Operational excellence (OPEX) is of the upmost importance in financial services. OPEX supports improvements in efficiency, productivity, risk management and innovation with a recent study by McKinsey revealing that financial institutions that implement OPEX initiatives see an average increase in profits of 10 percent.
“Financial institutions are faced with immense margin pressure in today’s environment, coupled with pressures surrounding competition, talent retention, attraction and, of course, regulation,” Anna Kooi, financial services and financial institutions practice leader at advisory and accounting firm Wipfli, tells PEX Netwok. Such factors require financial services to focus on OPEX and ways to drive further efficiencies for sustained long-term performance, she says.
OPEX is integral to financial services spanning operations, finance and culture, with a key focus on business automation, adds Sandeep Makwana, chief operating officer (COO) at Xebia. “Financial services organizations that pursue OPEX can maximize efficacy, accuracy and reliability in everything from risk management to customer service, all with the end goal of providing value to customers.”
The drive towards OPEX in financial institutions is creating a golden opportunity, says Andy Insley, CFO of Advania, one of Microsoft’s leading partners. “Financial institutions are laser-focused on streamlining processes, data-driven decisions and building a robust tech stack – and for good reason.”
There are many ways OPEX can and is transforming financial services, with a number of technologies and concepts playing a significant role.
Artificial intelligence
OPEX frequently appears as a moving target due to digital transformation and evolving customer expectations, particularly in complex sectors like financial services. “Artificial intelligence (AI) is a key tool in advancing companies towards OPEX and ensuring scalability,” says Makwana. Financial services businesses are leveraging AI, data analytics and predictive analytics to analyze data and extract insights into clients’ financial behaviors, preferences and life stages. “This enables businesses to craft hyper-personalized experiences, develop personalized investment strategies, tailor packages and provide product recommendations based on client profiles and financial goals,” Makwana says.
In today’s digital age, banks and other financial services face an unprecedented challenge: the ever-evolving tactics of fraudsters. AI is helping to level the playing field in the battle against financial crime. “AI equips banks with a powerful arsenal to detect and prevent fraudulent activities in real time. By analyzing vast amounts of data with lightning speed, AI identifies patterns and anomalies, enabling swift and accurate interventions,” says Manuel Barragan, a leading consultant in AI, machine learning and IT.
READ: The guide to AI in operational excellence
Automation
The modern financial services sector faces a dual challenge: escalating regulatory demands and a scarcity of skilled, cost-effective administrators. Automation – an increasingly prominent facet of OPEX, is changing the landscape in significant ways. “By leveraging automation, organizations can overcome the administrative burden associated with compliance, ensuring regulatory adherence while optimizing for operational efficiency,” says Antony Pink, founder and CEO of Pano – a company that helps financial advisers generate fully-branded, compliant and personalized client documents. “This not only reduces cost but also fosters scalability and resilience, enabling firms to adapt and thrive even in challenging market conditions.”
Tasks like data entry, transaction processing, account reconciliation, customer service inquiries and compliance reporting demand significant time and resources from IT and business teams, diverting their focus from strategic initiatives. “Technologies such as machine learning, natural language processing (NLP) and robotic process automation (RPA) are transforming these processes by automating tasks that were previously manual,” adds Makwana adds. This enables teams to reallocate their time towards identifying new solutions, monitoring potential risks and ensuring regulatory compliance.
Contrary to common assumptions, automation does not shrink the opportunities for administration roles; instead, it broadens the talent pool by requiring less specialized skill and training, says Pink. “Moreover, automation enhances the overall quality of the advice journey by liberating advisers from the drudge of paperwork, allowing them to dedicate more meaningful time to clients.” This not only elevates the client experience but also makes it more economically viable to serve lower-value clients, addressing a persistent industry challenge of bridging the advice gap, Pink adds.
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Cloud infrastructure
Cloud infrastructure is progressively key to unlocking the full potential of modern OPEX strategies. “By leveraging the cloud, banks are automating manual tasks, freeing up staff for strategic analysis,” says Insley. They can also leverage vast amounts of data in real-time, enabling faster loan approvals, targeted product offerings and proactive fraud prevention, he adds.
“This is why building the ideal tech stack becomes crucial. The right combination of cloud-based solutions – from data analytics platforms to automation tools – is empowering financial institutions to become agile, cost-effective and competitive.”
Business process management
Business process management (BPM) is an OPEX approach that uses various methods to discover, model, analyze, measure and optimize business processes. BPM is often used in the financial sector as it helps with decision-making and reporting, amongst other things. Millennial Specialty Insurance implements BPM through process reviews; using tried and true Lean Six Sigma to define problems, describe what success looks like, measure current state, analyze data and implement continuous Test & Learn pilots, says Ekaterina “Katie” Curry, managing director and head of operations, multifamily/leasetrack at Millennial Specialty Insurance.
