Royal Bank of Scotland Group, connecting with clients from over 40 offices in key financial centres in the UK, Switzerland, the Middle East, Asia and India. For further information, please visit coutts.com About Avaloq The Avaloq group develops and operates fully integrated front, middle and back office solutions, as well as online and mobile banking applications for retail, wealth management and universal banks. The company provides leading business process and IT outsourcing solutions in Switzerland (B-Source) and in Germany. The company, with its headquarters in Switzerland and branches in the most important financial centres worldwide, employs 1,400 highly qualified banking and IT specialists and has a customer base of more than 100 banks. For further information, please visit /2014