Building resilience through agility
Anticipating changes that will come in the next and beyond will reframe how banks set their transformation agendas.
Regardless of their digital prowess, banks should be making better use of data to build out their ecosystem and create superior offerings for customers.
The pandemic has accelerated banks’ digital agendas and has prompted financial organizations to rethink their transformation journeys with the goal of capturing new growth opportunities and creating more intelligent customer experiences.
Laying the groundwork for more intelligent operations
Transforming traditional banks of today into the digital banks of tomorrow requires a shift from a product-centric and project-centric approach to one that will deliver tailored, intelligent customer experiences. These proposition-centric capabilities need to be underpinned by a future-ready change to banks’ technology architecture and design.
To ensure maximum flexibility, banks should employ cloud-native, highly resilient platforms comprising modular architectural building blocks, to change their existing technology and architecture. These platforms, such as the EY Nexus for Banking, use advanced machine learning models that can generate tailored insights and integrate domain-specific data services into banks’ channels in real-time, within context.
Read the case study: Why real-time customer journey curation is the future of banking.
Enabling supply chain visibility and digital interoperability
Global supply chains for all industries have been tuned for cost and speed, but with trading relationships in a state of increased uncertainty over the last couple of years owing to rising tariffs and geopolitical and market volatility, managing trade finance has become significantly more challenging.
As a result, end-to-end supply chain visibility and digital interoperability are higher priorities for organizations, forcing banks to accelerate the digital transformation of the trade finance function to meet their customers’ expectations and needs.
For one global trade finance bank, redesigning the trade finance ecosystem required an end-to-end approach to digital transformation. To adopt a holistic stance to its transformation framework and develop a unique, overarching digital strategy, the bank scrutinized each layer of its trade finance function, from cost and control to customer experience, to deliver maximum value across the transformation program.
Using EY’s wavespaceTM to curate innovation sessions, the bank’s product, operational process and technology specialists restructured their thinking on their digital transformation framework – from core banking components to engagement channels, existing digital capabilities and analytics platforms.
On average, a large trade finance bank can spend anywhere from US$25m to US$42m annually on risk, compliance, sanctions and anti-money laundering (AML) tasks – all without growing its business. In addition, the especially complex and distributed nature of trade finance means that it is highly exposed to financial crime.
Banks can harness the power of advanced analytics and robotic process automation to transform the way trade finance teams identify and control risk, including by detecting patterns of illicit trade finance activity. Risk analytics tools leveraging natural language processing, text analytics and third-party data to underpin a risk analytics scoring engine can support the analysis of large volumes of trade transactions.
Embracing the ecosystem
Given the importance of small-to-medium enterprises (SMEs) to the global economy, banks need to also ensure they are serving this largely underserved market. Late payment for services and long invoice maturity can hamper both short-term agility and long-term growth and investment. To develop a solution that would help raise finance against already-issued – but as yet unpaid – invoices, banks can seek outside resources whose teams can tap into an ecosystem of technology partners and start-ups , enabling better management of SMEs’ cashflow capabilities.
Overall, banks must move quickly toward developing digitally advanced products and customer engagement practices. Banks that are scrambling to survive in an increasingly digitized environment must view disruption as an opportunity to phase out legacy systems in favor of new operating models. No matter the market, the challenge of coping with swift technological change, along with the laborious overhaul of processes, can be a source of concern and frustration. Yet, with the right partners, this can be achieved.
For example, one large, traditional Central European bank that EY worked with discovered that having a flexible, adaptable digital foundation was increasingly essential in this fast-paced, digital age. As a result of this work, it was able to enhance its lending processes through a custom-built, mobile-first and AI-enabled digital platform.
New models like these will empower banks to fundamentally rethink and reframe their futures based around an entirely new customer relationship from the inside out, by accurately capturing and representing the voice of the customer.
Managing costs and enabling investment
In a tough operating environment, cost transformation will drive profitability, and the ability to invest in the wider transformation agenda.
An agile organization needs a flexible cost base and an ability to continually invest in innovation. For most banks, this means completely reimagining their existing cost structures, including talent models.
Realigning fixed costs amid a changed operating environment
Some financial institutions find it challenging to roll out long-term strategic cost transformation strategies. Not only do banks struggle with these challenges, but the entire financial ecosystem needs to manage costs in a difficult operating environment. If organizations want to stay ahead of the curve, their operations need to be agile and predictive.
