Mid-market banks are making significant investments in automation technology to boost operating efficiency. But so far, many banks are seeing their investments fall short of expectations.
This is according to a recent survey of 150 mid-market banking executives conducted by us and American Banker. The survey found that although 61% of mid-market banks are investing in automated technologies, only 34% have achieved efficiency ratios below the industry standard of 50%.
So why are technology investments failing to produce productivity gains for so many mid-market banks?
We found broad agreement on the need to boost productivity and the potential of Robotic Process Automation (RPA) to achieve that goal. But many banks are still stumbling on the execution, stifling their ability to turn automation into the driver of efficiency they hoped it would be.
Technology investments that happen in a vacuum without considering changes in business operations process leave productivity gains on the table. That’s a big part of the reason why the outcomes of technology investments continue to fall well short of expectations, creating a gap between how well executives think they are doing on the digital front and the ROI they are actually getting
A remarkable 80% of survey respondents said they have been extremely or very successful in improving efficiency/productivity at their banks in the past year, yet only 34% are at or below the industry standard 50% efficiency ratio. To drive home the point, less than 20% of mid-market banks achieved a five-point improvement in efficiency ratio from 2015 to 2018, and less than 10% have made 10-point improvements.
Our survey illustrates an important lesson in the innovation ecosystem: Technology is only a tool. Banks need to develop savvy strategies to improve their business processes so RPA bots can actually help them achieve productivity gains that have long been elusive.
It’s not enough to simply identify the process that will be automated and then build an RPA tool. Executives need to wed the redesign of process and operations to maximize the impact of automation.
Banks often struggle to decide what to automate. With so many tasks that have traditionally required humans inputting and analyzing data, how do you decide where to deploy RPA? The first step is to take a hard look at the activities happening at retail branches in commercial divisions and with online banking. Then ask three questions:
Will it generate new revenue streams or improve existing ones?
Will it reduce costs and optimize business processes?
Will it improve customer experience?
Although emerging technology like machine learning and artificial intelligence are often discussed in terms of a robotic evolution, the truth is that innovation in most businesses will be incremental. Traditional workforces won’t be replaced overnight – and in many industries won’t be replaced at all – but instead will find their roles redefined.
Banks should look for those tasks and operations that are repetitive and don’t benefit from a human touch. Look at business value and complexity – and the intersection of the two – when considering what processes might be automated. The best RPA targets have a high business value but low complexity.
Historically, executives have been told to optimize process first and then go out and find a new technology that will fit the process. However, perspectives are changing. Instead of optimizing process in a vacuum, banks should be doing process optimization through the lens of the technology they’re selecting.
In practice, this means asking what functions and/or departments an RPA will touch, who will be impacted, and who will monitor it – with a clear plan for how many steps are involved and how process automation will introduce new efficiencies into the workflow.
Executives should think big but start small. Don’t try to fix the bank’s biggest problems at the outset; look for simple processes and low-hanging fruit. Small wins are key to building confidence across the organization and getting buy-in for bigger lifts down the road.
When these successes are combined with a repeatable process for implementing RPA, a bank’s culture begins to shift. It’s one thing to talk about how RPA will free people up to do more of the human work of banking – it’s another thing to show them exactly how some tasks will shift to RPA, and how your talent will shift to higher-value work.
You can’t have a conversation about RPA these days without addressing the widespread fears that bots and AI will take away jobs. It’s true that bank executives – like their peers in other industries – will need to make tough decisions in the months and years to come.
But RPA is not going to replace your workforce one-for-one. Organizations that reap the benefits from technology do so by embracing a blended, digital workforce and changing the ways their employees work.
Banks seeking to embrace a blended, digital workforce should involve their employees in the automation process so they can not only see what’s coming, but also be part of the solutions that free them up to focus on higher-value activities.
Taking a thoughtful and repeatable approach to redesigning business processes with technology implementation is mind is the missing piece for many mid-market banks on the path to greater efficiency.
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