Improving operating efficiency and sustainability in banking

Banks are facing new pressures to achieve efficiency, while facing shifting customer preferences, competition, and technological innovation.

Banking is set to change in the coming decade, and it is up to institutions to choose a path in transforming their operations. Challenged by fintech and lean business models, banks still have a runway to adopt more efficient processes, while not sacrificing the wealth of products or user experience. Posed before a transformation, the banking sector can envision a pathway to increase sustainability and operating efficiency.

Banking Faces the Challenge of Technological Overhaul

The banking sector reached a point where adopting new technologies is essential, while also needing to modernize legacy systems. Automation and self-service are now everyday occurrences, training customers to expect a smooth, efficient experience.

Legacy banks, however, are caught in a bind, still investing in offices and outside appearances, while failing to achieve the necessary speed in new product creation. The resulting service may not only end up hurting the bank’s bottom line, but also undermine customer engagement.

To remain competitive in the modern world, banks also need to reassess their processes, instead of over-investing in offices and interiors. Attracting more employees is also not the answer to better service in the age of automation. Providing working places looks positive on the surface, those jobs often involve monotonous processes, which could be automatized. At the same time, talent could be pointed to areas where human engagement is essential.

Data from the banking sector reveals that modernization has happened fast in the forward-facing service. Automatic offices and online payment systems replace tellers. But banks’ back offices still require lengthy processes to augment the work of legacy systems. Those processes can be handled by automation technology, reducing human input in the IT department, transaction handling, and general accounting processes.

An example of lightening the backend load would be to avoid paper trails in transactions. Resource allocation can also be automatized, as well as routine decision-making. Banks have shown examples of reorganizing as much as 900 end-to-end processes, achieving 50% automation. 

Barriers to Modernizing Processes

Newly arriving fintech products can do a bare-bones operation using newly created processes and software. But banks face headwinds in design, general business tasks, as well as the mode of operation of their IT departments.

Banking processes have grown complex over time, based on both regulations and internal decisions. Thus, it may take years to rebuild software that could encompass those processes. The bank itself may start with procedures that are not optimized and lengthy internal processes created on an ad-hoc basis.

IT departments may also have differing agendas in terms of security and system building, not noticing a demand for efficiency and streamlining. Internal bank IT departments may also not be capable of creating new software to replace the old workflow.

Banks should have automation tools and automate their processes as much as possible. People should be doing only jobs that require human input. All the other processes in the bank (transactions, IT, etc. should be automated). In addition to reducing process costs, automation tools can help improve staff productivity, enabling banks to handle more transactions and greater volumes of activity with the same number of personnel.

How Banks can Boost Efficiency

Banks can move in two directions when seeking efficiency and sustainability. One is to shorten the customer engagement, and the other is to seek simplified processes. Following the path of fintech operations, with a simpler architecture, would unify front-end user engagement with back-end processes. Such an approach would speed up process completion and minimize the requirement for support.

An optimized backend process may mean better access to novel products, previously unavailable without a complex human-driven process. Access to loans, as well as other trading and investment products, can be automated in the backend, to streamline the bank’s sources of revenues. The addition of AI and algorithmic processes may also mean expanded possibilities for product offerings and decision-making.

Optimizing the backend process and IT department does not translate into simplification or direct layoffs. Banking is in a situation where processes can be tailor-made for each customer, yet remain automatic and require little human input. Examples of process engagement include any task from simple transfers to loan requests or information queries. 

Philippe Carrel, Chief Commercial Officer at Finmechanics, envisions multiple processes that can be added to a bank’s backend, without an undue load on IT departments.

“As digital banking now reaches corporate and transaction banking, the challenge is not about replacing sales desks with aps., but again rethinking the back-end. It involves real-time pricing, treasury advisory services, derivatives, margins, collateral and more. The mere idea of an algorithm proposing services or investments across asset classes and client activities involves consuming information from a broad range of sources,” Carrel envisions the future of banking backend operations.

Process and workflow improvements can also optimize tasks in user onboarding, such as the first engagement with the bank and opening a new account. Speed is essential, as modern users expect to only wait for seconds, based on their experience with fintech or loan apps.

The monopoly of banks was only challenged in the past decade, and for most organizations, becoming streamlined and achieving sustainability is a big task. So far, banks have started off with layoffs, but there is more work to be done for institutions to shift to an up-to-date operations model. Sustainability and optimization also don’t mean banks will become smaller and simpler, nor that their profits would suffer. The potential goal of automation and added products can end up augmenting the bottom line of banks.

Sustainability also comes with simplification, meaning that banks should refrain from building up their technology systems with new layers, and instead re-engineer processes with the end-user in mind.

Digital transformation in banking is a process expected to unfurl in the coming decade. Forbis group is one of the proponents for building innovative and sustainable financial solutions, to bring about a deep transformation in the finance and banking sector. Forbis offers the tools to build an entire complex digital banking system, a task that will see increased demand as banks transfer from legacy systems to automation and streamlined solutions.

Forbis has already created working prototypes of products that aim to digitize banking operations. With a focus on innovating in e-finance, the company has been developing Contomobile – a digital banking solution, which combines the delivery of secure and reliable financial services with a thoughtful user interface. As the number of companies wanting to go digital increases, this white label solution is in high demand, since it can be rebuilt based on individual needs of the business.

Evolution may be available on all levels, both for commercial and investment banks, bringing a new era of product growth and speedier solutions. Banking has always been an evolving sector, but the latest changes are expected to be the fastest and deepest on record.

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