Disjointed digitalisation holds back banking innovation

Disorganised implementation of new technologies also hinders regulators

Every sector has scrambled to digitalise in the wake of Covid-19. Banking is no different. During the crisis, many banks saw a 50% increase in the use of digital services, with 71% of consumers globally now using such services weekly.

The pandemic is just the latest in a line of challenges that have forced legacy institutions to innovate. Now, a new breed of fintechs is disrupting the industry.

This pressure has produced another problem: disjointed digitalisation. As banks introduce more technology, their information technology landscapes become more complex, automated and, crucially, disconnected from the operational business processes that are supposed to underpin them.

Silos exacerbate the problem further. If a financial institution introduces technology to automate a process in its front office, how does that impact the back office? Does it integrate into the end-to-end business process that the rest of the bank is running on? Too often, the mining, mapping and design work to answer these questions has not even been attempted, let alone completed.

This disconnect has a fundamental and negative impact on the characteristic that organisations need to thrive in today’s market: agility. If a bank cannot introduce new technology, operationalise it and integrate it into their business process at scale and speed, it creates a cocktail of inefficiency that slows down future innovation.

However, this problem is not isolated to banks. It extends to the entire financial system. Introducing new technologies in a disjointed way means that central banks and regulators cannot monitor compliance and manage risk.

This lack of visibility is a fundamental struggle and one that the manufacturing industry understood in the 1960s. In mapping out its processes, it was able to monitor compliance, both internally for senior management and externally for regulators.

Although banks are charged with organising abstract concepts and data rather than physical goods, they must apply the same rigour. Part of the solution is investing in capabilities to map, model and simulate the processes that banks run on, identify problems, optimise inefficiencies and create a single source of truth for internal teams and external regulators.

Banks must also change the conversation around business processes and empower the individuals charged with driving them. Process teams must be elevated and given the authority to work across silos and encourage realignment. Regulators must work with banks to find a common language and establish best practices for institutions to follow.

Banks are getting squeezed from both sides: by regulators demanding transparency and by fintechs promising better, faster and cheaper services. Effective process management will help accelerate innovation in legacy banking, allowing these institutions to simultaneously stay competitive and satisfy regulators.

Gero Decker is Co-Lead of SAP Business Process Intelligence and Co-Founder of Signavio.

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