Technology is changing the banking and capital markets industry with immense speed. In Germany, one of the strongest financial bastions in Europe, the bank with the highest market capitalization is not a traditional bank at all. It’s Wirecard, an IT and financial services provider offering electronic payment transactions solutions and risk management. Wirecard in September replaced Commerzbank (Germany’s fourth largest bank) in DAX, the German Stock index that consists of the 30 major German companies trading on the Frankfurt Stock Exchange.
This was a clear wake-up call for the European banking industry, which is lagging in terms of adopting new technologies and providing innovative financial services, while the global financial world is disrupted by platform companies such as Amazon and Alibaba and small, creative FinTechs. Most European banks have digitalised only a small part of their processes, hardly 20 to 30 per cent. Wirecard, with about 700 employees, has the market capitalisation of a traditional bank with about 80,000 employees. The power of banks is no longer measurable just by the number of employees and branches. Openness to innovation, keeping pace with new technologies and listening to customer demands are the new key factors for banks’ success.
Customer demands are constantly changing, and in fact the “new banks” and new financial players are emerging because the relationship between customers and banks has changed. Now more than ever, customers want personalised services. They don’t want to provide endless documents, give out the same information time and again when talking to their bank, or wait in long lines. Customers demand instant gratification and simple, efficient and automated services they can access anywhere and use easily just by turning on their mobile phone.
So, why aren’t more European banks listening to customers and moving forward? We believe it’s because of too much focus on basic mobile apps and not enough consideration of the organisational and cultural change that is part of the digital transformation process. Some European banks are still using security risks as an alibi for their tech-inertness. But there are no grounds for this excuse. The airline industry, which has faced even bigger risks in recent years, has completely digitalised and automated all processes for its customer experiences.
Robotic process automation (RPA) is one of the technologies that can drive digitalisation for banks and help them transform. RPA enables greater efficiency and speed for processes and operations, helps reduce costs and improve compliance with national and European regulations. The good thing about RPA is that it’s not a point solution. Whenever there are work tasks that are structured, process-driven, rule-based, non-intuitive, with a stable execution process and performed in a stable environment— such tasks can be good candidates for RPA.
RPA has the potential to change many things on a task-execution level. With automation, there is no need for someone to study for years to become an accountant. A robot can be taught all the accounting tasks, at least on an execution level. The accountants can thus be used for more complex and strategic work. For banks, almost all back-end processes can be digitalised and automated. The tools are there. Creating and closing an account can be a fully automated process. Evaluating a client’s credit-worthiness and eligibility for a loan can be automated; there is no need for a bank clerk for the task.
Since it’s rule-based, automation reduces the risk for making errors and wrong decisions. The robots can avoid human errors if programmed correctly to follow specific rules and processes. From a regulatory point of view, it’s even better to have automated software that follows strict rules for data processing and a workflow that can be easily audited. Furthermore, the virtual workforce needs just several servers to function, which helps reduce costs and re-purpose bank employees to more meaningful job positions.
The takeaway is that European banks should start acting — and soon. The curve of development in technology for banking and capital markets is not linear, but exponential. It’s essential to understand that what needs to be changed is not just the technology, but the operational and organisational mind-set. You cannot be innovative if you still do all processes in the old way.