Robot Assassins, Digitization in Banking, and Regulatory Change


In “Dark Fate”, the most recent iteration of the “Terminator” movie franchise, yet another robot-from-the-future is sent back in time on yet another assassination mission. The Terminator series is well past its, ahem, termination date, but each of the movies illustrates one thing that doesn’t terminate: technological progress.

A 2016 study by McKinsey and Co. found that modern technologies could automate upwards of 45 percent of activities that people are paid to do. However, this trend isn’t as pervasive in banking. Experts agree that large areas of traditional high-touch, client-facing activities such as contract negotiations and regulatory change management could be automated and digitized, but almost all of this work is still completed by hand today.

The biggest drawback to doing so much of this work manually is that it’s incredibly time-consuming, especially for larger banks that manage thousands of client relationships. Staffing one-off project efforts – such as Brexit – is also costly, as the most in-demand specialists and lawyers come at a premium.

But even when you’re fully staffed, manual work introduces operational risks such as human error, misfiled documents, or missed process steps. We have heard stories from executives that even gathering a status report on some of these large, manual exercises is a multi-day, error-prone effort.

All too often, this causes financial institutions to lose sight of the valuable data in unorganized stacks of paper and unmanaged stashes of scanned agreements. The work usually has to be kept in-house because of the sensitive nature of client relationships and data, making it difficult to be outsourced or offshored.

Last year, Charles Teschner of Boston Consulting Group said that banks must evolve their business models to survive the digital migration. Let’s take a closer look at the current state of digitization in financial services, as well as the challenges you should anticipate as you modernize your approach to managing client information over time.

Pressure on Financial Institutions to Digitize

Financial institutions recognize the problem and are beginning to address it.  According to a whitepaper by Michael Ziegler of Fujitsu, a growing number of banks are starting to invest in document capture, electronic content management, and business process management tools. “Document-driven processes can [produce] significant cost savings, reduced processing times, improved regulatory compliance, better service levels, and customer loyalty,” Ziegler adds. “Such systems can consist of customised or off-the-shelf software and hardware.”

Off-the-shelf tools such as document scanning, optical character recognition (OCR), and email campaign management platforms have been adopted across financial institutions. These solutions tend to be easier to implement and maintain, as they are typically automating familiar processes and so the return on investment is easy to calculate. But some banks have also begun experimenting with emerging technologies such as AI-based document data extraction, automated document generation, email parsing, robotic process automation, and blockchain.

Judgment Day: Why is this happening now? 

While the benefits of digitization have been obvious for quite some time, these recent innovations have been driven by need. New regulations and industry events – such as Initial Margin, MIFID2, benchmark reform, and (dare we mention it again…) Brexit – have forced individual banks and industry organizations such as ISDA to find new ways to organize previously unstructured data.

However, the benefits of a digital transformation don’t end there. Not only does digitization speed up processes and reduce errors, but it enables banks to automate even more sophisticated projects. For example, once key contract terms are stored as data, they can be used to automate future updates to an agreement or provide the front office with on-demand, digital access to key client contract terms.

Salvation: Choosing the Right Tools for Your Digital Transformation

With so many tools in the market, how do you choose the right solution for your digital transformation? This question tends to present the biggest obstacle for most financial institutions. As your automation needs grow in scale and complexity, answering this question becomes even more difficult.

Most products offer a list of features that may claim to solve most automation challenges, but the reality is that there isn’t a single tool on the market that can meet all of your needs.

Banks deploy an ever-more-complicated mix of vendor and in-house technologies, computer systems, applications, and processes to serve customers and business partners and to solve organizational challenges. And these legacy systems become increasingly inefficient as they age — in part because they are often not interoperable with newer technologies. Tools with open APIs are therefore critical to the digitization process because they can be plugged together and into each bank’s existing architecture.

Having this fabric of tools interoperate is a major technical challenge – but anyone experienced with systems development knows this is only half the story. The tools are in place to solve business problems, so there needs to be an overarching orchestration layer to align them against those business problems.

This requires us to introduce the dreaded “W” word: “workflow”. There are good workflow tools and bad ones, but the best in class are customizable, extensible, and integratable to help a set of disparate tools become a unified, coherent set of business processes.

Rise of the Machines: Newer technologies are emerging

More than two-thirds of bankers think Artificial Intelligence (AI) will have a huge impact on the financial services industry over the next decade, according to a survey by Synechron and TABB Group. Successful companies will have fewer employees and more smart machines.

AI-based document data extraction is being used more and more as an efficient way to collect data from existing documents such as contracts and used for automated updates and negotiation. And email parsing software can be configured to pull specific data fields from incoming emails. This allows you to convert an unstructured email into easy-to-handle structured data, including attachments. 

Robotic Process Automation will become a priority for bank executives looking to do more with less and novel combinations of AI techniques will power new applications. In addition to the cost savings, there are a number of significant benefits to automating key processes, including a reduction in errors, improved customer experience, added operational agility, and improved regulatory compliance.

Perhaps not so new now, but evolving, the application of blockchain technology extends well beyond digital currencies. Smart contracts have the potential to automate many of the complexities of post-trade processing, while distributed ledger technology enables reliable data and document sharing across and between organizations – while cutting out swathes of complexity in the form of intermediaries, data reconciliations, and version control.

Final Thoughts

As industry experts continue to trumpet the benefits of digitization in financial services, it has proven to be a difficult undertaking; but just like the relentless Terminators, the challenge isn’t going away. Building and connecting API-driven software will serve banks well and smooth the transition from legacy systems to more modern, efficient, and effective platforms that provide a healthy return on investment.

Banks that embrace automation will have the upper hand in providing a best-in-class client experience at a lower cost while reducing the effort to respond to future regulatory changes. Banks that don’t? They face a ‘dark fate,’ or worse: ‘termination’.

Looking for a suite of tools that automate and manage documents across your entire organization? Opal offers a powerful API that integrates into your existing applications and workflows to simplify the production of complex business documents. Click here to learn how Opal can help your digital transformation. 

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