How financial services organizations can drive operational excellence in uncertain times

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Introduction

In recent years, a wave of innovation has been transforming traditional financial services (FS) processes. Digital banking initiatives, such as contactless payment and chatbots powered by artificial intelligence (AI), have brought the FS industry to a point where customer interactions with organizations are far removed from those of the past, when banking was typically done in person.

In 2017, the FS industry witnessed a major shift in customer preferences, with more than half of Europeans switching to digital forms of banking. This shift in customer activity, along with the increasing success of challenger banks, suggests a rise in demand for digital financial solutions that offer a platform with far more functionality than traditional high street banks, including automatic investment and savings accounts.

Challenger banks, such as Chime or Monzo, surge in popularity alongside various fintech applications including social

 investment platform Matador, with all striving to meet increasing customer demand for convenience and functionality from FS providers.

Due to the shift in demand, new competitors and the unprecedented turmoil the FS industry finds itself in due to the Covid-19 pandemic, social distancing and remote-working mandates, the journey toward operational excellence looks far different for FS organizations than it did in the past. Banks’ stringent underwriting criteria, poor customer service and slow credit application processes and decisions should be a thing of the past.

Increased fintech adoption will mean that banks will likely need to leverage the latest tools and technologies to drive digitally-enhanced process improvement initiatives and lean into automation efforts in order to remain competitive.

This report will share insights and examples from leading FS professionals into how FS organizations can achieve efficient automation and process improvement that sets them apart in a rapidly changing industry.

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The need for transformation and process excellence for FS organizations to remain competitive

There is currently tremendous pressure on FS organizations to reduce operational costs and enhance efficiency, with many banks struggling to earn their cost of capital, typically eight to 14 per cent, let alone return to the traditional ROI experienced in the early 2000s. As such, transformation has become critical for many FS organizations in order to remain competitive in today’s marketplace.

When transforming, organizations need to take a holistic transformation approach. Amir Farid, chief operating officer and chief transformation officer at US-based Westfield Insurance, discussed at PEX Network’s OPEX in Financial Services Live event earlier in 2020 his belief that transformation requires enhancement of strategies relating to people, processes, technology and data. It necessitates organizations to consider how every aspect of an organizational strategy or business model contributes to overall operational excellence.

According to Farid, overhauling organizational processes across an entire enterprise requires a shift from incremental to transformational thinking. Incremental change occurs with things organizations already do, but want to do more or less of, while transformational thinking focuses on significant changes to what they do and how they do it.

“Set big, audacious goals for an organization or function and then establish some targeted KPIs that force an organization to move toward transformational thinking versus incremental,” says Farid.

He notes that such a shift in strategy has required changing the conversations around the exploration of new business initiatives in order to accelerate transformation, particularly during a time of crisis.

“If we are not having those targeted conversations around exploration within our organization then we need to start them, because they need to happen,” notes Farid. “We were doing this at a very, very accelerated pace and are now having further conversations against the accelerated roadmap that was generated.”

Farid explains that Westfield Insurance did not view the Covid-19 crisis as a one-time event that simply needs to be survived, but instead saw it as an opportunity. Despite its economic and social disruption, Farid believes that for the US-based company, some good has come out of the crisis, with the firm using it as an opportunity to drive the conversation around transformation in a way that ensured the entire organization was aligned to the same goal.

“This is a business strategy in itself, to use this crisis to your advantage and drive that private conversation within your organization,” remarks Farid. “This is the time the world is moving in that direction and staff will be much more receptive to this than they ever have been.”

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The Covid-19 pandemic has sparked a renewed focus on digital workforces for the financial services sector as a result of social distancing measures and remote working. By implementing digitalization and moving to a cloudbased environment, organizations have the opportunity to not only ensure that workers are safe but also to increase operational efficiency and agility.

“Over the last few years customers have begun moving toward a digital environment,” notes Brian Halpin, chief customer officer for EMEA at RPA software provider Blue Prism. “Banks are definitely trying to follow a digital transformation agenda and tie digital components together in a cloud-based platform.”

