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UNTANGLE BANKING OPERATIONSSimplify the experience, simplify the work

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There appears to be no letup in the pressure on banks from both external and internal drivers—rising consumer expectations, tight regulations, fierce competitors, high delivery costs and greater complexities of processes and systems—all of which provides the perfect recipe for impersonal, inefficient and slow market response. Getting to simplified, future-ready bank operations may be more easily imagined (and very often rationalized away) than achieved. Yet with the right strategy, available technology and step-change approach, it can be done.

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WHAT IS HOLDING YOU BACK?These should be good times for bank COOs and operations executives. Technology is abundant and customers are demanding personalized experience. At the same time, the front office is seeking leadership and innovation from the back office. Executive teams are open to radical change and willing to invest. Accenture’s recent survey of operations leaders show that by 2020, up to 40 percent of their banks’ spending on digital transformation will be in operations.1

A winning bank operations vision anchors on simplification, both on the inside and outside. Digital transformation will enable banks to both meet customers’ expectations for experiences that are as simple as possible and work smarter—do more with less and focus on the right work at the right place with the best economics.

However, many service operations leaders are hesitant to start their bank’s transformation to digital, seeing before them the mountain of wholesale change. It’s understandable. “Rip and replace” of legacy IT systems is impractical in terms of time, cost and sustainability when market change is happening swiftly.

A component-based approach through a series of incremental steps is a better option. These are smaller test-and-release initiatives that stress experimentation, feature rapid iterations, demonstrate quantifiable progress, reap early results, build organizational momentum and feed lessons learned into future initiatives—allowing banks to transform operations at a sustainable level of pace and certainty. While such iterative approaches to IT change are making their way into banking, hesitancies to act amid a dynamic banking environment are driving the sluggish pace of digital transformation in bank operations.

With anxiety over “doing the wrong things,” many banks stick with familiar responses: increase manual capacity or process to address issues, both of which add complexity. A good example is small- and mid-sized banks’ slow response in adopting more sophisticated tools to manage risk and detect fraud; even though the potential for fraud is ever increasing, myths around the cost of the investment and sheer size of the problem have kept banks from acting.

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Our conversations with operations executives from various sized banks point to four factors holding banks back from moving ahead:

the journey, considering the wide array of channels, customer segments, IT systems, locations and products.

when the options are so vast and new possibilities seem to grow weekly.

to digitization. Nearly 40 percent of bank COOs cite the cost of modernizing legacy systems as the most significant obstacle to adopting new technologies.2

One-fourth of COOs believe staff inability to adapt to change is the greatest barrier to their organization’s ability to drive through digital transformation.3

In this report, we offer ways banks can move past these factors, start the journey and progress toward simplifying their core banking operations.

Determining where to start

Picking the technology to bet on

Removing legacy systems as a barrier

Figuring out how to evolve the workforce

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Many starting points, one starting block

How new digital layers sitting on top of legacy IT helps a digital European bank distinguish its service

It should go without saying but, for the sake of clarity and emphasis, we will say it: before you embark on your operations’ digital transformation, understand your customers, business model and operations, market, segment, product and channel—both from where you are and where you want to be. This includes identifying areas where building momentum will be the easiest; areas that most impact customer experience, are most prone to regulatory scrutiny, are known for their organizational resistance and are most vulnerable to legacy systems being a single point of failure.

Typically, organizations start their digital transformation from one of two contrasting starting positions: one considered a “no-regret” action that can provide quick boost to customer experience or one that navigates around limitations of their legacy system reality. Which one your bank should choose will depend on your customer vision, which internal and external experiences should be transformed and how much your legacy systems inhibit the technologies—from AI to big data analytics—that make the change happen.

This fully digital European bank relies on its parent company’s existing legacy systems to give retail and wealth management customers the personalized and sophisticated products they want.

To better differentiate that service, the bank sought to augment the IT systems with best-of-breed market components to:

• Improve the customer experience through greater flexibility in the front-end and faster time to market for new products and services.

• Add agility and scalability in its new market entries through cloud-enabled systems of record.

• Enable APIs and Open Banking capabilities to capitalize on the growing fintech ecosystem while enabling end-to-end straight-through processing.

Accenture is helping the bank shape its one global digital vision. The effort will create both a new core banking and IT architecture, establishing the foundations for improving processes and operational efficiency. Automated and streamlined processes will eliminate or reduce manual activity, thus lower administration costs. Customer-oriented operations with greater transparency will drive higher conversion rates for customer acquisition and product sales while achieving customer engagement.

