Cost Reduction Through Digital Transformation of the Back Office

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In times of low interest rates, increased competition, and not least due to the effects of COVID-19, cost reduction for banks is the order of the day. Automation alone is not enough when it comes to effectively implementing potential savings. Holistic digitization measures promise lower costs and investment in the future, especially in the back office.

The cost side is more important today than ever and most financial institutions have already gone through a few rounds to reduce costs – often with great effort, but not with the desired success. In addition, the cost pressure must not lead to the slowing down of necessary investments in digitization and new business models. So where should you start to achieve tangible and sustainable savings? There is a lot of untapped potential in personnel-intensive banking, such as in the back office. Restructuring measures and the use of digital technologies are decisive levers that have a positive effect on the cost base and at the same time secure new business areas.

Rethinking the Back Office

Numerous manual activities are carried out in the back-office divisions. In addition, there is a significant need for coordination and a lot of administrative effort for the bank employees in the daily cooperation with the front office and the middle office. The back office needs to be restructured, during which the interfaces between the back office and the upstream offices are redefined to avoid interruptions and transaction costs. The job profiles and responsibilities of the organizational units should also be redrafted, and the organizational structure tightened. Particular attention should be paid to the identification of possible bottlenecks to reduce the customer-relevant lead time when processing applications.

The analysis of existing processes can also help to optimize processing time and thus costs. Financial institutions should develop process variants for different business transactions, for example, depending on the process risk, these could be more manual or automated. The automation of processes and the transfer of employees' tasks to the system reduces throughput and processing times and quickly lowers costs in the individual business processes. But that should only be the first stage of a sustainable digital transformation. For sales-effective product innovations and personalized customer experiences, in addition to an organizational restructuring of the back office, the use of new technological capabilities is required.

Investing in Digital Technologies Saves Money Over the Long Term

The fact that investment in digital technologies is becoming more and more important as a strategic topic, especially in the financial sector, is also underlined by the results of Deloitte's Global Cost Management Survey 2019 and the evaluation of cost transformation in German companies based on the data from the global study. The consulting company surveyed executives from various industries. For banks, the investment in "new digital technologies that have a positive effect on the cost base and at the same time enable new business models" has meanwhile become one of the most prominent strategic topics and continues to gain in importance.

White Paper Download: Credit. Digital. In addition, the "introduction of new technological disciplines for further automation" is one of the most important projects for financial institutions when it comes to cost management. The trend here is towards technologies such as the cloud, the use of artificial intelligence or robotic process automation, which fit the "save-to-transform" trend: investing cost savings in digital transformation.

A banking platform can support financial institutions in driving the implementation of measures for disruptive cost transformation. It stores information in a structured way and in context. This data is the basic requirement for the optimal use of smart technologies. In addition, the knowis platform brings pre-integrated technologies and business modules that can expand existing solutions and thus enable new ways of working, new processes, and new skills. If required, solutions and services from third parties in the ecosystem can also be connected. Instead of meeting the current requirements with individual technologies, banks can rely on a combination of several technologies that can not only be used sensibly in standardized cases, but also, in a multitude of other ways in the future.

Conclusion

Modernizing the back office requires both short-term measures and long-term strategies for the sustainable transformation of the entire business unit. By investing in digital technologies that go beyond automation, financial institutions kill two birds with one stone: cost efficiency and sustainability. These are reflected in the adaptation to changing customer needs and the provision of innovative solutions. A banking platform with functional and technical capabilities, on which various technologies can be managed and which integrates existing solutions, and, if necessary, connects third-party solutions, supports banks on their path to digital transformation.

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Would you like to find out more about how a banking platform can help you modernize your back office and relieve some of the pressure to reduce costs? Feel free to contact our experts.

 

Teaser image: Dilok Klaisatapom – 1250581414 – iStock

Written by -Torsten Spörl-

Torsten is responsible for the Banking Solutions unit of knowis AG. At the beginning of his professional career, Torsten worked for several years in transaction consulting in the financial services sector at two of the 'big four' management consultancies. He then led various units in the banking sector, focusing on corporate customer business and project financing.

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White paper download: Digital Transformation of Decision Processes