LUCY DORR | MAUREEN DOYLE-SPARE

At a time when many industries are focused on simplifying their business by streamlining processes to improve the customer experience, the banking industry continues to introduce more complexity into its operations.

Growth has a way of breeding complexity in banking—through the introduction of new products, increasing regulatory oversight that results in new regulations in an unharmonised, multi-jurisdictional legal environment, or legacy applications that have led to an increasing number of custom, fragmented internal and external processes. Complexity comes at a cost.

While these fragmented processes may have been unintentional, they have resulted in the creation of layers of complicated manual and non-standard workflows which are costly to support and increase risk in the operating environment of the industry. Despite years of new regulation that attempted to drive standardisation, most market participants made proprietary, inward focused design and execution decisions.

With banking and financial services firms having to address continuous waves of regulation, driven by increased regulatory scrutiny, C-suite executives are forced to focus on near-term strategy to ensure compliance. These short term “Survival strategies” have driven risk averse approaches, resulting in the implementation of “safe option” solution sets across the entire operating ecosystem. In most cases, this approach has been much less effective than intended and the broader consequence is that process simplification and optimisation of the banking ecosystem generally hasn’t been an organisation-wide strategic priority. Simplification won’t thrive in a silo and so there has been a stagnation of true business return on investment driven by the execution of transformational operational change.

The industry may now have crossed a tipping point, where inefficiencies are outweighing and negatively impacting true business value and opportunity. Many firms continue to pull the traditional levers to cut cost, from reduction of workforce strategies to trying to squeeze savings through labour arbitrage location strategy. Whilst historically these approaches to cost reduction were somewhat effective, they are now well past their “sell-by date” and after multiple rounds of similar strategies, unlikely to reduce the cost structure significantly.

“Substance over form” is key—firms often use catchy and creative straplines to express the importance of their focus on business process reengineering, process automation, digital automation, robotic process automation (RPA), data quality and standardisation, digitisation and continuous improvement etc., that all sound great, but are often lacking a realistic execution strategy. Consequently, many of these strategies are aspirational at best.

The true winners in this leg of the race will be those firms that have the courage and commitment to implement foundational data standardisation and process improvements to set the stage for full digital transformation. It takes resilience, an element of risk taking and the full commitment of a firm’s decision makers in order to get back to basics. This means more than just corporate division buy-in, it requires an enterprise—wide change in mindset. A mindset that moves away from traditional habits, takes true corporate valour, diligence and will ultimately drive quantifiable, meaningful change and business improvement.

This foundational or “back to basics” approach is not always met with enthusiasm and is often perceived to elongate the journey. It also seems too expensive, slow and bureaucratic to align with an agile digital innovation strategy. Comparisons between the banking and the automotive sector—and its transformative journey with respect to production, assembly lines and supplier chain—are often met with eye-rolls. But are they really that different—the use of large digital transformation programmes to improve productivity, efficiency, and ultimately profitability is equally applicable to both sectors? It requires long term commitment from the banking community to stay the course. Changing culture from the top of the house and staying steadfast takes guts and fortitude. Not many have been successful—which is why as an industry we appear to have made so little progress despite all of the noise and catchy strategy lines. This is why most resort back to the standard way of meeting challenges, which simply exacerbates an already complicated environment.

Back to basics: 

There are four key things to focus on:

1. Culture

Build a digital culture top down and embed culture change programs throughout the digital transformation journey. The organisational structure has to be aligned to digital aspirations.

2. Process

Document, re-design and connect front-to-back processes. Everything we do is linked back to a process. Building a sustainable business model requires an enterprise-wide embedded understanding of process. Building for a digitised future requires a documented knowledge of front-to-back processes and mandates a re-design of those processes, utilising lean process design to streamline, eliminate waste and foster a culture of continuous improvement. This should be undertaken with focus on customer use cases, technology requirements and organisational elements.

3. Data 

Standardise data. Our business is based on data—it’s the industry’s biggest asset and liability. Internally focused on data modelling and data governance, in order to meet regulatory requirements, firms have yet to take full advantage of the opportunity in the ecosystem to standardise data and in turn reduce the overhead of process complexity. Whether via an ISDA driven Common Domain Model or SWIFT’s ISO 20022 standards, digitisation of our processes through standardisation of core data is ready and waiting.

4. Digitise 

Redesign or even better, adapt the technological roadmap needed to incorporate culture, process and data into an internal and external simplification strategy, driving a new operating model that runs on digital technologies and capabilities. This technology will enable the acceleration of process reengineering, automation, innovation and performance improvement.

If making improvements in process, data and digitisation were easy, then every corner of the financial services industry would be succeeding in this space.  Yet we are stagnant when it comes to developing a truly enabling infrastructure that fosters innovation, efficiency and growth.  A structured approach that addresses the basic requirements to rebuild the foundation of complex financial institutions will enable lasting change – allowing innovation to thrive again, without the burden of an antiquated infrastructure.

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