Overview of Robotic Process Automation in Finance

RGP DISCUSSION DOCUMENTNovember 2016Created by Baxter Black

WWW.RGP.COMNASDAQ:RECN

# SECTION Page

1 BACKGROUND & PURPOSE 3

2 KEY DRIVERS 4

3 RPA STRATEGY 5

4 AREAS OF IMPACT 6

5 BENEFITS 12

6 PRICING MODELS 13

7 COMPETITIVE LANDSCAPE 15

8 MYTHS ABOUT RPA 20

8 SUMMARY 26

9 CONTACT 27

CONTENTSPAGE 2

Page 3BACKGROUND & PURPOSEPAGE 3

Robotic Process Automation (RPA) is robotic software or AI which operates on the user interface (UI). Unlike more traditional types of automation which would operate on subsurface Application Programming Interfaces (APIs), RPA replicates the actions of a human being and can be applied to any algorithmic task.

UK mobile communications provider Telefónica O2 deploy more than 160 robots to process between 400,000 and 500,000 transactions each month, yielding a three-year return on investment of over 650%. More astounding, Telefónica O2 reached this scale by training only four people. Another case study subject, a large UK-based utility, deployed more than 300 robots that process three million transactions per quarter, yielding an annual return on investment of 200 percent. Here, two humans orchestrate 300 robots that perform the work of 600 people.

• Related investments have grown exponentially from $1.7 billion in 2015 to $23 billion in 2016

• 21 suppliers on preferred list of major consultancies

• 80% cost reduction and 80-90% faster in BPO

• £1.5m savings delivered in 2013; similar amount realised by business owners over and above this.

• Potential $1.2 trillion market - KKR

Key Dimensions:1. Code free RPAs do not require programming knowledge and use a

system similar to MS Visio to automate tasks2. Non-disruptive to core system by operating in the UI3. Business user friendly – ease of use and low economic threshold

Fast Facts

Case Study

RPAs are rapidly being brought to market by start ups as well as traditional companies and organizations seeking to maintain their market position.

According to Harvard Business Review, most groups adopting RPA have promised their employees automation will not result in lay offs. Instead, humans are redeployed to do more interesting work …Ops Team??

Following the findings of the RPA industry conducted by RGP, our understanding of practices with other competitors and recent discussions with clients, we have put together this document to tender points for consideration and explore areas where we may be able to support implementation of RPA specifically regarding Financial and Accounting operations.

Page 4KEY DRIVERSPAGE 4

Shift in focus from labour arbitrage to automated service delivery

Ability to expand margins

Ability to handle niche, complex, and low-volume tasks in strategic transformation initiatives

Can reduce F&A costs by 15-30% (with labour arbitrage, total savings can be as high as 65%)

Alternative to offshoring (about 1/3 the cost of an offshore ETF)

Huge potential in record to profit

KEY DRIVERS OF RPA ADOPTION

Page 5STRATEGYPAGE 5 Developing an RPA Strategy

What?

• Assess for automation opportunities

• Which processes are good candidates for optimization?

• Which processes would be suitable to pilot?

• How should the process owners be engaged to try automation?

• What are the impacts of proceeding with the pilot?

Why?

• Build your business case

• Why does automation support your business needs?

• What are the benefits?

• What are the pain points being alleviated?

• What are the metrics to determine whether automation is valuable?

• What is the strategy for re-deploying existing resources after automation?

How?

• Determine the optimal operating model

• Which operating model works best for your organization?

• Do you have the right team to support the solution and carry out responsibilities?

• Who will manage and monitor the robot?

Who?

• Identify your automation partners(s)

• Who are the main vendors in the RPA space?

• Who are the providers who cater to your business needs the most?

• Which sourcing option do you want?

• How should you compare the pricing models in order to understand what you are paying for?

When?

• Plan the automation roadmap

• How long should your pilot be?

• What are the stages after the pilot?

• What is your strategy for scale?

• How will you ensure impacted stakeholders understand the what, why, and how of automation?

Key Dimensions in Platform• Data: the level of sophistication in dealing

with business data (structured v. unstructured);

• Type of tasks predominately performed: tasks are either rules based or require knowledge from multiple sources to complete the process.

• Interoperability: working across multiple applications (single application or multiple applications and platforms), and;

• AI: the level of artificial intelligence provided by the application ( none, machine learning based on pattern recognition and statistics, or emerging true AI).

