Achieving Operational Excellence: How Successful Banks Are Addressing Today’s Challenges

By Thomas W. Grottke and Timothy J. Reimink 
| 10/24/2018

As customer expectations, technology, and competition continue to evolve, banks and other financial services organizations are searching for new ways to deliver products and services more cost-effectively – and with the same or higher levels of customer service.

Major drivers of change in banking today

The pace of change in the financial services industry is continuing to accelerate. The forces driving these changes are many and diverse, but it can be helpful to think of them in four major categories:
  1. Changing customer expectations. As consumers become accustomed to having 24/7 account access and simplified retail and business interactions, customer habits and behaviors are shifting away from traditional methods of using their banks’ services and venues. This shift has been accompanied by customers’ increasing comfort levels with self-service online information searches, financial transactions, and problem resolution.
  2. New technology. New technologies – such as mobile payments, mobile check capture, mobile account notifications, and electronic signatures and receipts – are creating opportunities for enhanced customer experiences. Beyond customer-facing solutions, technology is making equally rapid advances in areas such as workflow automation, document automation, blockchain ledgers, solution integration, and advanced artificial intelligence.
  3. Talent, training, and staffing challenges. Changes in bank employees’ career expectations and personal preferences are affecting how banks attract and retain talent. As baby boomers retire, the new generations of employees entering the workforce have different employment expectations, might lack an understanding of traditional banking, are not interested in outdated operating practices, and are looking for career mobility.
  4. Competitive pressures. Innovation and economic pressures are increasing – both from within the industry (with service and reputation advances by large banks) and from nonbank sources such as payment processors, financial technology businesses, and giant retail organizations.
Regulatory pressures are another obvious source of concern, but of the four nonregulatory areas where banks are feeling the biggest impact, many bankers seem to find technology the most challenging. When participants in a recent Crowe webinar were asked to rank the categories of change they found most challenging, new technology was the number one response. (Exhibit 1)
exhibit 1
Source: Online survey of Crowe webinar participants, Aug. 16, 2018. Note: Numbers might not equal 100 percent due to rounding.
It should be noted, however, that talent-related challenges are a close second. This suggests that many bank executives recognize the importance of attracting and retaining high-performing managers and employees. In fact, it could be said that many of the most pressing operational challenges in today’s financial services organizations stem from an interaction of people and technology.

Frontline challenges: Branches and call centers

The effects of technology and changing customer expectations are particularly apparent in customer-facing functional areas such as branch operations and call centers. Today’s customers expect 24/7 access and mobility, and are accustomed to and comfortable with many self-service functions. As a result, the functions of bank branches and call centers are changing or are being rendered unnecessary.

These changes can be challenging, but they also represent an opportunity to achieve cost savings and service improvements if handled correctly. Today’s industry leaders are experimenting with a variety of new approaches, including new branch staffing models, increasing use of paperless account opening and services, branch consolidations and closures, and a reduction in branch size and hours.

Among the various branch staffing models now being considered and employed, the introduction of the universal banker position is possibly one of the more significant recent developments. Four out of 10 bank executives surveyed during the Crowe webinar said their institutions had pursued such an approach. (Exhibit 2)
exhibit 2
Source: Online survey of Crowe webinar participants, Aug. 16, 2018
Not coincidentally, about the same number of executives said their banks were working to enhance the customer relationship and selling skills of branch personnel, even as they pursued reductions in branch staffing levels. This shift marks the move toward the universal banker model, a model that moves branch staff from transaction processing (or order taking) to building relationships, providing help and advisory services, and initiating and supporting the introduction of new products and services.

As branches consolidate, the role of call centers becomes increasingly important. In addition to extended call center operating hours, one broad, general trend that can be observed these days is a greater empowerment of call center personnel to handle additional services requests. These trends manifest themselves in a variety of tactics, including extended call center hours and capabilities, and a shift in call center job roles and the skill sets associated with those positions. Supporting technology also is advancing with tools such as tiered customer service queues, text messaging or chat capabilities, interactive teller machines, and enhanced support for digital banking services.

