The banking industry is currently on the back foot when it comes to incorporating new digitisation technology. Customer facing processes like mobile banking apps and online services are zooming ahead, whereas incorporating these new technologies into the back-office is being left behind. There are multiple reasons as to why this is the case.
To be able to understand the ‘whys’ you must first understand the inner workings of the Back-office processes, because if we don’t get the fundamentals of digitisation processes running like clockwork, we are laying foundations on unstable ground.
In a recent interview with Bloomberg, the CEO of a major Singaporean bank[1] noted:
“A lot of people have tried to digitise before they change the fundamentals. I call that putting lipstick on a pig.”
What goes on in the Back-office?
The behind the scenes area of the digitisation of a system, unfortunately can often be misunderstood or its importance underestimated. Without strong cohesion in the back-office processes, new digitisation systems will come unstuck. Back office processes include; transaction processing, accounting, customer data management, compliance and risk management, as well as Legacy systems. If new systems do not work alongside Legacy systems the bank’s smooth operations will be no more.
Legacy systems and their complexities
A major challenge with digitising back-office processes is incorporating the already present Legacy systems. Like a Boomer who cannot handle the new slang language of a gen Z, Legacy systems have been built using outdated technology, which are deeply entrenched in the bank’s systems. Finding how the two can coexist and accentuate each other without causing system holdups, disruptions, potential risks and excessive spending is the challenge.
Transformation Costs
It is essential for banks to invest in new technologies, however, the costs to update back-office processes can be excessive. When you include; the technology itself, change in management processes and skilled staff, the costs can be damaging. For many, especially smaller banks, the return on Investment (ROI) is not immediately seen. This can make it a tough sell to stakeholders.
Regulatory and Compliance Challenges
Banks operate under highly regulated systems and standards, therefore any changes made must comply with these. If there are any problems with compliance during updates and changes of new technologies, it can lead to delays for both the bank and customers.
Cultural Resistance and Skill Gaps
Humans can find change scary, the same goes for changes in banking systems. Some Legacy systems may have been in place in the bank for many years, leading to resistance to change from staff. They may fear being replaced by the new technology or even the opposite, increased workload for them. There will also be a skills gap when the new systems come into play, which requires substantial training or hiring new employees.
Interoperability and Data Silos
Banks often run in what is known as Silos, where different departments use various programs and systems. Being able to achieve Interoperability between all of these Silos is a big challenge. Incorporating a new digitised system can be a great challenge to maintain seamless communication between these Silos. Being able to do so includes incorporating technological solutions and an open mind to things such as; data ownership, establishing data governance and data controls.
Risks associated with Incomplete Integration
Banks can pick and choose their own level of digitisation, however there are many risks associated with this half-finished way of updating their Back-office technology.
They will be much more susceptible to various threats, such as; cybersecurity risks, compliance failures and operational inefficiencies. These threats will result in the digitisation that was completed, deemed fruitless.
While the digitisation of the Front-office processes in banks have been steaming ahead, the back-office is still relatively untouched land. In order for banks to realise the benefits of digital transformation, they must overcome the hurdles of Legacy systems, high costs, regulatory blocks, cultural resistance, skill gaps and interoperability issues. Once these are dealt with comprehensively, banks can experience increased operational efficiency and sustained business growth.
Aerapass has the experience and expertise to have all your needs in digitisation met. For more information, please contact Laurie Antioch, Chief Finance & Strategy Officer.
[1] DBS CEO Gupta says only half of banks making enough tech progress | The Star