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Back-office upgrades deliver more than operational efficiency

When it comes to operational efficiency, banks and credit unions have long focused on the front office, where the revamped lobbies with pods wow customers, and the middle office, where the colorful and easy-to-use apps are created.

The back office, meanwhile, remained an unloved black hole—process heavy and inefficient. Alex Kwiatkowski, a principal industry consultant in the global banking practice at SAS, says things are changing. “Banks have long recognized the back office must be overhauled,” he says. “Now that spotlight is getting a bit brighter.”

Several factors are at play. Competition from nimble startups free of legacy costs continues heating up, and interest rates remain at rock bottom, weighing on profitability. The pandemic is also pushing banks to rethink their business models in terms of how technology and people are deployed. According to a recent Deloitte report, the percentage of respondents globally that are pursuing cost reduction targets of at least 10 percent soared by 61 percent compared to pre-pandemic levels.

Hiway Credit Union, a Minnesota-based financial cooperative with more than 79,000 members and assets topping $1.5 billion, knows part of its survival depends on it offering the same services and offerings as the nimble upstarts.

“We have to have the same digital experience, the same capabilities as these competitors,” says Dave Boden, Hiway’s president and CEO. “We have to do all of that in a cost-effective manner. We just can’t afford to throw money at it. We have to be very careful in our spending decisions and make sure the investment is worthwhile, in either an improved process or better customer experience for our members.”

That’s led him and some peers to take another look at the back office, surgically scrutinizing their processes for tools and techniques that can trim costs by doing more with fewer resources, cutting out unnecessary steps and finding ways to automate or outsource tasks.

These aren’t groundbreaking, by any means, but experts suggest these steps:

Rethink how and when you interact with a customer

Focus on the steps involved for the back office. “Small banks have historically relied upon relationships and in-person services. … That model is less appealing as society has become increasingly contactless and more customers are demanding the convenience of digital,” says Jorge Sun, CEO of LendingFront, which works with community banks, credit unions and others on small-business lending.

Increase the use of digital tools

Anything that can be digitized will add value—and even small, incremental changes really add up, Kwiatkowski says. “When is the last time you wrote a check? Yet banks still have employees dedicated to check processing. You can’t just assume things have been modernized.”

Hiway invested in remote access tools with videoconferencing to help facilitate workflows. But it also used training to teach employees how to offer consumers virtual customer service, as well as how to get a digital document to the back office. The pandemic has “accelerated our move to even more leading-edge digital technology,” Boden says. “Video banking and those types of concepts can definitely increase efficiency.”

Automate where it makes sense

“Automation is meant to be a time and money saver, not to replace jobs, but to allow staff to spend more time on customer service, complex tasks and processes, as well as face-to-face communications,” Sun says.

According to Deloitte, roughly two out of three companies expect to pursue automation as a result of the pandemic. This will undoubtedly lead to a shift in the mix of skills employees need, says Soneel Raj, head of global banking, strategy and solutions at Cognizant. Skills such as change management and people leadership will be as important—or even more important—than agile and data and analytics. “This will require a rethink on culture, new ways to work and new operating models in the bank’s context,” he says.

There is no time to waste, but be sure to be thoughtful. Kwiatkowski says, “Never go so fast that you don’t know where you’re going, and never so slowly that you negate the reason you went in the first place.”

Meanwhile, know that this is a process that never ends. “Operational efficiency is always at the forefront of planning,” Boden says, “no matter what your situation is.”

Dawn Wotapka is a BAI contributing writer.

Get more insights on achieving operational efficiencies in the BAI Executive Report “The transformation continues: Digitizing the back office”

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