Behind the scenes: Deposit operations and compliance challenges

Technological advances are not confined to frontline functions. Automation also is playing a major role in changing the way back-office functions such as deposit operations, loan processing, and compliance are handled.

Many leading banks are taking advantage of new core system technology to launch major redesigns of their deposit operational processes, automating many workflow and reporting functions. Other successful tactics include increased use of automated reporting tools, greater reliance on call center operations, and an overall simplification of the front-to-back office interaction.

Wider use of automation also is proving to be useful in improving the efficiency of Bank Secrecy Act/anti-money laundering (BSA/AML) compliance functions, where cost is always a major concern. In addition to automated workflow queues, many leading banks are also applying advances in artificial intelligence and machine learning to help reduce the number of “false positives,” which always are a major cost driver in these functional areas.

Credit operations: Lending and collections

Revising credit operations always is a sensitive issue in banking, since any changes directly will affect the bank’s main revenue drivers. Nevertheless, the combination of competitive pressures and technological advances is having an impact in the lending, portfolio management, and collections functional areas of today’s banks.

Industry leaders are applying a variety of tools to help make these functions both cost-effective and customer-responsive. Some of the most frequently applied lending tools include advanced commercial loan origination systems, enhanced integration with the core systems, and automated loan portfolio management, along with increased use of paperless loan origination and electronic signatures.

The overall lending organization also is being restructured in some organizations, with increased specialization toward customer and channel segments and overall process streamlining. These changes are supported by related technology advances such as a greater reliance on automated decision-making, application taking, and loan closing and funding.

Many banks also are re-evaluating and updating their collections processes and systems, focusing on both technology and talent to achieve greater effectiveness. Among the tactics some leading institutions are implementing are more-sophisticated account segment tiering and triage strategies, increased use of predictive decision models, and a general acceleration of the collection cycle so that follow-ups occur in a matter of a few days, rather than several weeks.

Specialty services: Wealth management and cash management

Wealth management and commercial treasury management services represent a growing source of revenue and new customer accounts in many banking organizations. Here again, a combination of technology and talent is proving to be of value in many institutions.

Some important advances in wealth management services that successful banks are implementing include tiered service levels, more-advanced decision models, increased reliance on self-service portals, and automated financial management tools, which can dramatically lower customer costs. Banks that still provide trust services can use new trust accounting systems to streamline workflows. Comparable technological advances are being seen on the commercial cash management and treasury services arena. In addition to technology improvements, some banks are working to reorganize and clarify their cash and treasury management services by increasing resources and better aligning their commercial, retail, and small business units to focus on targeted business customer segments.

Putting technology to work

In addition to technology solutions that apply to specific functional areas, successful banking organizations also are re-evaluating their overall approaches to information technology in general and their core banking systems, considering outsourcing network infrastructure and administration, and looking at enterprise risk and data systems.

Technology enhancements are allowing organizations to simplify processes, automate documents, enable customer self-service, automate processes, and integrate systems.

Looking beyond specific tools and tactics, banks also are engineering broader structural and cultural changes in their organizations. Banks are better aligning management oversight with streamlined processes that are more clearly understood and designed by customer-focused activity management (CFAM) and business process re-engineering (BPR).

The long-term objective of such efforts is to transform the organization from one that is based on departmental hierarchy, specialized functions, and rigid processes and controls, to one that adopts a more process-oriented, team-driven model where the hierarchy is flattened and processes are simplified and driven by employee empowerment. Banks that are successful in these efforts expect to achieve greater efficiency, better employee job satisfaction, and improved customer service and retention in today’s increasingly competitive banking environment.

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Thomas Grottke
Thomas W. Grottke
Managing Director
Tim Reimink - social
Tim Reimink
Managing Director