Were you left standing on the high street during the recent Christmas vacation wondering why your ATM card wasn’t working? Or worse, stranded at the checkout counter of a retail store, with a clerk telling you that your card has inexplicably been declined? To add insult to the injury of these sorts of service disruptions, you then receive an email from your bank asking you to download their latest mobile app or ‘like’ their shiny new Facebook page. This begs the question: why doesn’t the bank get the basics right – solving the service disruptions rather than trying to seduce you with whizzy new applications?
Well, the reasons are not hard to fathom. Most banks are investing in digital technologies to transform their customer experience. However, they have largely left their core systems alone. These systems continue to run on legacy architecture that is both difficult and expensive to maintain. Estimates indicate that nearly 90% of the technology budgets in North American and European financial institutions are spent on managing and maintaining legacy systems [i].
This neglect of the back office is now coming back to bite the banks. For many of us, the most visible manifestation is the service disruptions discussed above. However, these disruptions are only the visible face of such neglect. Usage of legacy systems has resulted in highly inefficient manual and paper-based processes. For instance, it is estimated that banks use as much as 10,000 pages of paper per person per year [ii]. It is estimated that nearly 50% of submitted paper work in account opening gets rejected [iii]. Such inefficiencies have a significant impact on the customer experience. Research indicates that 60% of customer dissatisfaction has its source in the back office [iv]. Our own research with the MIT Center for Digital Business suggests that only 30% of bank executives feel that their operational processes can adapt quickly to external change [v].
It’s clearly time to end the neglect of back-office systems. And the solutions are certainly there. Banks can choose from a variety of technologies when it comes to bringing their back office up to speed in the digital age. For instance, tactical solutions – such as document management systems and digital signature – enable banks to streamline paper-intensive business processes. France-based BPCE Group launched an electronic signature scheme to save nearly one billion sheets of paper every year [vi]. Similarly, strategic solutions such as business process management (BPM) help banks raise productivity. The UK’s Lloyd’s Banking Group reduced the number of unique business processes from 700 to 23 with a BPM-enabled technology program [vii] and is aiming to save £1.7 billion in 2014 [viii]. Transformational solutions, such as replacement of core platforms, help position a bank for the digital future. A core modernization program has helped US-based bank BBVA Compass reduce time to market for new products by as much as 75% [ix].
Our analysis indicates that banks can save as much as 30% annually by choosing a combination of some of the technologies above. And this is even before we have considered options around cloud-based services. Using cloud technologies can only increase the potential cost savings.
So, how should banks start along this road, giving the neglected back office the attention it needs? The first step is to assess organizational readiness. What is the degree of top-management focus on back-office automation, for instance? Does the bank have some of the required capabilities through some centers of excellence? Then, evaluate the bank’s technology readiness. What is the percentage of legacy systems versus new systems? What is the current level of investment in automation solutions? This is followed by assessing the process readiness. Questions in this stage involve a comparison of the percentage of manual versus automated process. The final stage is to evaluate the investment horizon. Here, banks base their choice of solution on budget availability, expected payback period, and the overall estimated returns.
Banks need to take action now. Service disruptions cause reams of negative publicity, in print and online. They undermine positive initiatives and projects to digitize the customer experience. And beyond the personal inconvenience to the customer of service disruption, this historical neglect of back-office systems seriously compromises the customer experience and any desire the bank has to modernize and transform. For more on this pressing topic, read our paper: “Backing up the Digital Front: Digitizing the Banking Back Office”.