Page 6AREAS OF IMPACTPAGE 6

To identify processes suitable for RPA use this checklist: Rule based (not dependent on human judgement) Functioning and stabile Initiated by a digital trigger and supported by digital

data Larger volume is better Proof of concept, key that the system leverages key

systems in company

Page 7KEY DRIVERSPAGE 7

Popular Methods of Adoption2015 Deloitte Survey

Page 8AREAS OF IMPACTPAGE 8

Page 9AREAS OF IMPACTPAGE 9

BANKING• New account entry across systems – moving data and doing multiple entries• Account reconciliation – duplicating and moving data• Report generation across systems• eForm extraction – taking data from forms and making systems entries• VAT reporting• Accrual support – making and updating entries• Mortgage approval – moving data place to place and making calculations• Refinancing entries – making entries and updating records• Notification of delinquent accounts – emails and letters to clients• Processing of credit card orders – from web form to mainframe• Audit support and validation• Fixed asset amortization• FX accounting and write-offs• Cost accounting and purchase orders• Bad debt and write-offs• Month end close heavy lifting• Journal entry accounting• Credit note accounting entry• Accrual booking• Pricing reviews – performing calculations and entries• Fraud detection – by tracking account activity• Account cleansing – purging old known data

Page 10AREAS OF IMPACTPAGE 10

CAPITAL MARKETS• Client onboarding – documentation requirements check• Compliance, legal, credit, and identification checks• Operational set-up of account in trading, collateral and settlement systems• Transparent status of onboarding process• Consistent data mapping between source and downstream systems• KYC/AML authentication: collection and analysis of basic identity information (CIP); name matching against lists of

known parties (such as PEP)• Fraud detection – determination of the customer’s risk in terms of propensity to commit money laundering, terrorist

finance, or identity theft• Reconciliation – user defined rules to generate alerts on chargeback, retrieval request and response• Automated scheduling of reconciliation activity• Force match option facility to manually settle un-reconciled entries• Multi-level reconciliation that supports international and domestic networks across multiple delivery channels• Entitlement engine – providing timely, accurate distributions of dividends and interest• Receive/track dividend, interest, and amortized principal payment information and collect the distribution of all

dividend and interest allocations• Simplifies/enforces the management of complex entitlement policies

Page 11AREAS OF IMPACTPAGE 11

INSURANCE• Pension auto enrolment assistance• Product administration – update systems and produce client details for sales of new products• Policy document data transfer from legacy system to new applications, systems, 3rd parties• Products sales support – customer data gathering, adherence to compliance and rules of sale• Broker CUE (motor) – compares customers reported accident claim history with actual data• Bulk payments (motor) – updates policies following claims made through specialist claims companies• Bulk recoveries (motor) – updates policies of vehicle recovery amounts and fees supplied by 3rd parties• Unallocated cash report – works a report and writes off any cash discrepancy under a certain value• Deceased notification – processing of insurance policies following notification of a death• Insurance comparison – downloads leads from internet comparison providers and loads entries to lead management

system• Compliance reporting automation – automated preparation of reports for the PRA• Marketing campaign support – high speed response for back office automation to support new product launches,

product incentives• Credit card rejections – works a report of rejected card payments and over a period sends a letter to the customer

before ultimately rejecting insurance• Credit card unmatched – retrieves cases to work from a report and, where applicable, writes off any cash discrepancy• Redemptions processing – cross checking multiple systems for compliance assurance• Payment transfer – paid directly to a client or reinvested/distributed to other products across multiple systems or 3rd

party applications• Right of set-off and debt recovery• Funds transfer – from multiple legacy policies/system into a more modern, flexible system• Amend standing order, direct debt, address details across multiple systems• Accounts data mismatches across disparate systems

BENEFITSPAGE 12

Productivity and Efficiency

Accuracy

Scalability and Flexibility

Compliance

Business Continuity

Cost SavingsRPAs have the potential to replace

humans in any task which can be

transcribed to an algorithm:

• Transaction processing

• High-volume data entry

• Repeatable, computer

centric processes

• In-system upgrades

• Concurrent or duplicate

data entry

Less expensive than off-shore full-time equivalent (FTEs); reduces headcount, increases throughput

Can be faster than human FTEs with 24x7 functionality

Minimizes manual processes, reduces errors

Replication across geographies/business units increases scalability/flexibility

Data and processes can stay onsite, requirements can be embedded into automated rules

