Back-Office Overhaul Critical to Digital Banking Transformation

For most financial institutions, digital banking transformation is taking much longer and costing far more than expected. Often, this is caused by focusing on ‘above the glass’ (UX) enhancements without the required back-office transformation.
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Digital banking transformation must go beyond simply the user’s mobile experience (above the glass). There also must be improved deployment of data and analytics, productivity gains, implementation of modern technology platforms, and new business models created (below the glass).

Specifically, by implementing back-office improvements using AI-enabled technologies like robotic process automation (RPA) and intelligent document processing, banks can benefit from faster processing, less manual involvement, and fewer opportunities for human error. The goal is to implement a series of incremental improvements deployed at speed over time. This, in turn, will improve customer satisfaction and engagement.

Know Your Ambition and Establish Your Team

Most financial institutions are already aware that digital banking transformation requires a cross-functional team, led by the CFO or CIO, to achieve success. There also must be full support from the board and the entire C-Suite. The transformation process must begin with assessing current data capabilities, processes, and technologies to have a clear idea of what will be required to become future-ready.

Roles for each team member have to be determined and a timeline for milestones established. While the members of the team will differ for each institution, it’s important to include a member of the compliance team to ensure smooth implementation. Transparency and internal and external communication of progress is also a key to success so that impacted parties are aware of the benefits of the transformation.

This is because there is often a cultural gap that doesn’t fully embrace the degree of change required or have a full understanding of the extensive back-office transformation needed to deliver differentiated experiences. Back-office change is also critical to helping institutions reduce expense ratios and address digital transformation inefficiencies.

Finally, it is important for all parties to understand that digital banking transformation and becoming future-ready is not a destination, but an ongoing journey. With the banking ecosystem and customer expectations always changing, the transformation process will evolve over time.

Read More: Retail Banking Lagging in Process Automation, Despite Benefits

Data & Analytics: Foundation for ‘Below the Glass’ Success

As noted in the Bank Leader’s Guide to Digital Transformation, published by Deluxe, the foundation of building improved efficiencies and back-office effectiveness is the use of data and analytics, combined with modern technologies and processes, that will directly impact the customer.

This data makes back-office automation and cloud technology deployment possible allowing for the greater speed and scalability required for banking-as-a-service (BaaS) and embedded banking. Without speed and scale, the potential for future growth is limited.

“There is a need to hire the right talent with the knowledge and expertise to implement and maximize technology in every area of the institution,” observes Marcia Malzahn, the president of Malzahn Strategic. Many organizations should also consider collaboration with third-party solution providers that can implement digital banking transformation at a fraction of the time and cost required if developed internally. These providers usually have a track record of success that can minimize deployment risks.

The ability to effectively collect and process the massive amount of data available to create improved back-office processes, build new products and services, and measure the effectiveness of initiatives is one of the biggest challenges for most banks and credit unions. Data collection and analytics must increasingly be done in near real-time with the results shared across the organization. This allows for greater flow of ideas and input from all levels.

Organizations also should look beyond traditional data sources, including the flow of funds to and from outside organizations. According to JP Nicols, co-founder of Alloy Labs Alliance, “Financial institutions tend to overlook [flow analysis] because it takes a little more work to turn this kind of unstructured data into actionable insights, but it’s worth it.”

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Automation Beyond Making Legacy Processes Faster

Becoming a future-ready digital banking organization requires a complete rethinking of all back-office operations (as opposed to simply digitizing existing legacy processes).

“Organizations should look for the processes that are tedious, time consuming, and have the greatest impact on both the efficiency of the organization and the customer experience,” advises Jim Perry, senior strategist at Market Insights. Automating as many ‘behind the glass’ components as possible will translate into more freedom to innovate and drive smarter decision making.

Automation can lead to more fulfilling and meaningful work for existing and new employees, eliminating the fear of becoming obsolete in a digital world. At a time of low unemployment, the retention of existing employees is crucial.

“The next step is using machine learning and artificial intelligence to take on more complex tasks that today require a broader range of human judgment,” states Nicols. This is also an area where collaboration with external solution providers can provide a significant advantage.

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The Future Belongs to the Technology-Enabled

To become future-ready, financial institutions will need to deploy modern technologies to support agility, efficiency, security, and innovation. Technologies such as intelligent decisioning, open banking APIs, cloud computing, embedded solutions, and cybersecurity will differentiate banks and credit unions in 2023 and beyond.

At a time of economic uncertainty, organizations should focus on incremental improvements to back-office processes that will yield the best results in the shortest amount of time. There also must be a long-term perspective that includes the investment in modern technologies.

Not only must legacy systems be upgraded, but business structure, operations, people, culture, and leadership must all be in sync and aligned. This holistic perspective helps to avoid organizations taking on digital transformation ‘projects’ that are limited in scope as opposed to trying to transform the entire organization.

Despite the scale of change, rapid incremental upgrades help support the speed of change required. It’s often best to target some quick wins that will generate positive momentum that can set the foundation for future change.

Digital Transformation at the Speed of Change

The banking industry competitive battlefield has been altered significantly, and it will not return to the ‘good old days’. In fact, the change we are seeing will never happen this slowly again. So, legacy financial institutions need to respond … quickly.

Impediments to successful back-office transformation include poor project scoping, inadequate resources and/or skillsets, and not focusing on the projects that will have the fastest and most certain outcomes. Taking on too much, or not planning appropriately, can result in higher costs and a lack of fit with intended business strategies. Leadership must get the entire organization pulling in the same direction, understanding the value of internal change.

The future of banking will be supported by modern technology and enhanced by high levels of insights, providing unlimited opportunities for financial institutions to increase efficiency and improve the bottom line. To achieve the level of scale and speed to effectively compete will require a reduction in operating costs driven by a modernization of back-office infrastructure and a commitment to improved customer service.

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