There are a host of technologies out there for organizations to choose from. Separating the signal from the noise can be aided via more collaborative conversations in which critical questions can be asked – and strategies shaped – before building technology into operations.
Even when a financial organization has an idea of how to begin its cost transformation journey, it can come up against several hurdles down the line. For one global bank that EY worked with, trying to achieve a 30% cost savings target, as well as identify additional cost reduction opportunities and ways to deploy capital more effectively became a real struggle over time.
The bank succeeded in reprioritizing its investments to reduce costs in the most effective way, while not damaging ongoing operations and the bank’s reputation among its customers. Other global banks seeking healthy profit margins must similarly incorporate practical cost saving measures that boost their digital capabilities and enable more agile operating models, allowing for better customer service and greater reinvestment opportunities.
Increasing workforce productivity with intelligent support and a management toolkit
The ongoing impact of COVID-19, combined with shifting customer expectations and vigorous competition from (and enabled by) FinTechs, means that sales force effectiveness is a key priority for banks serving corporate, commercial and small and medium enterprise customers. However, refining these banks’ sales models is not an easy undertaking.
But by combining data-driven insights, analytics and research to develop tailored solutions designed to meet unique client needs, this banking segment can accelerate growth and drive transformation across their organizations.
Using managed services to reduce operating expenses
Crucially, cost transformation must also be supported by efficient and scalable back-office processes, to improve overall end-to-end operating procedures. Global payments systems businesses often face the twofold challenge of needing to process enormous volumes of payments daily, while enhancing their technological tools. One such organization, which had licensed a new sub-ledger tool from a global software company, quickly discovered several problems with enhancing the tool to meet the payments business’s specific needs, such as new product launches and the integration of acquisitions.
This payments business devised a strategy to turn its existing delivery model on its head – not only through a managed service offering with flexible capacity, but within a fixed-fee (non-hourly) arrangement. This allowed the payments business to achieve 40% cost savings.
Refocusing on customer centricity
Customer expectations have been transformed to make “anywhere, anytime” banking the norm.
Customers are seeking solutions that help them meet their financial goals and critical life needs. For many, their overall sense of financial well-being has been shaken by economic uncertainty and financial anxiety.
Supporting customers to navigate tough times
For banks, a better customer experience not only means improved interactions but also all the behind-the-scenes elements that go into making those encounters smooth and effective. As a result, improving their organizational efficiency is a must.
This may mean recognizing the need to fundamentally transform operational processes. Many banks that commenced a journey of implementing an innovative operational transformation program just before the pandemic found their transformation swiftly accelerated once COVID-19 hit.
By anchoring key elements of banks’ transformation programs in an intelligent operations framework, the transformation agenda can offer a blend of process re-engineering proficiencies, technology and data capabilities, and workforce competencies that cater to customers’ swiftly evolving needs.
Building new products by integrating cloud-based platform building blocks
The rise of online and digital banking has spurred a whole new set of expectations among customers, especially around digital payments. A whole new contingent of FinTechs and challenger banks has sprung up to capitalize on this evolution. For traditional banks, it’s a case of move fast, or be lost in the tide of transformation – particularly in the face of considerable market competition.
An enterprise-grade, cloud-based platform enables banks to harness existing technology investment and make more use of data driven insights to help banks better understand its customers. This allows banks to deploy digital proposition to drive value creation and open up new revenue streams, faster, and at scale.
Meeting holistic needs through personalized value propositions
Digital tools that allow people to track their fitness levels and dietary habits have increased individuals awareness of how good habits can positively influence their overall well-being. At the same time, financial well-being has become recognized as an increasingly key component of people’s happiness, productivity and social engagement levels. However, most people lack the financial literacy they need to make confident, well-informed money-related decisions.
South Africa-based Discovery Bank recognized this challenge and decided to help its customers improve their financial well-being, with advanced banking technology and automated solutions. EY’s work with Discovery Bank spanned three years – as the bank navigated regulatory requirements and obtained a banking license, as well as deciding how best to implement SAP’s core banking technology platform, with a constant focus on customer experience.
Thanks to the rapid changes and uncertainties brought about by COVID-19, and the increased need for stronger digital banking capabilities, banks’ transformation agendas are being reshaped faster than ever before. To keep pace, banks must invest now to prepare for the world tomorrow.
The pandemic has forced a digital reckoning among banks. Today’s disruption is a major opportunity for financial institutions to phase out legacy systems and significantly transform their operating models and digital offerings to enhance the customer experience, while reducing costs.