According to research by Deloitte, a lack of organizational agility is one of the biggest barriers preventing brands from capitalizing on major trends and, as such, a focus on digital transformation for FS organizations could be vital in the coming years. Traditional banks are striving to match the level of organizational agility displayed by digital-first models used by disruptive challenger banks, as research from Accenture has revealed that truly agile firms are more than twice as likely as the average organization to achieve top-quartile financial performance.

Halpin remarks: “I think the banks that adapt to and embrace that transformation and work with fintech to achieve that sort of innovation and agility will be the ones that will absolutely thrive.”

Throughout their transformation initiative, FS organizations need to focus on their internal processes in order to succeed. Michael Dove, vice president of the center of process excellence at credit union service organization PSCU, believes they must look to streamline internal processes and systems, regardless of how efficient they are. According to McKinsey, at least 30 per cent of activities in 60 per cent of occupations could be more streamlined, and this holds true for the FS industry, which is why Dove advocates the implementation of lean internal development initiatives and suggests adherence to five lean principles.

Define value

Ensure that the organization understands the value that implementing Lean Six Sigma brings, which could also be added value for the customer. It is important to investigate any specific customer needs or process bottlenecks and provide data to evidence potential added value.

Map the value stream

The goal here is to use defined value as a reference point and identify all activities that contribute to it. In doing so unnecessary processes that provide no value can be identified and eliminated.

Create flow

The processes that remain should either add value or be necessary for an organization to function. Practitioners should seek to ensure these processes run smoothly, which can be done by breaking down process steps or training staff to execute these processes quickly and concisely.

Establish pull

Pull-based systems are designed to limit inventory, work in progress and ensure that required materials and information are available for a smooth flow of work. By following the value stream and working backward through the product or service delivery system, practitioners can ensure that customer needs are always satisfied in a timely fashion.

Pursue perfection

While the first four stages are designed to eliminate waste, the final one is critical as it facilitates continuous improvement. It is important to ensure that all members of an organization are aligned in the quest for process perfection.

Dove notes that this system of continuous improvement has been effective at driving operational excellence at PCSU, explaining that such a structure has helped to drive steadily toward operational goals.

“When we achieve those small, iterative improvements and get those quick wins, we do not just pocket them and move on,” he explains. “We use those wins to pay for additional wins and we keep going, because we want to get that muscle memory of seeing something broken and fixing it.”

To learn how operational excellence can improve customer experiences download the Driving quality customer experiences in financial services report.

Automation practices for the pandemic and beyond

Recent years have seen the popularity of process automation practices increase significantly, being the only sector with 100 per cent of industry experts surveyed in the Proservartner Index claiming to have incorporated automated processes in one form or another.

As organizations seek to achieve an unprecedented level of efficiency and operational excellence, many have been turning to these practices to automate well-defined, repetitive and tedious tasks which in turn helps to free up employee resources for more critical, high-effort ones. Finding the right way to identify opportunities for automation is critical to ensure a successful program.

Ade Bajomo, executive director at Access Bank, spoke at OPEX in Financial Services Live and offered attendees an overview of the journey the bank has taken as it found itself in a frustrating situation, where the system they had in place only allowed them to automate a handful of processes. To overcome this challenge, the organization selected a team of 30 people with strong coding proficiency, who would look for tools requiring minimal level of coding.

“In a pretty short time they were trained to get a level of competency, then worked with subject matter experts to go into these manual processes and code them into automated processes,” explains Bajomo.

By identifying those within the organization who could add value to automation efforts and augmenting that team with subject experts and consultants, Access Bank was able to go from around 15 automated processes to more than 150 in the first year.

There are three key processes where the benefits of automation could be felt the most for the FS industry: money laundering analysis, loan approval and claims processing.

Money laundering analysis

Currently, banks apply large amounts of resources to efforts to counter money laundering. Some larger organizations can have thousands of analysts employed for this purpose at any one time, placing massive strain on the business. One of the primary challenges these money laundering analysts have, is that around half of their time is spent collating data for their investigations, often from numerous, disparate systems, rather than actually carrying them out.

