B.A.Sc. Thesis Abstracts - Year 2006

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Smart Card Implementation in the Canadian Financial Services Industry: An Operational Perspective

Tahmina Afroz

The payment industry has been searching for a more secure and powerful replacement of the magnetic stripe cards since the 1980s due to the increase in fraud associated with these cards. Smart cards are very similar to regular debit and credit cards in size and shape but consist of a microprocessor inside its chip, which enables it to process information safely and securely. Both Visa Canada and MasterCard Canada have decided to migrate to chip based cards by 2010. This report provides a background on smart card technology and the associated risks and challenges in order to provide a set of recommendations for the Canadian financial services industry. Various issues that need to be resolved and decided upon before implementation, such as chip type, chip size, associated risks and fraud. PIN management and consumer and merchant acceptance are explored in this report. Technical specifications such as the operating system of the card, personalization and IVR specifications are not discussed in great detail and are assumed to be the responsibility of the chip manufacturer and issuer, respectively.

The Student Smart Card: A Business Case for the Transformation of the Canadian Student Card

Michael Gettis

Currently Canada has nearly one million students in university. Every one of these students carries a student card for identification purposes. In addition, they carry debit cards, credit cards, and even a stored value card to buy coffee. The concept of this project is simple. Combine them into one card.

At the university of Korea, every student carries a "smart" student card which incorporates new technologies that allow students to withdraw money from an ATM, pay with a prepaid credit card, use a phone card or even take the bus to school. Moreover, the university maintains control over attendance, computer usage, and even automated machines to print transcripts. All with the one card. Canadian students may not want a card to control whether they can attend class, but the possibility exists.

This "all-in-one" card has the capability to be not only profitable for a bank, but will also end up saving the university almost $250.000 a year by getting them out of the payments business. Too many universities are already running their payment systems internally. Who is better suited to help then a bank.

Canadian banks are committing to smart payment technologies. The universities are looking to expand the services they offer students. As well, students are becoming more sophisticated in how they handle payments. This idea makes sense. This union of bank and student through universities generates long lasting banking relationships for an investment of about $2 MM.

The Automation of Electronic Payments for Small Business and Integration with Supply Chain Management Systems

A. C. Gravitis

Canada’s Small and Medium-Sized Enterprises lack an ability to exchange information regarding their electronic payments, and are therefore unable to derive the benefit of fully automating their payments systems. This problem arises partially from our electronic payment system itself because it has no inexpensive manner of actually delivering remittance information. The other fundamental barrier to automated payments is that the Enterprise Resource Software used by small businesses typically contains minimal functionality to create or manage payments, and thus payments are usually processed manually.

This paper discusses the technologies available to Canadian financial institutions and the financial services industry to assist SMEs in automating their payment processes, as well as different scenarios for system integration. Finally, a handful of industry solutions are reviewed as examples and proof-of-concept of these scenarios

Lessons-Learned Information System for a Bank

Linda Zhixing Li

The purpose of this thesis is to advise one of Canada's largest banks ("The Bank") about industry best practices and solutions for managing and utilizing Lessons Learned from project management. As an essential part of enterprise knowledge management, Lessons-Learned Information Systems (LLIS) and Lessons Learned Processes (LLP) exist to support organizational goals of: promoting recurrence of successful outcomes and precluding the repetition of unsuccessful outcomes. Currently, The Bank does not have a defined process or system to centralize and facilitated the sharing and reuse of project Lessons-Learned.

After first providing an overview of The Bank's business and project management environment, this thesis explicitly identifies three core questions which an ideal Lessons Learned Information System would help The Bank's project managers to answer:

1. Where have we done similar work before?
2. What resources are available to help my project?
3. What past successes and failures should we learn from?

With these questions in mind, this thesis examines the LLIS and/or LLP used by three large corporations, namely Microsoft Corp, Raytheon Company and National Aeronautical and Space Administration (NASA) to reveal industry best practices and give recommendations to The Bank about how to:

- Establish a formal definition for lessons learned
- Establish criteria for a lessons learned process
- Recommend a software application for LLIS
- Turn Lessons Learned into Lessons Applied

Sensitivity Analysis of Cost Projections for eMessaging Services at a Large Canadian Bank

Vito Marchese

As technology becomes more common among employees at large Canadian Banks, the need to manage the respective costs increases in importance. Sensitivity analyses are commonly used in forecasting and making financial projections for future cash flow projections. This thesis determines the influence of specific costs and their influence on the total annual cost of eMessaging services for the Bank. In an effort to project annual eMessaging costs as accurately as possible, a mathematical model was build that makes use of such sensitivity methodologies. After the data was input and processed, it was clear which costs had the greatest influence on the total annual costs of eMessaging at the bank. With slight modifications, this model has the ability to be used in almost any other application domain in the bank.