Enhanced disaster recovery/processes with ability to switch to alternate servers

Business Continuity

Security Reduces internal risks to data and processes

Page 13PRICING MODELSPAGE 13

Most commonLicensed based• Pay per software license for each installed robot, management server, and development tools

• Perpetual license or annual subscription

• The definition and capacity of a ‘robot’ can vary by vendor, making direct comparisons tricky

• Hardware and maintenance will add to cost

Second most commonValue based• Pricing linked to either the FTE-equivalent savings (e.g. fixed percentage of the FTE cost that would have been occurred), or to each

completed transaction

• Can be restrictive to horizontal-scaling across the organisation, as contracts will need re-evaluating to include additional business processes

• The vendor is encouraged to put ‘skin in the game’ and maintain a good level of service

Least commonService based• You pay a regular subscription fee for the service, with a service agreement that defines the responsibilities of the provider

• This model is particularly attractive for AI solutions which may run on complex big data technologies that can be expensive to set up and maintain in-house, or are needed on a spot basis

Pricing Models for RPA Adoption

According to Accenture RPA costs on average 1/3 the cost of a globally sourced resource

Page 14PRICING MODELSPAGE 14

RPA Pricing Model Overview

*Fixed cost data is from Amazon Web Services, project and robot costs are from Virttia*

• Due to intra industry competition, firms selling RPA software are sacrificing the lion’s share of profits for market share

• Due to intra industry competition, complex pricing models are not disclosed. Additionally, ‘price per bot’ is available only upon request

Page 15COMPETITIVE LANDSCAPEPAGE 15

$-

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

US UK Aus Phillipines India RPA

Per Annum Cost Comparison of Back-Office worker to RPA in USD

Per Annum Cost Comparison of Back-Office worker to RPA in USD

*

*RPA including only one software license and maintenance. Excluding cost of infrastructure and implementation

It is important to note that this analysis does not take into consideration cost savings resulting from 24/7/365 operational capability of RPA, RPA overhead cost, and back office worker benefits.

Page 16TOP SUPPLIERSPAGE 16

Top SuppliersA

rago

•Outcome based pricing: based on # tickets processed. Typically price of 50% of ticket cost (self disclosed or set by independent industry analysis)

•Traditional software license (ask for details)

•No specific pricing

•Est. cost saving 30-50% A

uto

mat

ion

An

ywh

ere •$2,500 premier

•Single user

•$5,500 integration

•Email integration, web server integration, OCR, or terminal actions

•Available here

Blu

ePri

sm

•Publicly traded

•£191M Mkt cap

•1/3rd the cost of globally sourced agents

•Price dependent on number of BOTs

•Approximate cost of $15,000 – no specific pricing available

Cic

ero •$300 one time user

(capterra)

•20% reduction in costs

•Traded as penny stocks

•No specific pricing offered by cicero online G

oo

gle

Bra

ins •£400M of company

DeepMind in 2014

•Has been applied to android voice recognition and google street view but no official rpaproduct released…yet

IBM

Wat

son •Offers several

different BPM products

•IBM also offers financing options and special offers on RPA (BPO) software

InSt

ream

•No info available online for pricing

•Inquiries available via online

•Products

IP S

oft •Amelia and Apollo

•Amelia – full service

•Apollo

•20% cheaper than Amelia

•No specific pricing available online

Page 17TOP SUPPLIERSPAGE 17 Top Suppliers Cont.

Jaca

da •Desktop and

server automation services offered

•Pricing based on number of seats purchased, no specific info available via web

•Cost reduction of 15-25%

•Services

Kry

on •LEO Suite

offers three different RPA solutions

•No specific pricing options available online

NIC

E •Cost reduction up to 50%

•No specific pricing information available online

•RPA services

Op

ensp

an •$800 per runtime lease (3rd party)

•Acquired by PEGA this spring

•Services

UiP

ath •$3,990 per

year per user

•Four different products available

•Back office, front office, and enterprise solutions available

WIP

RO •Cost

reduction up to 50% (citing case studies in Telecoms)

•No specific pricing listed online

•Specific products offered here

Page 18COMPETITIVE LANDSCAPEPAGE 18 RPA Competitive Landscape

Level 4 – Multiple decision making

•Multiple sources of data used to gain intelligence on a subject

•Statistical based learning

•Natural Language recognition & understanding of meaning

•No “personality”

Level 3 – Pattern based decisions

•Pattern recognition learning

•Works with unstructured data

•Self-learning with human aid

•Limited decision making based on information provided

Level 2 – Structured rules

•Sophisticated macro application

•Works across any Windows or web based application without connectors

•Workflow, rules based, structured data, no decision making

Level 1 – Basic automation

•Single application macro application

•Predefined connectors into other applications

Page 19COMPETITIVE LANDSCAPEPAGE 19

Page 20MYTHS ABOUT RPAPAGE 20

Sixth Myths About RPAs Debunked

Page 21COMPETITIVE LANDSCAPEPAGE 21

1. You need an army of robots to make RPA worthwhile

Fact: one of the main attractions of RPA is the ability to automate the “long-tail” of low volume or low value processes that would not be economical to address via other means.

