Most banks invest heavily in digital transformation. As described in my previous article, they are strongly focused on customer experience. This in itself is a good thing. Banks globally invested $31billion in digital transformation. A third of that amount was dedicated to the development of mobile banking services. Nevertheless, the challenges of digital transformation within the banking sector only represent the tip of the iceberg. Retail banks can take advantage of potential opportunities beyond mere front office activities. The opportunities are linked to the dematerialisation of transactions, and the modernisation of their back-office processes and tools. Changing one’s retail network and omnichannel development only would be, in our eyes, a strategic mistake with regard to growth and competitiveness. Let us examine why the Banking back-office matters as much as front-office when it comes to digital transformation in this industry.
Modernising the Banking back-office inherited from the 70-80s
Still today, banks are still using an IT infrastructure that was deployed decades ago, in the 70-80s. Updating this complex system is very costly. However, replacing it without disturbing the flow of banking transactions is challenging. This is why most banks keep on using the same technological backbone. They only developed additional applications to provide their clients with improved user interfaces.
This, in our mind, isn’t a plausible medium/long term solution.
To begin with, it is increasingly difficult to fulfil the ever-growing customer requirements in terms of banking services’ availability, reactivity and fluidity. The obsolete technological infrastructure that banks are using is rapidly becoming a challenge. It presents an obstacle towards customer experience enhancement, despite all the efforts they are putting. Moreover, managing retail bank’s networks and developing the omnichannels are not enough to achieve reductions in their operating costs. Sooner or later, restructuring and adjusting back office processes will become mandatory. Currently, retail banks’ back office handle 300 to 800 different types of processes. These transactions are not really dematerialized, thus requiring a large number of employees. For instance, a simple mortgage loan process in the United States involves 35 manual interventions on average. TD Bank, in the US claims that the annual paper consumption per contributor is of 10,000 papers. These examples highlight the lags regarding dematerialisation and automation.
The retail banking market is being completely reconfigured. New players are entering the market and new expectations are awaited. Hence, retail banks need to change the way they operate in order to adapt to this transforming market, and maintain their ability to grow. Digital transformation is at the core of this challenge, let us see why, how, and where all this will lead.This is the first instalment in a series of blog posts in which I will be tackling digital transformation in the banking sector. In this piece I will emphasise the importance of the fine-tuning of the banking customer experience and business model changes. The aspects linked to the back-office, the impact on jobs, and the internal processes will serve as subjects for future posts.
The impact of digital on banks and their clients
With regards to the banking sector, digital is considered a path of natural evolution rather than a path of revolution. This is due to the fact that information systems have already played a strategic role in the dematerialisation of banking processes for a long time. Nevertheless, retail banks must enrol in this large digital transformation process, to readjust to the new characteristics of the market. Such changes are happening in four areas:
Customer experience optimisation
Shift in operational processes
Change in internal processes
Reshaping of business models
The current model of retail banking is based on a physical network of branches offering a complete panel of banking services. This model is outdated because both of its cost and the lack of customer satisfaction it produces. Although the resizing retail networks could help reduce operating costs, this would not be sufficient for financial institutions to better comply with new market conditions.
Consumers’ new expectations Let’s start with the indirect impact of digital. Connected daily on at least one social network platform from a mobile phone, consumers have new expectations; more interaction and a seamless relationship to start with, as well as an easier, simpler access to bank services, not to mention ease of use. Consumers are increasingly reaching higher levels of digital integration from a personal point of view, and this leads to more demands which banks, just like other brands, need to address.
Branches opening hours are often incompatible with their clients’ working hours. Access to banking services and to personal requests via a financial advisor are perceived as unbelievably and unnecessarily complex by consumers in this day and age. In the 1990s, banks did design new ways of addressing such requirements: call centres offered an opportunity of expanding working hours. However, in a world where everything is accessible 24/7, this is no longer sufficient in the eyes of today’s customers of the banking sector. Read more →