Economic Considerations in Bank Acquisitions

Eftila Qirjazi

Bank acquisitions in the U.S have become common practice for the big six Canadian banks. With the conversion of the acquired bank onto the parent’s bank system, additional ongoing technology costs can have significant impacts on the parent’s bank overall acquisition costs. Conversion decisions are made directly by estimating these cost impacts. In order to calculate these financial effects extensive technical and financial research must be carried out. The final results depend directly on the acquired bank’s size and the efficiency of the system used by this bank pre-conversion as compared to the parent’s bank technical system

There has been no documented method to actually calculate the impact of the acquisition conversions onto the parent’s bank systems. For this reason, the University of Toronto’s Center for Management of Technology and Entrepreneurship (CMTE) in cooperation with one of the big six Canadian banks, developed a comprehensive model to calculate acquisition conversion impacts and synergies.

This report delivers:

1.A systematic method to show the acquisitions impact on the parent bank
2.A flexible excel model that can easily be used to carry out all the calculations and help in evaluation of an acquisition.
3.An evaluation of the model and recommendations to increase accuracy of the used method are also made.

The results are useful because:

1.There are no other published methods to calculate technology acquisition impacts on the acquiring banks.
2.The model gives a clear picture of the parent bank’s ongoing technology costs as projected over the next five years.
3.The model can be used as an ongoing technology costing document.
4.The model can be used to make acquisition decisions, based on cost impacts and conversion synergies.
5.The model can be used to monitor the acquisitions after the deals have been made.

Acquisitions can bring significant profits to the parent banks; however in the process of acquiring a bank, the acquirer has to consider several business and technical components. This model can help facilitate the acquisition processes on the technical aspects.

Automation of Electronic Payments through Accounting Packages - A Product Concept

Tianweng Wu

The collaborating bank (one of Canada’s large banks) has been considering (using focus groups) a method for smaller businesses to send payments directly through the bank from their accounting packages, instead of printing a cheque. The barriers and challenges to adopting electronic payments must be identified so that countermeasures can be taken by the bank to facilitate the automation of paperless cheques and remittance information from accounts payables to accounts receivables. However, such an end-to end integration and a straight-through-process requires seamless interfaces between different systems. One approach to ensure this seamless integration was to develop inter-operable modules with sufficient flexibility to meet the needs and introduce these to the various parties in the financial supply chain. Unfortunately, up to now such a modular system as Electronic Data Interchange (EDI) often came with a high startup and maintenance cost, which can not be justified without enough volume to reach the required economies of scale.

Therefore, the primary objective of this project was to provide a cost effective solution to facilitate the automation of electronic payments and remittance information directly from clients’ accounting packages through the bank, along with reporting on the remaining barriers to adoption of electronic payments. The methodology consisted of compiling key findings from literature review, performing statistical analysis to estimate market share of accounting packages in Canada and conducting structured inquiry.

The results and recommendation of this project were synthesized into a product concept, in which the following five aspects were emphasized: (a) Payment Framework, (b) Communication Protocol, (c) Extraction of Client Data, (d) Security Measures, and (e) Value-added services.

In order to yield the highest operational excellence, a payment framework was first designed to allow the remittance information to flow alongside the payment information. Then, a minimal set of remittance information was specified, which would satisfy the majority of the Bank’s business clients in order to facilitate the automatic posting of a payment to the correct account and against the correct invoice(s). Moreover, a cooperative relationship with a cheque printing software vendor was recommended to raise the production concept to an operational level. Furthermore, an innovative algorithm combined with digital signature technology was presented, which would further enhance security performance by restricting the origin of the eCheque to be the computer with the specified accounting package without using biometric elements. Lastly, a related service of eCheque, overdraft protection was described to augment revenue streams. The results obtained were consistent with what the secondary research suggested, in that it identifies integration as the true value added component to a payment product.

A Comparison of the Six Sigma DMAIC Process in the Canadian Financial Services Industry and the Application of Software Simulation to Designed Experiments

Brian Yap

Six Sigma is a business philosophy that uses a variety of statistical tools and concepts to improve the key processes in an organization. It has seen widespread adoption by companies in all industries from manufacturing to health care. This report compares the implementation of Six Sigma in the context of three Canadian banking institutions. The report examined the impact of organizational culture on each bank's approach to Six Sigma.

Each bank was interviewed using the same set of questions and any meaningful differences were highlighted. It was found that only a few differences exist in the methods for project selection and end-customer feedback. Other smaller differences were due to the training company that the bank enlisted but these were not significant. In addition, the use of business process simulation and its application to Six Sigma was examined. The benefits of software simulation are discussed along with a proposed method to apply it in a Design of Experiment context during a Six Sigma project.

Bank Branch Logical Grouping Strategy

Petty Yom and Adria Wu

This study uses Data Envelopment Analysis (DEA) to develop a grouping strategy for benchmarking the performance of bank branches in a large Canadian Financial Institution ("The Bank"). The Bank currently clusters branches based on community type and population size and is interested in examining other methodologies to improve their grouping strategy. DEA is a linear programming technique that is used to develop a fair and equitable branch classification strategy. An input oriented BCC production model was used to capture and analyze the aggregated effects of complex processes. The model examines the relationship between staff and transaction activities and compares branch efficiencies to group those units that operate in similar environments. In agreement with the Bank's focus to develop new methods to improve branch productivity, a customized grouping strategy is recommended. This solution offers a unique set of benchmarking peers for every inefficient branch. Also, future research is presented to improve the quality of data and to further improve the model for implementation.