According to the 2018 Retail Banking Trends and Predictions, published by the Digital Banking Report, improving the customer experience has been the number one priority for financial institutions for the last three years. Unfortunately, while the vast majority of banks and credit unions aim to compete and win by offering a digital consumer experience that removes friction and is personalized, bank back offices can’t deliver.
Three-quarters (74%) of the bank operations leaders surveyed by Accenture said that improving the customer experience is currently their top strategic priority. Despite this investment, more than two-thirds (69%) of the respondents believe that customer insight that could be used for improved products, expanded services and simplified processes is not currently being leveraged due to legacy systems and dated back office processes.
“There’s a wealth of unlocked value to be extracted from banks’ operational systems, but releasing and optimizing that value depends on the bank’s ability to use digital technologies,” said Alan McIntyre, Senior Managing Director of Global Banking at Accenture. “The challenge lies in the banks’ legacy systems, which can impede a bank’s ability to improve operations and prepare for the future.”
While most fintech firms started out organizing their operations around customer needs, traditional banking organizations are still oriented around product and functional silos. While the speed of innovation in banking is increasing, most bank operations units tend to change one process, one function, or even one technology at a time, limiting an organization’s ability to become agile and prepared to deliver the best digital consumer experience possible.
The four themes that will change the way bank back-offices will operate in the future are:
- Improving the customer experience will be ‘priority one’ for banking back offices
- Bank operations will become the intelligence engine
- Release of ‘trapped value’ will elevate the customer experience
- There is a need for an updated legacy system
Customer Experience Becomes Back Office Priority
In the past, back offices of banking organizations were focused on improving efficiency. As transaction-focused organizations, lowering the cost of each transaction was imperative. In the Accenture report, it was found that 74% of bank operations leaders now say that improving the customer experience is their top strategic priority.
To achieve this improvement in customer experience, the three top strategies are customer journey optimization, core system replacement, and organizational agility. Most banks (66%) feel that their banking operations are currently very well prepared to deliver on their strategic priorities over the next five years.
Interestingly, illustrating the power of new technologies, advanced analytics and robotic process automation (RPA), slightly more than 60% of banks expect to cut 10% to 30% of back-office positions in the next three years. It will be interesting to see if these efficiencies can be achieved.
Read More: The Customer Experience Battlefield
From Transaction Processing to Insight Delivery
With almost all of the transaction costs minimized, the back office focus has shifted to enabling leaner processing and quicker, insight-led decision making. This includes the use of new technologies to integrate multiple internal silos of consumer data for use by the entire banking organization.
Almost half (45%) of respondents said they expect banking operations’ primary role in three years to be “achieving straight-through processing through digital technologies and fully harnessing the potential of customer and transaction data residing in operational systems.”
Releasing ‘Trapped Value’ to Improve Experience
According to the Accenture research, nearly 70% of banks believe that their back office has not tapped all of the potential that lies within current legacy systems. It was mentioned that the ability to access and optimizing this value will be dependent on each organization’s ability to use new technologies and to create better front-line interfaces for improved customer journeys.
Updated Legacy Systems are Required
Bank operating officers understand the importance of digital transformation, but also realize that implementing the technologies required to achieve that transformation is a major challenge. When asked to identify the greatest barrier to their bank’s ability to drive digital transformation, almost 4 in 10 (39%) of banking executives cited their complex legacy IT environment, with the cost of modernizing those systems the most significant obstacle to adopting new technologies.
Other key challenges mentions were conflicting priorities (31%), lack of strategic vision by leadership (28%) and disruption and volatility within the organization (26%). Not surprisingly, the ability to find the right staff was also cited as a barrier by 24% of respondents.
Back Office is the New Front Office
The need for improved, real-time insight and the distribution of this insight directly to consumer devices is bringing the back office to the forefront of banking. In fact, the future bank ecosystem will expose bank data, algorithms, and processes to outsiders (with approval). With intuitive, transparent, and secure processes and systems, the back office will run like a customer experience front office.
The evolution of operations from a pure cost center to a hybrid that also contributes to top-line growth will involve all functions of banking. This will be done by leveraging advanced technologies, from robots to the cloud, without the need for a complete legacy system overhaul.
“Banks can focus on the customer experience by combining key technologies that they can implement today, without a major overhaul of their existing IT infrastructure,” McIntyre said. “For instance, by using cloud, robotic process automation and artificial intelligence, banks can plug-and-play new customer-facing apps and processes within or around their existing legacy systems. We believe that this approach can, through revenue and productivity gains, increase a bank’s return on equity by as much as seven percentage points.”
The Accenture report notes that banks are embracing cloud, artificial intelligence and other digital technologies to upgrade their operations. Nearly half of survey respondents said they already use cloud-based applications, with another 27% planning to do so in the next year. In addition, 22% said they are using artificial intelligence, with another 33% planning to do so in the next year. Finally, 16% of respondents said they use robotic process automation, with another 33% planning to so in the next year.
Waiting is Not an Option
Nearly 80% of bank operations leaders say their organization’s existence could be threatened if they don’t update technology to be more flexible and capable of supporting rapid innovation. According to Accenture, advanced technologies in combination – AI, RPA, and cloud, for example – can lead to revenue and productivity gains that can add as much as seven percentage points to return on equity.
The time to take advantage of these opportunities is now.