Finally, some love (and money) for the back office

Get insights on the back-office upgrades that will help banks and credit unions succeed in an increasingly digital world in “The transformation continues: Digitizing the back office,” BAI’s latest Executive Report.

 

The goings-on in the back office at many a bank can be likened to the backstage work for a Broadway play: while the audience takes in a highly polished and practiced performance, it’s what they don’t see—the less glamorous heavy lifting and scurrying about behind the scenes—that keeps the show on track.

But as banking becomes ever more digital, driven in no small measure by COVID-19, the curtain is rising to reveal stubborn inefficiencies that remain part of the back office, from outdated technology to heavily manual processes.

The competitive pressures to keep customers in a permanent state of delight ensure that banks will make their digital tools ever faster and more powerful. Keeping pace with these advances represents a major challenge for back-office teams, which at many institutions have long been resource-starved, relative to those facing the public.

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In this month’s Executive Report, we look at why financial services providers should consider spending more on back-office upgrades and where some institutions are finding success in their efforts to create an end-to-end digital solution.

Our lead story by contributing writer Dawn Wotapka digs into the pandemic’s outsized influence over the future of banking. A consultant she interviewed put it plainly: “COVID has
essentially been a catalyst to change the way banks need to rethink their business models and an accelerator on what will be a war for fit-for-purpose technology and people.”

Part of that rethinking is a sharper focus on efficiency, given concerns that 2021 could be more painful for banks and customers as the effects of massive government stimulus measures wear off. Many financial services providers are looking to automate more of their back-office functions to save both time and money.

Even small banks and credit unions are facing up to the idea that relying on delivering person-to-person services—the historical foundation of their businesses—may be less of a loyalty driver in the future as customers adopt a preference for digital.

As financial services firms pursue digitalization, gaining greater control over their vast repositories of data and using that data more effectively will be key to the transition. Keith Pearson from ServiceNow writes that this shift starts with better back-office technology.

His article, “Why banks need stronger digital foundations,” centers on his previous experience overseeing technology and operations strategy at Lloyds Banking Group.

“Every financial services organization that aspires to digitally transform must first gain control of its data technology,” Pearson writes. It took three years for Lloyds to get that control, but in doing so, the bank cut costs, boosted productivity and improved its regulatory compliance.

His advice to others embarking on a similar journey? Concentrate on the business benefits, make sure the solution works for employees as well as customers and keep the technology subordinate to business needs.

Kunal Chopra, once a banker and now a Toronto-based consultant, also has direct experience with digitally transforming the operational side. In his conversation with contributing writer Edmund Lawler, he discusses the customer experience shortcomings that can occur when back-office technology capabilities fail to match up with ambitious, customer-facing digital offerings.

He agrees that the pandemic-fueled rush to digital revealed the risks that banks and credit unions have been carrying for years by underfunding the back office. But, he says, in addressing that risk, the biggest challenge is the entrenched view at many institutions that the operations side is a cost center. This makes it hard for them to see the top-line benefits of going digital end to end, he says.

There is, however, growing momentum in some quarters to take on those back-office upgrades so long deferred, writes BAI contributor Craig Guillot. In his article, he quotes one market player in that space predicting that “2021 is going to be the year banks really dive in.”

He cites a report that states small and mid-sized banks and credit unions can see rapid efficiency improvements by trading out largely manual processes for more streamlined workflows featuring robotic process automation, low-code strategies and other improvements that can be integrated into legacy technology.

Even without the pandemic, most banks and credit unions would have eventually had to modernize their back office—COVID-19 just accelerated the timeline. In the near term, this creates pressure to change, but on the upside, the benefits start accruing sooner.

Terry Badger is the managing editor at BAI.

Click here to download “The transformation continues: Digitizing the back office.”