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An abundance of technology choices, but experience narrows the pack

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There is an abundance of technology innovation available and emerging from many places. These include cloud, AI, core legacy systems alternatives (like Leveris Limited and Mambu GmbH) and others that bring certain capabilities to help banks renew, circumvent or migrate their antiquated core legacy systems. The technological abundance is at once both advantageous and troubling. It gives bank ops leaders a wide range of options from which to choose, so much so that picking what’s right and important for their particular bank can be downright daunting.

Based on our work to help companies across industries transform their operations to digital, three principles can help banks ease their technology choices:

Choose strategically, aligning the technology to your future model choice. Decide first what kind of bank you want to be and understand its value proposition to then select technology that supports it. Don’t just chase the latest and greatest “shiny” objects.

Draw on your ecosystem, including vendor partners, to inform your technology choice. Even with uncertainty on where core technology will land, a common vision, shared research and development insights and established technology standards among vendors (all under proper governance frameworks) can guide technology decisions toward greater value.

Unlock the benefits of cloud to add flexibility, efficiency and speed-to-innovation. For example, once data is migrated to the cloud, it is much easier to integrate with service and platform providers. This would work for developing application programming interfaces (APIs) or for shifting a bank’s business model to “as-a-service.”

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How a fintech became the first full digital-only bank in the U.S.

A U.S.-based financial technology (fintech) company wanted to offer digital banking services built around mobile applications. In just a few taps, customers would be able to manage and solve every-day money issues and reach their financial goals. Achieving the aim successfully would make the fintech the first fully digital-only bank in the U.S.

The fintech chose Accenture to help it plan and deliver the solution:

• Digital blueprint and robust framework for running the new operations in ways that effectively meet business, technical, financial and compliance requirements.

• Dedicated, end-to-end banking platform and supporting operations, enabled by third-party cloud-based core banking technology and various managed services.

• Coordination among strategic workstreams, such as finance, BSA/AML, transaction monitoring, third-party vendor management, integration testing and more.

By integrating new and existing components within a connected ecosystem, the fintech was up and running with the new mobile banking service in 16 months. The bank can now offer its customers a distinctive banking experience with expanded capabilities—from debit card processing to savings and lending—all online.

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Shifting workloads off core legacy systems can lower barriers to digitization

Though it won’t happen overnight, legacy bank systems must be replaced. Continuing to run on legacy applications in the back- or middle- office inhibits banks from achieving true digital banking and personalized service.

There are some strategic, technology-driven tactics banks can take to shift workloads off core legacy systems. A digital decoupling approach, for example, combines key technologies that banks can implement now without the need to overhaul their existing IT infrastructure. Cloud-based platforms, like Finxact and Zafin Labs Technologies Limited, draw on robotic process automation, artificial intelligence and plug-and-play modules to quickly migrate banks around existing legacy systems. Also, core banking providers, like Temenos AG and Finastra Group Holdings

Limited, have modular environments that de-risk banks’ experimentation with new offerings. Open APIs, which serve as a bridge between software components, can help banks shrink their legacy systems’ footprint in favor of lightweight architectures built on microservices and the cloud. Migrating read-only transactions and data to modern ecosystems, such as “data lakes” and resilient distributed datasets, help accelerate digital adoption. For example, Goldman Sachs & Company LLC and Barclays Bank PLC are creating challenger or stand-alone digital banks that operate within legacy constraints.4

These are just a few ways banks can selectively expose legacies and add new digital layers into their operations to gain more flexibility and fit their IT for the digital economy.

How one global bank bypassed it’s legacy system to offer auto loans in minutesOne global bank, mired in legacy systems, wanted to grow its car financing market. Accenture helped the bank build and launch the capability to have customers buy a car when they’re in the car. Think of it: you’re immersed in the new-car smell, fresh off a test drive. With the push of a button and a digital signature you can buy the car, along with the financing, insurance and extended warranty—all at the moment of truth.

In less than a year, Accenture used cloud-based digital tools to rebuild the bank’s back office, enabling almost exclusively straight-through processing. Next, the cloud-based back office was integrated into essential enterprise systems, but otherwise bypassed the legacy system. The cloud-based operation is 50 percent cheaper to run, creating an immediate cost advantage over the competition. And in this particular market, where the economy declined by 8 percent from 2016 through 2017, the bank’s auto financing revenues were up 30 percent in 2017 along with 35 percent higher customer satisfaction and 25 percent in savings for underwriting and processing.

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Let AI be your back-office workforce’s best friend

Digitization and automation require changes to the back-office workforce to ensure the operational agility needed to respond faster to market trends than competitors. Crafting the right mix of skills that embrace, and even drive, change will involve a range of activities—from re-deploying skills that no longer fit and identifying new performance measures to retraining towards more front-office relevant skills and incorporating more flexible work arrangements.