However, there is still a minimum scale required to realize both the return on the up front investment of establishing automation, and the ongoing overhead costs. It is also common industry practice for vendors to specify a minimum number of license to purchase. Though usually not prohibitive, tools aimed at the “enterprise automation” may not be cost effective for smaller operations.

In sum, it is quite possible in today’s market to see positive results with the deployment of a few bots.

Page 22COMPETITIVE LANDSCAPEPAGE 22

2. Robots will take our jobs

Fact: John Maynard Keynes predicted the future held mass unemployment as a result of automation. While this may not have played out as quickly as he expected, recent forecasts have seen more dire predictions; notably a 2015 report by Gartner reporting one in three jobs will be automated by 2025.

At present, increased automation has not necessarily led to a loss of jobs. Instead, it has resulted in workforce augmentation. By freeing up a person’s time, employees can now focus on more engaging tasks, and overtime organizations could see lower turnover, higher morale, and increased internal innovation.

In sum, the robots have not taken our jobs…yet. Technological breakthroughs in AI have the potential to drastically reduce the value and demand of a human worker.

Page 23COMPETITIVE LANDSCAPEPAGE 23

3. Robots can now think like humans

Fact: neither RPA or AI solutions can replicate human reasoning. RPA software bots can mimic the behaviour of humans in the way they interact with UI, but in doing so they are following highly methodological instructions and simple conditional logic.

AI solutions are underpinned by cognitive technologies, which are increasingly capable of human abilities such as understanding natural language and recognizing images, they can even learn by observing humans. Nonetheless, AI requires training from humans and cannot yet replicate human reasoning.

Page 24COMPETITIVE LANDSCAPEPAGE 24

4. BPOs are doomed

Fact: RPA tools add to the traditional transformation options rather than replacing them. In fact, BPO providers could benefit greatly by adopting RPA solutions by lowering costs and increasing efficiency. BPO providers could potentially become third party leasing agents of RPA solutions; these providers also have the potential to significantly increase their margins by adopting RPA even if growth slows.

On the other hand, growth of RPA as a transformation option should affect firm’s outsourcing strategies. In the context of RPAs the firm and the BPO stand to mutually benefit.

Page 25COMPETITIVE LANDSCAPEPAGE 25

5. Robots are infallible

Fact: while software robots may follow rules without deviation, do not need sleep or vacations, and will not make typos, they are prone to their own sources of failure. Reliability is not 100%, poor quality input data can cause exceptions, and while the ways in which robots recognize the elements of application UI are robust, they are not impervious to system changes –particularly when interacting with remote environments.

In addition, robots have no “common sense,” so if a flawin your organization’s robot management process allows an obvious error to creep into the instructions provided to the robots, they will still follow that error – replicating it hundreds or thousands of times until someone stops it.

Page 26SUMMARYPAGE 26

What a Robot Is• Computer coded

software• Programmes that

replace humans performing repetitive tasks

• Cross functional and cross application macros

What a Robot Is Not• Walking, talking

auto-bots• Physically existing

machines processing paper

• Artificial intelligence or voice recognition and reply software

The digital age is a the next wave of globalisation and it is about to hit the shore. The market for RPAs is hyper-competitive and growing rapidly. RPAs have the potential to be adopted (if not already) by most businesses served by RGP. Specifically in F&A there are many areas where RPAs can reduce cost and boost productivity within the organization.

One of the most unique and beneficial aspects of RPAs are their ease of use and low economic threshold for implementation.

Page 27Page 27Page 27CONTACT

Baxter Black

HEAD OF INTERN RESEARCH

W: +44 (0) 20 7422 4173

M: +1 (206) 963 2109

Email: baxter.black@rgp.com

Eldon House, 2 Eldon Street, LONDON EC2M 7LS

www.rgp.com