Faced with increasing regulation and competition, banks need to take advantage of any opportunity to streamline processes, upgrade experiences and gain competitive advantage. In November 2014, RBS was faced with a £56m fine for its failure to successfully upgrade software in 2012. This fine highlighted not only the continued reputational risks faced by banks, but also called attention to the need for up-to-date technology that will keep pace with consumer demand.  

In a mobile-first, socially enabled world, customers have become highly demanding and empowered. To attract and retain new customers, financial service organisations are increasingly being asked to build systems that adapt and evolve to customer demands.

Perhaps this can be best seen in the development of mobile payment solutions. Merchants and payment companies, who are struggling to understand new consumption patterns, are increasingly turning to analytics. These new tools are designed to help them understand new behaviour and identify new opportunities for profit. Identifying opportunities from this new landscape – whether from virtual cards, mobile wallets or in-app payments, will require dedicated resources and the right technology. Faced with rising competition and the unrelenting need to evolve their user experience to match changing customer expectations, banks now need to innovate faster than ever before.

The challenge of change

In addition to the complexity created directly by consumers, we’ve also seen increasingly complex software architecture created in response to the digital age. This is because off-the-shelf and custom applications are needed for financial institutions to exist. The problem isn’t always the complexity itself, but the increasing frequency of change.

The ever-increasing pace of change can present huge challenges for financial institutions as they try to innovate while striving to introduce new functionality quickly. For large enterprises, building the systems to support this level of innovation can be singularly expensive, drive complexity into already-complex systems, and increase the risk of serious error. Any innovation – whether through internal channels, acquisition or partnership – is also fraught with risk. Bet on the wrong technology and an organisation can be lumbered with technical debt and financial loss with no discernible benefit. In April 2014, the Kelly report found that the failure of a core banking replacement system had contributed to a £1.5 billion capital shortfall at the Co-op Bank.

In the next 12 months, the risk from these technical debts will only increase as will the threat of fines from the government. Before the financial crisis, the burden of legacy systems was much less of a concern for management – banks could afford the specialist staff required to extend the life cycle of their legacy systems and avoid any mishaps. Yet, with budgets tightened, this has been becoming less of a reality.

However, keeping costs low should not be the main focus of any new IT system. New implementations should be driven by a desire to innovate and improve the functionality, usability and reliability of a company’s IT system. The importance of innovation cannot be overstated, as the requirements of IT systems become ever greater and the expectations of the bank’s stakeholders also increase.

Despite the undoubted importance of innovations, many IT departments are currently struggling to cope with the every day, never mind the new. Gartner has previously stated that for many organisations, 80 percent  of time can be spent on day-to-day processes, or ‘keeping the lights on’, and this is not sustainable if they are to continue to win market share and grow in increasingly competitive markets.

Automate to innovate

Automation is fast becoming a strategic business imperative for banks seeking to innovate – whether through internal channels, acquisition or partnership. Implementing integrated automation solutions will enable banks to streamline the very tasks that are holding them back – removing manual intervention and ensuring that simple tasks are handled with speed and agility, without error.

Automation enables a standardised audit trail, making sure the right people have access to the right systems and guaranteeing that financial institutions adhere to industry standards, while reducing the need for cost involved in keeping legacy IT systems running. By bringing everything together and connecting loose ends, automation enables the banking sector to deliver the cost-saving that it needs, while simultaneously delivering value to customers.

Transitioning to business automation is a significant step for any business, and not one that will be taken often. It’s a detailed, strategic initiative that is going to involve much planning, testing, validating and lean business approaches to get right.

However, if you become one of those who understand the value of automation and involve it at all layers to address your most fundamental business challenges, you can free up immense internal resources to focus on driving business growth.

It is clear that financial services organisations need to move quickly to innovate and give their customers something extra, and those who don’t realise this will likely get left behind. Time will tell which banks are up to the challenge of accelerating and modernising their IT factory – and which others will be left behind.

Chris Boorman (pictured) is CMO at Automic