Collecting data is a rote, repetitive task that is governed by simple rules, as such it is a prime candidate for automation as this is work that could be carried out by a ‘bot’ at a fraction of the time a human would take. Banks that consider automation for these processes effectively have the opportunity to double the amount of time analysts have to conduct investigations.

Loan approval

Due to the long-term nature of the contractual obligation between a bank and customer that a loan represents, it is one of the greatest sources of risk for financial organizations. As such, banks spend a large amount of time and resources identifying suitable candidates for loan approval, a necessity that has long been accepted in the financial sphere.

The gathering of data to qualify loan candidates is a repetitive task that could be carried out with a high degree of speed and accuracy by a machine. We have seen some banks capitalizing on this opportunity through tools and technologies that leverage machine learning and AI to automate this process, with a recent survey by Deloitte finding that 70 per cent of all FS respondents are using machine learning in one form or another. This not only saves employees time when identifying candidates for loans but also ensures that the process is both fair and efficient as explains Andrina Valdes, chief operating officer at Cornerstone Home Lending.

“The right technology can move a loan from start to finish, with less effort and with less paperwork, while also keeping everyone involved in the process connected,” she explains.

Claims processing

Another area where banks have traditionally employed large workforces to tackle a specific issue is the processing of insurance claims. As this is a manual and tedious process, it drains a large amount of employees’ time and, as such, necessary checks such as trend analysis are often uncompleted. This presents a big risk for financial organizations, as these checks ensure that insurance claims are not fraudulent and if they are uncompleted, organizations can feel this in their bottom line as they will end up paying out on false claims.

Applying automation here facilitates speed and accuracy, as machines are able to process the data associated with insurance claims at a fraction of the speed that a human can. This allows not only more claims to be processed, but facilitates continuous data collection and trend analysis across claims, potentially reducing loss from fraud.

Automation could also help organizations across the globe comply with new regulations. Examples include the Enhanced Prudential Standards implemented by the Federal Reserve Board in the US, which have shifted requirements for capital, stress testing, liquidity, large exposures, and reporting based on financial metrics that serve as a proxy for a firm’s size. It mean FS organizations will require additional oversight from board members and senior stakeholders to ensure compliance to this regulation going forward.

The General Data Protection Regulations implemented across Europe are changing the way data is handled as organizations are now required to ensure that customers are informed about, and consent to, the collection and handling of their personal, sensitive data.

Maintaining regulatory compliance for automated practices or processes can be difficult, particularly for FS organizations that deal with a large amount of sensitive customer data and may not have full visibility over these processes. The implementation of automation dashboards can be a powerful tool here, not just for compliance during a pandemic but for any state of business as explains Kelly Miller, senior manager, information security at Western Union, which implemented those to enhance visibility across the board.

“We have put all of our information security policies and associated control objectives that map those policies into one platform, and from there we are able to tie back any findings or gaps,” she explains. “We have real-time dashboards that will show us the number of findings, where those findings are mapping to and owners of those findings, and it is all in real time.”

Having such enhanced visibility over control objectives can help FS organizations minimize risk in what is a very uncertain and changing period.

Conclusion

This report has analyzed recent developments in the field of FS and considered the trajectory it appears to be taking. As we progress through uncertain times, organizations that take steps to optimize processes trough transformation and internal development initiatives are far better prepared to weather any storm that may arise and remain competitive against market disruptors such as challenger banks and fintech companies.

FS brands who look to capitalize on the numerous opportunities that automation technologies can offer have an opportunity to gain numerous competitive advantages across the board. By applying automation to critical internal processes including money laundering analysis, loan approval and claims processes, this ensures that these and many other processes are resilient enough to withstand unexpected industry disruptions in the future.

This report was originally published on 21 December 2020 and was updated on 16 June 2022.

What are yout thoughts on the state of operational excellence in the financial sector. Let us know in the comments below.