Payments Leader

Target Operating Models to Get Your House in Order – by Kris Carrera

November 30, 2017

Kris Carrera, Business Line Executive, Credit

A solid foundation is as important to your house as it is to your financial institution. After all, without the proper underlying internal processes and infrastructure, even the best business strategy will collapse. That’s why many financial institutions are turning to target operating model (TOM) analysis to ensure their houses are in order and capable of delivering on a chosen strategy.

An Operating Model Unfit for Purpose

The unfortunate reality is that many banks’ operating models have struggled to execute at high levels due to constrained resources, tools, and investments. In fact, the positions of many banks, in terms of balance growth and relative portfolio size, has slipped in recent years as new entrants join the fray and competitors expand their own field of operations. As many banking strategists have found, current infrastructure simply cannot support the higher volumes, faster processing and more agile product and marketing environment that is required to achieve anticipated accelerated growth.

What is needed is a more comprehensive and systematic review of the entire operating model (i.e., who is performing which function, where and how, and with what technology, cross-referenced with recent or current business model alterations). From there, the TOM becomes the central pillar of long-term success.

TOM for Strategic Evolution

The primary purpose of ‘target operating model analysis’ is to enable the corporate strategy or vision to be implemented successfully. It results in a high-level representation of how an institution can be best organized for efficiency. By conducting a well-planned and extensive TOM, banks have a proven methodology to evaluate payment processing operational functions, identify gaps and develop a corresponding transformation plan.

First in the assessment comes people: the TOM reviews and documents roles, workloads and required skillsets to identify current gaps and constraints. From this, capacity and realignment recommendations, as well as organizational changes, can be made to meet future needs. The business processes, policies, and procedures are also evaluated to identify inefficiency and duplication that hold up operational growth. The resulting recommendations on platforms, enhancements, integrations and support models ensure long-term business growth is not restricted by technological blockages. Finally, the TOM examines overall governance with an assessment of the structures and related processes, creating recommendations that prioritize cross-functional decision making and promote a balance between investment and “business as usual” activities.

The fallout from the TOM is a comprehensive gap analysis that compares the current state of affairs to the ideal, and lists improvements that are needed to achieve desired future state capabilities.

Stop Saying “No” to Customers

The fundamental rationale for conducting a TOM assessment for a payments business is to provide tiered, agile, cost-efficient and high-quality services for the future. The goal is to align core infrastructure and processes in order to accelerate a bank’s digital transformation. TOM assessments show financial institutions – regardless of size, age or strength – how and where to modernize and expand into new, innovative services.

Automation is key as it streamlines accounts, onboarding, and underwriting processes by reducing manual interventions and maximizing customer self-service. Automation demands real-time information flows that back-office systems cannot provide. Existing legacy back-office systems are notoriously problematic to upgrade or adapt. These “untouchable” mainframes are often the bottleneck, but intelligent middleware can streamline the process and shorten the timelines by pre-processing real-time responses.

Banks simply need to stop saying “no” to customers just because their internal systems cannot keep up with business strategy. As new payment and credit products are emerging, financial institutions need to expand their services to offer innovative services that can exploit them. The TOM ensures that institutions are in shape to deliver on growth strategy.

Deliver on Your Promises

Focus on people and processes first. Firms often waste time by chasing shiny new technologies or delivering to new customer devices, but the ROI in aligning people and process dimensions far outweighs any tactical technology benefits. Done properly, TOM projects can have a tremendous impact on costs, service quality and operational risks. For instance, around 40 percent of personnel expenses can be saved, STP rates can grow at double-digit rates and the number of failed or late settlements can be reduced.

Simply put, it is pointless to roll out a new product with an expensive marketing campaign if the underlying infrastructure and processes are incapable of supporting the new business. However, with a clear focus on all relevant dimensions and the critical success factors, TOM projects result in winning operating models, that enable and grow your business in an increasingly hostile market.


Kris Carrera

Business Line Executive, Credit

With over 25 years of international payments experience, Kris was responsible for the launch of the first successful cobranded card program. A leader in risk-based pricing and target marketing using predictive data analytics, she specializes in merchant services, credit cards and home equity. Kris has received Best Travel Card, Best Cobranded Card and Best Private-Label Program awards.