Moving the back office to the front seat

As the pandemic pushed the industry toward remote work in 2020, many financial institutions analyzed their back-office operations in search of greater efficiency. By revisiting antiquated processes and using advanced techniques, including robotic process automation and low-code development, financial institutions can save time and money, and better serve their customers.

For years, major legacy system upgrades have taken a backseat to customer-facing functionality like online account management, online loan processing and apps.

Most banks are now eager to invest in a corresponding digital transformation in operations, but a full “rip and replace” of legacy IT systems is impractical, costly and unsustainable in this time of rapid change, according to an Accenture report. Nearly 40 percent of bank COOs surveyed by the consultancy say the cost of modernizing legacy systems is the most significant obstacle to adopting new technologies.

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Yet, last year’s forced shift to remote work has led many banks to quickly adopt new technologies and revisit old processes, says Mark Fischer, head of intelligent automation for financial services at Capgemini Business Services. “COVID has really sparked a desire to look at automating a lot more,” Fischer says. “They’re looking for opportunities wherever they can find them.”

This includes new workflows, robotic process automation (RPA), optical character recognition (OCR), and no-code and low-code strategies that can support unstructured data. These no-code and low-code approaches allow banks to make better use of legacy systems faster, at a lower cost and with less risk. A 2019 Forrester Research report commissioned by Appian found that 84 percent of surveyed organizations were using low-code to reduce strain on IT resources, increase speed-to-market and involve the business in digital asset development.

Other banks are starting by automating reconciliations, Know Your Customer processes, fraud detection, and even chargebacks, says Jason Osborne, global head of consumer banking for Genpact. Cloud-based solutions that utilize APIs, microservices and other technologies can now handle many of these tasks more effectively and quickly with human oversight.

Pre-pandemic, many banks had systems that were locked down and could only be accessed on-site, some with processes that hadn’t changed in decades. By removing many long-standing roadblocks, institutions’ responses to the pandemic have taken lower-priority initiatives and put them front and center, says Vincent Hui, managing director at Cornerstone Advisors. While many of the digitalization initiatives made in 2020 were undertaken in survival mode, those who seize this opportunity to improve their efficiency and effectiveness could find a competitive advantage in the process, he says.

“There remains a lot of friction and handoffs between the front- and back-office workflow, and there’s a big opportunity for banks that reduce it,” Hui says.

Reducing handoffs and simplifying processes

A Genpact report noted that retail banks are among the most significant potential beneficiaries of digital transformation due to the inherently digital nature of their services. As banks continue to roll out new customer experiences, upgrading back-office systems will be even more important.

“Banks have finally woken up to that fact and are really thinking about how to digitize these mainframes and processors,” says Osborne. Trying to enable a digital customer experience without back-end capabilities, he says, “is like trying to connect your iPad to an old refrigerator.”

Before immediately jumping to new solutions or technology, banks should assess the efficiency of their processes, Osborne says. Many banks are operating with processes and handoffs that may no longer be relevant. Osborne noted one bank was able to use a process-mining solution to clean up, standardize and simplify processes. By refining processes, some banks have taken corporate client onboarding from weeks down to less than a day.

“It’s dramatic,” says Osborne. “The first step is to simplify and standardize. You then automate whatever is left over.”

Banks should also clearly identify and set specific goals they’d like to achieve through automation, Fischer says. For example, a bank may set a goal to reduce specific operations costs by 20 percent or reduce efficiency and handling time of loans by 50 percent. From there, banks should look for easy wins that can provide a quick return on investment.

“We’ll go in and look for some low-hanging fruit for you, something that’s going to give you five or 10 people’s worth of handling time or process, and you save all that money,” Fischer says. “Start with good governance and target operating models.”

Craig Guillot is a business writer who specializes in retail and finance.

Get additional insights about back-office upgrades that benefit banks and credit unions in “The transformation continues: Digitizing the back office,” a BAI Executive Report.