Citibank is leading the regional charge to automate orders for mutual funds by automating the labour-intensive process using Swift message protocols. Increasing volumes in mutual funds, such as the offshore business in Taiwan, and heightened competition from local and foreign banks such as HSBC and Standard Chartered Bank, have spurred Citi to seek a competitive edge and cost savings in automating fund orders. The bank is in the process of consolidating processing into Singapore, making the hub the natural location to implement this.
"The benefit is operational efficiency," says Maureen Low, head of regional investment operations at the global consumer bank in Singapore. "Straight-through processing lets us improve customer service; we can extend sales cut-off times at our branches, giving our sales people a longer selling window."
This represents a new business opportunity for Brussels-based Swift, which traditionally provides the standard electronic formats for banks' settlement operations. "Fund management is a new business for us," says Ian Buckley, regional director for Swift's securities industry division in Hong Kong.
That it has taken this long for Swift to get interested in the funds distribution area is partly due to the fact that in Asia banks have only recently come to dominate mutual fund sales. Before the Asian financial crisis, funds were sold mainly via independent financial advisors catering to expatriates and wealthy Chinese. Now in Hong Kong and Singapore, banks control up to 90% of fund sales.
This June, Citibank's Singapore office will automate its mutual fund order messages with a coterie of up to 30 fund companies, including Fidelity Investments and Invesco, which are in the pilot phase. Citi can place orders and receive confirmations electronically, and the next day automatically confirm the trades of its customers without manual processing.
Citi's Low says, "The batching will still be manual, but that's the only thing we'll need to do."
Citibank's Singapore office will initially automate mutual fund distribution orders for Indonesia, the Philippines, Singapore and Taiwan. Citibank is also in the process of moving Australia, Hong Kong, Malaysia and Thailand processing to Singapore, made possible in part by better automation. "We delayed this because we lacked the volume to justify the investment," Low explains. "Now we are consolidating operations across more countries."
She says the next phase will be to get daily price updates and unit reconciliation automated via Swift, noting today there are no standards about how to communicate these. The other priority will be to centralize and automate fixed-income processing. Over the longer haul, Citi hopes fund managers not using Swift messages will adopt the standard. "We expect through straight-through processing that 80% of the work related to order processing can be eliminated," she says.
Swift's Buckley says Standard Chartered Bank may follow this year in making funds orders electronically. He also notes local players such as Woori Bank and Kookmin Bank in Korea, and China Trust in Taiwan, are considering it as well.