“When I go to Silicon Valley…they all want to eat our lunch. Every single one of them is going to try.” Jamie Dimon, Chairman and CEO of JPMorgan Chase
The pressure to innovate with digital technologies is enormous for banks. Yes, the competition is tough between existing banks. The biggest threat comes yet from outside the banking sector by startups and companies that never knew the pre-digital era.Tunde Olanrewaju, principal at McKinsey´s London Office highlights where the focus of digital transformation for banks lies: “Most of the potential value in digital banking comes from the impact on the cost base, particularly in the areas of automation of servicing and fulfillment processes and migration of front-end activity to digital channels.“ When you want to provide shinny new digital customer services to your customers as a bank, you have to sort out a lot of the back office challenges first. 60% of customer dissatisfaction sources and 10-20% of contact center volumes originate from execution issues in the back office.
Some of the results banks are achieving through digital transformation of the back office are truly game changing, for example:
- Managing an end to end payments solution
- Automating manual controls and processes
- Simplifying the business by moving away from noncore products
- Consolidating operating call centers
- Optimizing the branch network
- Reducing cost of service without reducing quality of service
- Product back-office automation
- Document-management digitization
- Automation of credit decisions
- 24/7 availability via interactive voice response
One way to achieve operational cost reductions is to get rid of the old branch structure. For example, piloted in Malaysia, the Philippines and Singapore, Citi Bank launched a new global initiative called Citibank Express, which is a next-generation ATM that allows clients to access nearly all the services available at a traditional branch.
Barclays Bank, as many large banks that combine retail and investment banking, had to face a lot of mistrust by consumers in the aftermaths of the global financial crisis. And Barclays knows that cultural change at the bank is necessary. “We were too aggressive, we were too short-term focused and too self-serving,” admitted Barclays CEO Antony Jenkins in an interview with CNBC, “The industry, and Barclays, got it wrong on occasions.” And digital technology is an important element for Barclays to restore trust with its customers.
In 2013, Barclays created two top positions for its technology driven transformation, a group chief data officer and group chief digital officer. Usama Fayyadd was appointed as chief data officer. He is regarded by many as the first executive ever to be titled chief data officer when he took on the role at Yahoo no less, back in 2004. Although a high profile executing, Fayyadd had not much previous banking experience. The firm-wide governance of data is something that is being looked with a view to simplification and gaining both efficiencies as well as a better overall quality of data. Shadman Zafar, who holds the position of the chief digital officer, has previously worked for mobile network giant Verizon.
“What is happening is that customers are becoming much more used to using technology and want to use technology to deal with their banking. Why not check your balance on your smart phone? Why not pay a check on your smart phone? That means that over time we are seeing a shift how customers do business and technology allows us to serve them where and when they want to be served. […] I think we should accept that, over time, there will be more and more delivery of our services by technology”, says Jenkins. “Barclays has spent time and money on mobile – and it shows”, comments Forrester analyst Stephen Walker. In 2014, Barclays has been recognized to be the top mobile banking provider. Moreover, 6,500 cashiers from Barclays branches are trained as a new breed of ‘community bankers’, who, armed with iPads, will help customers use automated machines. A new voice recognition system and a voice-biometrics security system is planned to be rolled out to its 12 million retail customers in 2016.
Banks have to live with a lot of legacy systems. In fact, up to 90% of the average bank´s IT budget is spent on keeping up those systems. To avoid replacing the legacy systems, banks have often built new applications on top of old ones and added new interfaces. A typical retail bank has to manage and monitor between 300 and 800 back-office processes. Many of these tasks are redundant tasks, create excessive manual processing with slow response times. The potential for digital transformation is huge. Automating and digitizing processes can help to mitigate the risks of human error and reduce paper consumption costs. It can lead to leaner channel and organization structures, a streamlined governance, a more agile culture and an enhanced revenue model.