One of the more compelling ways that banks can help the workforce see digital transformation as less daunting is through investments in intelligent automation. In essence, augment the workforce with AI to jumpstart the journey to digital operations.

Specifically, banks should look to:

Reimagine work to better understand how machines and people can collaborate. Audit all activities, from back-office functions to contact centers, to understand where intelligent machines can play a role in the bank.

Pivot the workforce to areas that create new forms of value. Having looked at where AI can help, think about where your people should focus their energy and time to deliver the greatest value.

Start upskilling people now to work with intelligent machines. Selecting pivotal roles or skills, mapping out the path to future roles and skills, and ensuring that HR partners strategically with the major transformation projects that are underway.

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Banks that invest in AI and human-machine collaboration at the same rate as top-performing businesses could boost their revenue by an average 34 percent and their employment by 14 percent by 2022.5 AI alone will not bring about this change. It is vital that AI be augmented by human interaction to fully reap the operational benefits.

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How AI in bank reconciliation frees humans to focus on value

Leading banks are using artificial intelligence to automate and augment human activities for their accounts reconciliation process. The strategy draws on machine learning algorithms and rule engines to conduct often tedious and time-consuming tasks. Robots, for example, can be trained by humans to conduct complex matching, offer journal entry suggestions to the right accounts and classify unmatched items.

In essence, AI becomes an enabler for:

• Operating with a continuous close and audit process

• Improving accuracy and controllership

• Freeing up some 25 to 30 percent of people capacity to focus on more value-adding work

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REMOVE THE HESITANCY AND TAKE THE STEPS TO SIMPLIFIED OPERATIONS

Define a bold vision of where you want to be in 18 months and three years, anchored around a future vision of the industrialized back-office: “easy to transact” and “easy to work” with emphasis on experience, effectiveness and efficiency.

Recognize that though this journey is a marathon, you can accomplish it in short sprints, like outlining a set of areas to start with. It’s not an all-or-nothing proposition.

Reinforce the approach with appropriate hygiene around governance, change management, communications, training and tools—all to bring the workforce along each and every step of the way.

Ensure that technology is an enabler rather than a replacement, led by process.

Outline broad themes that will shape the change towards the target future vision. Examples include, “process optimization”, “workforce of the future” and “demand management”.

Develop a detailed baseline of financial, operational and experience metrics.

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There’s no need for banks to be mired in anxiety over operational change. Banks can use a few key principles to guide their steps through the transformation:

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ACCENTURE: YOUR PARTNER IN INNOVATING THE BACK OFFICE

Deep Industry Expertise from our work with 84 percent of the top 50 banks in the world—as well as startups and fintechs. We have the experience supporting bank COOs in creating agile cores that allow them to keep pace with customer demand and market evolution.

Innovative Architecture is our innovation-led approach to business solutions—backed by our research, ventures, labs, studios and innovation centers and baked into everything we do. This includes our investments in technology companies, like Finxact and Zafin, that help to expand banks’ options in adapting their core operations for the future.

End-to-End Model from design to implementation. We plan and design new operating models that integrate front-, middle- and back-office activities across multiple processes and functions focused on achieving your business outcomes.

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In no other industry is an operating model more ripe for simplification and transformation than banking. Nearly 80 percent of bank operations leaders say their organization’s existence could be threatened if they don’t update technology to be more flexible and capable of supporting rapid innovation.6 It’s time for banks to imagine what’s next for their operating models. There is no longer a reason to wait.

IMAGINE WHAT’S NEXT

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References

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Visit Us1Accenture North America Banking Operations Survey 2018. https://www.accenture.com/us-en/insights/banking/north-america-banking-opera-tions-survey2Ibid.3Ibid.4Reuters, “Barclays to challenge Goldman in digital-only bank market: FT,” October 14, 2018. https://www.reuters.com/article/us-banking-bar-clays-goldman/barclays-to-challenge-goldman-in-digital-only-bank-market-ft-idUSKCN1MO0SM5Accenture econometric modelling, “Reworking the Revolution”, 2018, https://www.accenture.com/us-en/company-reworking-the-revolution-fu-ture-workforce6Accenture North America Banking Operations Survey 2018. https://www.accenture.com/us-en/insights/banking/north-america-banking-opera-tions-survey

BRETT GOODE Managing Director – Banking, North Americabrett.c.goode@accenture.com

www.accenture.com/BankingOpsSimplified

Accenture Banking

@bankinginsights

Accenture Banking Blog

BEN LOPEZ Director – Banking, North Americaben.g.lopez@accenture.com

CHARLIE ARTHYSenior Manager – Banking, North Americacharlie.arthy@accenture.com

Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions — underpinned by the world’s largest delivery network — Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With 469,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.

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