Deep Dive: How Automating Back-End Processes Can Accelerate And Amplify Digital Transformations

The banking industry has long been mired in legacy systems and traditional processes, in many ways has become the exemplar of the stuffy, old-fashioned business reluctant to get with the times. Bankers themselves often hesitate to embrace new technologies, as evidenced by a recent PricewaterhouseCoopers (PwC) survey finding that 81 percent of banking CEOs were concerned about technological change moving too fast, a much higher percentage than those of respondents representing any other industry.

Their concern is not unfounded as upgrade costs, cybersecurity worries and compliance issues all increase the risks of digital transformations. The need for technological innovation has never been more pronounced, however, as the banking sector emerges from the biggest paradigm shift in its history due to the ongoing pandemic. Digital banking is growing faster than ever before: online banking has risen by 23 percent in usage throughout the pandemic and mobile banking has grown by 30 percent. The cost and potential risks of back-end upgrades to accommodate this sea of change may be great, but the risks of not innovating and potentially hemorrhaging customers may be even greater.

The following Deep Dive looks at changing customer expectations and why meeting them has proved challenging for many banks. It also examines the back-end innovations banks should explore to make digital transformations as seamless and effective as possible.

How Consumer Expectations Have Changed In Recent Years

It is no surprise that bank customers have come to expect their financial institutions’ (FIs’) services to be as fast and easy as every other part of their digital lives, especially as digital-native FinTechs offer similar banking services with less hassle than traditional options. A 2019 study of U.K. bank customers found that 43 percent expected to be able to open accounts instantly, for example, yet this service was offered by only 37 percent of traditional banks. The pandemic has significantly increased the hunger for fast and easy services by making digital channels the only banking option for many consumers worldwide, but traditional banks are having trouble keeping up.

The struggle is exacerbated by legacy back-end systems that lack the automation capabilities necessary to quickly and securely satisfy banking customers’ needs. More than half of banks in the U.S. and Canada said that the lack of automation has hindered quick customer authentication, a necessary step in account opening to prevent systems from becoming overwhelmed by fraudsters. Only 34 percent of banks found this step challenging when it came to in-person account openings, however, underscoring that the core problem is outdated back-end systems that work for on-site transactions but that are not suited for the digital age.

Updating these legacy systems has become a key priority for banks around the world. Most of the improvements needed are automation enhancements, of which many are based in the cloud.

Back-End Improvements Necessary For Innovation

One measure many banks are taking to revamp their back-end processes is adopting robotic process automation (RPA), software developed to perform repetitive manual tasks, which can save internal processing costs as well as prepare back-end systems for further customer-facing digital innovations. Thirty-five percent of global businesses in a recent survey said they currently use RPA, and an additional 59 percent plan to leverage the technology within the next five years. Banking is the industry most predicted to adopt the technology, at 67 percent. Seventy percent of respondents cited streamlining internal business processes as a top benefit of RPA, while 58 percent named a reduction in internal errors and 55 percent cited reduced staffing costs. These advancements represent substantial savings that can be devoted to further customer-facing initiatives.

Another way FIs are improving their back-end operations is by moving them to the cloud, which reduces the burden of on-site staff and systems. This option is particularly popular for anti-money laundering (AML) systems, which can be difficult and expensive to operate on-site. A recent study found that 47 percent of AML systems are located off-site, of which 65 percent are cloud-based. Experts predict that in the next five to 10 years, the majority of these systems will be cloud native, with the ongoing pandemic hastening this transition due to the greater number of digital payments that need to be screened for money laundering.

The future is here whether FIs like it or not, and customer expectations have already changed permanently. Banks will need to update their back-end systems to match — or risk being left behind.