The wave of digitalization in recent years has caught plenty of people off guard. How come? It wasn’t as if there was a “big bang” and then all of a sudden there was digitalization standing on the doorstep.
No, it was more a case of a slow but constant wave of change building up; that wave has now reached a considerable height but has not “yet” broken over our heads. This is a good thing because it gives us all the chance to take the necessary steps to prepare and position ourselves accordingly. Because new regulations, changing customer requirements, and declining margins are constantly increasing the pressure on traditional business models.
Variety of Products from Banks or Insurance Companies
Nowadays some banks and insurance companies offer a huge variety of different and bespoke products – even specifically for small groups of customers. However, this tendency clearly works against any move towards making their processes streamlined and cost-effective. The crux of the matter is that, with very few exceptions, the only products that can be automated with an attractive price/performance ratio are simple, standardized products. It would be a reasonable assumption that this will lead in the future to bespoke products becoming more expensive since they need to be managed manually. The administration of standard products, on the other hand, will be either semi-automated or fully-automated, and as a result they will be far more competitively priced.
Banks and insurance companies need to redesign the architecture for their current IT platforms; the ability to provide standardized, modular products quickly is now the crucial factor rather than just a contributor to planning security and stability. However, the platforms currently in use have been configured in recent years for stability and planning security. This is a key point, because to stay competitive in future as the release cycles become shorter and shorter you need to be able to respond to the new, modern, flexible products from the FinTech and InsurTech sectors. This may be easy to say, but such changes are extremely expensive to implement until staff learn to accept the mindset of the new world and the new methodologies gain a firm foothold in all areas of software planning and software development.
So How Is the Glarner Kantonalbank Dealing with this Transition?
In 2012 we launched our first web-based standard product, hypomat.ch, and since then we have gradually released additional products on the market with the same degree of standardization. We are also currently taking our expertise for creating streamlined, efficient credit management processes and feeding it into our credit factory and its software. This enables us to take advantage of the latest move towards simpler, more standardized products, which will lead in many companies to the outsourcing of back-office processes.
Why do we believe that more and more back-office processes will be outsourced in future?
- the lower and predictable costs often have a positive effect on the cost/income ratio of a company.
- the value added by their consulting and support is an important USP. Needless to say, the processes must be handled to a high standard, but this is far from being an important USP for customers
- processing departments that operate with 3–5 staff are regularly understaffed due to absences because of illness and/or staff leaving.
The move towards the outsourcing of management processes will allow financial institutions to take advantage of the breakup of the value-added chain and, with predictable costs, to focus on consulting, on your growth, and on developing innovative products. We are assuming that the majority of financial institutions will be concentrating in the medium term on their core skill of “consulting”, and that as a result BPO of volume-critical processes will increase sharply.
The process that we now refer to as digitalization has been developing over recent years. It has been a gradual, creeping development rather than a “big bang”, but it marches on constantly and brings with it change at an unprecedented speed. The way that the banking and insurance sectors have moved over to digital technology is one of the drivers behind the current collapse of margins. As things look at present, this collapse can be “combated” by product standardization and process automation or by getting involved in a niche market with good margins. Concentrating on automated processes will in turn increase the need for processing costs to be predicable and cause the outsourcing rate in the settlement sector to increase. And this, in turn, will free up resources in companies for consulting and for developing innovative, customer-focused products.
About the Author
Ivan Büchi is head of the Digital Office initiative at Glarner Kantonalbank. He works with a highly innovative team to make financial products easier and more convenient to access.
The Glarner Kantonalbank, a partner of Greater Zurich Area AG, is a universal bank that focuses on mortgage and savings products as well as asset management and investment services. With its Softlink modules and the GLKB credit factory, it has also lately become a provider of software and services.