By Manish Sharma, Group Chief Executive, Operations Services, Accenture
Banks have built historic reputations on being steady and solid, traditionally making incremental improvements to operations based on an understanding of change as something that is occasionally necessary, but preferably avoided.
Yet in a market distinguished by uncertainty, the only way to be ready for the future is to invest in change itself. Readiness for change has emerged as the new currency in this ever-evolving market as the rules of the game change with rising expectations, regulatory requirements and accelerated innovation.
Moreover, the pandemic has exposed a landscape that is littered with risks including potential of a resurgent virus, financial crisis or cyberattack compounded by the impact of record interest rate lows, COVID-related credit losses, patchy economic recovery and fintech upstarts. To survive and thrive amid such insecurity, banks need to boost productivity, efficiency and resilience while remaining adept enough to leverage new opportunities that boost value.
Without the luxury of standing still, banks must embrace radical change to transition from an analog past into a digital tomorrow that is “future-ready”—Accenture’s highest rating for operational maturity. This can only be achieved by embracing the technology, skills and ways of working that enable banks to reinvent themselves.
There is no time to waste: future-ready status is critical for profitable growth in the new order, empowering banks to realize higher market valuations and derive greater profit from assets.
Yet our data across 13 industries indicate that banks on average are less operationally mature than most other organizations. A recent Accenture survey found only 6% of banking leaders believe they are future-ready and only 57% say they have evolved to “predictive” operations that make expansive use of data and analytics—one maturity level beneath future-ready
Nonetheless, these figures conceal real hope. Three years ago, no banks identified as future-ready and only 14% described their operations as predictive. Now, the direction of travel is clear, with 37% expected to be future-ready by 2023.
Accenture’s research makes for sober reading in this high stake market. While 78% of banks make broad use of data, few have scaled key enablers such as artificial intelligence (AI) and analytics to extract their full value.
In our survey of 100 senior banking executives, we determined what banks stand to gain from achieving progressively higher levels of digital and operational maturity. Being more operationally mature helps banks fulfill requests more efficiently, acquire customers faster and discover new revenue streams.
On the other hand, future-readiness enables banks to lead the field by applying rich data to make decisions, augment their human talent with technology and employ agile workforce models. Those achieving peak productivity from technology investments reap rich rewards in terms of higher market valuations, reduced operating costs and the agility to thrive amid uncertainty.
For example, digitally focused banks have benefited from market valuations that, on average, were 18% higher than less digitized peers in 2019 and 27% higher in 2020. In fact, over the last eight years, these future-ready banks have cut costs more than those slower to embark on their journey to a digital model and their revenue on assets has not only been greater but has shrunk less than digital novices. Cost and revenue advantages mean these leading banks increased operating income per dollar of assets from 1.22 in 2011 to 1.47 in 2019.
Turn tradition on its head
It is understandable why banking executives have so far not taken a top-down, cross-functional view of digital transformation, with comprehensive operational transition delayed by ever-changing regulatory environments, fixed cost structures and heavy investments in legacy systems.
But Accenture has identified ways to turn tradition on its head and engineer meaningful change that edges a bank closer to future-ready status. Executives need to start by viewing business and technology as complementary, with progress measured by the extent to which they operate in perfect harmony.
For example, a joint governance approach can enable company leaders to co-determine a strategic route aligning technology investments with their business blueprint. In many leading banks, the chief technology officer and head of operations report to a single executive who takes a holistic view of innovation.
Progress is clearly on the horizon: our data found 43% of banks are set to scale business–technology collaboration by 2023, up from 11% today, to make better use of their expertise and technology.
Take the progress made in automating transactional tasks, for example. Fifty-eight percent of banks have achieved wide or full-scale automation of transactions, a four-fold increase from just 14% three years ago. This is heartening, but the use of automation needs to be expanded—and not just to cut costs but to accelerate the digitization of business processes.
Banks are clearly making headway, with 90% of banks expecting to be highly automated by 2023. While many have long optimized data in operational decisions, unlocking further value through analytics will give them priceless performance insights.
In addition, banking leaders must capitalize on the combination of human and machine intelligence as a potential game-changer. For example, banks that can automate transactional tasks in ways that enhance the potential of humans are expected to achieve wide or full-scale adoption of automation, analytics and AI as early as 2023.
An optimal way to widen talent pools is by applying agile workforce strategies, something many executives instinctively understand. While more than half (56%) of banks widely use an agile workforce strategy today, 98% are expected to do so by 2023. And to adapt to shifting market expectations, 95% of banks plan to scale employee, partner and customer experience strategies by 2023, up from 61% today.
Competitiveness is also increasingly being redefined in terms of cooperation, and building partnerships through broad supply-chain ecosystems has become a critically important platform for organizations to rethink how they operate.
A major European bank wanted to transform its credit and payment services by investing in new technology, so it teamed with an ecosystem partner to move to an intelligent operating model powered by data, technology and talent. This enabled the bank to cut operational losses to zero, reduce total costs by 20–30% and enhance productivity by 45%.
Maturity is mighty
A fundamental task of banking has always been safeguarding the value of assets, yet it is surprising how many organizations have overlooked their operational infrastructure as the market is shaken by tectonic change.
Some are undoubtedly beginning to catch up, as was proved by a large banking group when it transformed its commercial lending process. The bank reimagined its commercial lending operations with new digital capabilities. A new cloud-based commercial lending origination system, 60 automation tools, AI-assisted assets and predictive analytics transformed the bank’s core systems and strengthened customer retention by predicting loan pre-closure propensity.
This bold move to align business and technology paid off: the bank accelerated loan approval time by 26% and can disburse loans under US$350,000, three times faster than before. In total, the organization saved US$20 million and avoided potential loss of US$2 billion—an ROI it can take to the bank.
But for many banks much remains to be done. Their evolution must be fast and furious if they are to keep up with rapidly changing markets, technology and customer expectations.
In their collective vaults are deposited the skills and talent to make these changes—from their age-old affinity for data to their natural inclination to automate and build deep, long-standing relationships with customers. But it is time to dust off these priceless virtues and apply them in new ways for the future.
A future-ready bank is a bank that has embraced its digital expertise through bold transformation to achieve a new level of operational maturity.