Curry’s favorite use of BPM has been in extracting process metrics buried deeply in the work of “engine room” operational teams. These process metrics can be valuable insights not just internally for improving operations but for clients too, she adds. “It [BPM] makes the invisible, visible through its use of KPIs, metrics and data to enable better decisions. It creates a culture of incremental improvement based on data. It measures and quantifies risk and it can even drive innovation, spurred by BPM data.”
DOWNLOAD: How BPM transforms operational excellence & fosters sustainable growth: 2024 industry report
Process mining
Process mining is a technique that tracks business processes with event logs to identify bottlenecks, recognize ways to improve efficiency and help people become more productive. It is therefore an important and widely applied element OPEX. Process mining analysis can improve customer experiences (CX) in banking. Modern banking customers expect Amazon-like experiences when managing their finances. To deliver this level of experience, banks need to identify where their processes are falling short.
“Where process mining can contribute to customer experience goals in banking is to paint the full picture of the customer’s perspective of actions, going above and beyond reporting the process execution record,” writes Nick Blackbourn from Software AG. Banks can incorporate existing knowledge of how customers experience process outputs into datasets, providing a case-by-case record of how the average customer would react to performance, he adds.
“The key is to engage the right teams across the bank to obtain critical CX datapoints,” according to Blackbourn. It is then possible to tie process mining analysis into meeting CX goals, untangling knots and getting financial services closer to the Amazon-like experience that customers demand. Without this CX data, process performance metrics alone will not show how customers experience their banking services.
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Process orchestration and process reengineering
Process orchestration and process reengineering are other emerging elements of OPEX. Processes consist of individual tasks executed in a specific order. The execution of the tasks by the endpoints can be placed in a logical order –known as process orchestration. Process orchestration aims to go beyond isolated or fragmented automation by tying together both automated and manual tasks as well as different business processes to help achieve end-to-end automation. Process reengineering is the radical redesign of business processes to achieve dramatic improvements in productivity, cycle times, quality and employee and customer satisfaction.
Process orchestration is helping to transform the financial services industry. Goldman Sachs, NatWest and the National Bank of Canada all use process orchestration to coordinate processes across people, systems and devices to overcome complexity and increase efficiency.
Likewise, leading financial institutions recognize that digitization and process reengineering go hand in hand, says Kooi. “End-to-end process optimization across business lines is a powerful way to enhance operational capabilities. By streamlining workflows, eliminating redundancies and leveraging technology, institutions can achieve OPEX.”
Intelligent document processing
Intelligent document processing (IDP) is the automated extraction of data from documents, converting it into structured, usable and machine-readable information. Using different technologies to classify, categorize and validate extracted information for increased accuracy, it is an increasingly applied component of OPEX. Financial services such as banking and insurance are document-intensive, exhibiting strong demand for specific IDP capabilities.
“IDP is going to be an essential element of future process design in banking and financial services, used for sanctions screening and reading pay slips, among other things,” says Nao Anthony, senior manager of operational excellence at Commonwealth Bank. “IDP is attractive due to its capability to read text and understand the purpose of use.”
READ: Conversational AI in intelligent document processing
Digital and technology transformation
The adoption of digital and technological advances is reshaping OPEX. “Advances come at a time when many financial institutions are facing talent concerns, which enhances technology driven improvements to accelerate OPEX,” says Kooi.
Bank of America was recently recognized in the annual Coalition Greenwich Digital Transformation Benchmarking Study for its digital transformation successes and ongoing enhancement.
Beyond banking, three-quarters of global insurance organizations are preparing to implement new, digitally-focused management platforms in the next two years as the industry prepares to adopt much-needed digital transformation. That’s according to a report from Novidea based on data collected in a 2023 survey of 330 full-time, C-level insurance leaders across eight countries. “The data shows that insurance leaders are ready to make future-forward decisions about the technological shift required to better meet customers’ expectations of a modern, digital-first experience,” comments Roi Agababa, CEO of Novidea.
Function-first approaches and long-term perspectives
Financial institutions are increasingly focused on working smarter, rather than harder, leveraging existing investments in platforms and software. “This creates a function-first approach that balances OPEX to costs, with many OPEX projects within the industry centered around enhancing functionality,” says Kooi. By optimizing specific functions, such as customer service, risk management or back-office processes, institutions can achieve significant gains in efficiency and effectiveness.
As a long-term implementation strategy, OPEX nurtures sustainable growth and maintains a competitive edge for financial service companies, adds Scott Lieberman, founder of Touchdown Money. While short-term gains are essential, especially under current economic pressures, there’s a growing recognition that sustainable OPEX requires a long-term view.
“Financial institutions are balancing immediate efficiency gains with strategic investments that yield lasting benefits,” says Kooi. “This shift emphasizes the need to align OPEX efforts with broader organizational goals and vision.”
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