Building tomorrow’s banks today (Part 2 of 3)
A systematic approach to capturing new efficiencies
Angus Scott, Euroclear’s Head of Product Strategy and Innovation, continues our series on new ways for banks to tackle back office costs.
In a low-return environment, the pressure on banks to reduce infrastructure costs is intense. In the pre-crisis era, the C-suite focus was on maximising revenue growth, not limiting operations costs.
Today, the situation is reversed.
This poses a challenge that many back offices are struggling to deal with in their current setup. There may be legacy systems that are no longer fit for purpose; there is often pressure to be increasingly integrated across time zones; and inevitably there is the need to comply with multiple regulatory initiatives.
Most banks have made the obvious moves to automate and re-engineer, but are now asking themselves how they can move to the next level.
There are no easy answers, but there are four themes worth exploring:
1. Continuing to automate
First, there are still business areas and processes that have been left behind in the drive for automation or where there is an absence of structured messaging. Often they involve multiple parties and complex data. Take corporate actions: while some processes cannot be automated today – translating legal documentation into operational data, for example – the strides being made in machine learning suggest more automated solutions to complex tasks will be available down the line.
Other areas are easier to tackle, such as claims management, which is still largely conducted through emails, faxes or even letters. Here the data is much less complex and there is a good business case for automating processes as it frees up capital and liquidity by reducing credit exposures and transaction times.
2. Increasing efficiency around manual tasks
Second, while human intervention is likely to remain a necessity in certain areas, the challenge is to find ways of improving efficiency and productivity within the current imperfect structures.
The solution may be as simple as being able to communicate with the right person on the other side of the trade quickly and easily. That is all about cooperation, but it requires more than casual networking. The solution lies in structured collaboration and peer-to-peer communication.
3. Re-engineering back-office systems
Third, re-engineering continues in every firm and each faces its own unique challenges. A common issue is how to accelerate and de-risk the change process itself.
Focused, easy-to-implement solutions are preferable. That’s because the lengthy programmes needed to fundamentally change operating platforms are difficult to maintain from both a technical and a governance perspective. Technical because of the sheer complexity of the change required. Governance because the corporate structures of many institutions impede rapid, agile development and roll-out, instead pulling time and resources into managing a vast matrix of stakeholders across business lines, functions and geographies.
4. Improving the data model under which firms operate
Finally, there is the data model under which banks operate. The intermediation role financial services firms provide relies on the efficient management and exchange of data: in distribution, financial modelling, credit assessment or risk management. In the long term, new ways to improve and manage the transfer of data will be key for increasing efficiency, reducing operational costs and improving balance sheet.
This is where big data and particularly distributed ledger technology – or Blockchain – offer such promise. A host of initiatives are now underway in this field and could yet prove transformative.
Taking it forward
In all these areas, it is not necessary to wait for a big bang solution. There are things banks can and should be doing now, and in some cases the solutions already exist.
About the author
Angus Scott has over twenty years experience in capital markets infrastructure and securities services, specialising in strategy and strategic change management.
As Head of Product Strategy and Innovation at Euroclear Group, he is responsible for creating and delivering a portfolio of new, commercially viable product opportunities that support Euroclear's strategic agenda.