4.4.6. Automation
Back office functions represent between 40% and 50% of
headcount for many of the banks we interviewed, and a
similar proportion of their floor space. We believe that the
most significant change to the back office in the next five
years (and parts of the middle office) will be automation of
processes and workflows.
An Oxford University study in 2013 has predicted that 47%
of jobs across all sectors could be automated in the next 20
years, yet a report on Digital Banking by McKinsey in 2014
has found that European banks have digitised only 20-40%
of their processes to date. The same research predicted that
banks can remove 20-25% of their cost base by leveraging
automation – arising from a 40-90% decrease in the cost of
internal processes.
The banks that we spoke to have told us that all too often,
digitisation efforts of banks are too narrow, often focusing
solely on the front end applications and website tools, but
with no accompanying digitisation of processes, data assets
and staff capabilities.
4.4.5. A challenge from the eWallet
The payments industry is facing its biggest shake-up in the
coming years – perhaps in the same way the MP3 revolution
disrupted the music industry. New players creating eWallets
and online checkouts are inventing popular technologies,
spread by social media, which are potentially a threat to
the dominance of the banks. The increasing popularity of
online payment providers like PayPal and Amazon Checkout,
combined with the emergence of mobile commerce, threatens
to leave banks lagging behind in the e-commerce world.
In developing countries, particularly in Africa, eWallet systems
have grown quickly. For example, M-Pesa in Kenya which is
a joint venture between Vodafone and Kenya’s Safaricom
and is derived from M for mobile and Pesa – the Swahili for
money – now has 50% of the adult population as customers.
In the developed world, new technologies such as Near
Field Communication (NFC) are being used for contactless
payment by both credit and debit cards and also mobile
devices. While others have focused on Bluetooth Low Energy
(BLE) as a future eWallet enabler.
The next wave of the e-commerce evolution will see
physical retail exploring business models introduced
in virtual commerce – something that the new FinTech
players are poised to exploit, but which the banks are
catching up with. This is a threat to the established banks
not only because of the large number of customers
using the new payment options, but also because the
new players are significant attractors of top employees.
Banks may not change fast enough to respond.
Prediction
Shaking up the bank structure: The shrinking
middle and disappearing back offices.
Automation will remove back and middle
office jobs and result in a significantly
reduced requirement of real estate.
Consumers and clients of retail banks will continue to push
for digital banking and services, presenting challenges
for banks with legacy technology infrastructure and
geographically dispersed regional property portfolios.
Banks that fail to invest in technology will suffer compared to
leading innovative banking brands who invest substantially
in client and customer facing technology, applications
and services. In order to provide these digital services
at the front end, banks will need to digitise internal
processes and workflows, and therefore automating
significant proportions of back and middle office jobs.
A recent study by academics at Oxford University2
suggests that 47% of today’s jobs could be automated
in the next two decades. Banks will be able to use this
opportunity for significant rationalisation and consolidation
of their property portfolios, with significant cost
reductions and reduced complexity in the portfolio.
47% of jobs across
all sectors could be
automated in the
next 20 years.
52
The future of the financial workplace
|
September 2014
