Advice and Information for Finance Professionals

Want to Innovate Like a Fintech Startup? First, Simplify Your Back Office

Guest Author

By Bill Greene and Sanjay Mathew

The banking community was already well aware about how much fintech firms are threatening their business, but a report that Citigroup released in late March confirmed their worst fears. Fintechs are expected to push down the number of employees at American banks from 2.6 million last year to 1.8 million by 2025, and in Europe, bank jobs might drop by as much as 37%.

Data on investments in fintech firms also reflect this shift in power. Venture investment in fintech companies rocketed to $19 billion in 2015, up 58% from 2014 and over 1,000% since 2010. Last September, Matt Harris at Bain Capital Ventures told American Banker that about 20% of all venture investments could go to financial services.

The fact is, retail banks are far more worried about the competitive threat posed by fintech startups than they are about competition from other traditional retail banks. This would have seemed unthinkable just a few years ago.

If You Can’t Beat ’Em…

According to the 2016 World Retail Banking Report, less than one quarter of banks feel that they currently have the agility or ability to innovate faster or better than fintech firms. 46% said they are considering collaborations with fintech firms, 44% are planning to invest in them, and 18% have plans to acquire fintech firms or their technology.

To free up resources for innovation, especially with regard to finance, banks need to take a fresh perspective. A recent report recommends “wiping the established ‘offline’ board clean and asking ‘how should we be doing this in a digital world?’”

No one is saying shedding long-established practices is an easy process—and with many established banks, aging technology makes any attempt to change direction even more difficult. The vast majority of banks (88%) see overcoming legacy systems as a barrier against digitizing the customer experience. But sometimes you have to be bold and make the hard decisions.

Indeed, some banks have already made the leap to modernizing their aging back office systems. National Australia Bank (NAB) saw the fintech writing on the wall as far back as 2010 when it launched UBank, its all-digital online bank. At the time, NAB recognized online banking as a way to better compete against international companies. But it also saw in it an engine for ongoing innovation. In a 2012 interview, then UBank general manager Alex Twigg commented that NAB’s exclusive use of one technology stack—Oracle—enabled the organization to “concentrate on our customer experience.”

Don’t Forget the Cloud

Australian Finance Group (AFG) offers another example of a firm moving away from cumbersome finance processes to free up resources for revenue-generating initiatives. One of Australia’s largest providers of mortgage brokering services, AFG realized that a first step in innovation was getting its legacy technology in order. Its aging infrastructure could not keep pace with changing financial regulations and the company’s own rapid growth. Driving innovation and meeting business demands was becoming inefficient and costly.

AFG turned to the cloud to transform its operations. With Oracle ERP and EPM Cloud, AFG implemented a solution that supported extensive spreadsheet integration across multiple finance functions, including general ledger, payables, receivables, and asset and expense management, eliminating the time finance staff spent for high-volume data entry.

The results have been nothing short of dramatic.

"By migrating to Oracle Cloud, we have transformed our business model and technology platform, enabling us to double our capacity to innovate,” said IT manager Andrew McGee. “We can process 600,000 monthly commission payments 5x faster, have reduced system-management costs by 29% and enhanced our competitive edge."

Now the staff can “move away from operational tasks and focus on digital, mobile and data initiatives.”

By integrating Oracle Financials Cloud with Oracle Planning and Budgeting Cloud, AFG now supports a modern, end-to-end close process, with strategic planning, forecasting and analytics—enabling the company to respond rapidly to changes in the financial-services industry.

Strategies that Banks Can Learn from Fintech

As American Banker noted, traditional banks still have fundamental advantages over fintechs, such as their incumbency and size, but that doesn’t mean traditional banks can’t start thinking and behaving more like startups. There are a few strategies that banks can learn from the fintech industry.

  • Fintechs focus on creating differentiated customer experience by lowering friction for the customer in areas like loan originations, payments, and advisory—and they do it by using modern technologies such as cloud, mobile, social and analytics to their advantage.
  • Fintechs prioritize spending their investment dollars to develop competitive and revenue-generating capabilities, rather than trying to specialize in back office functions like procurement or financial reporting. 
  • Fintechs do not try to specialize in every domain. Where possible, they integrate with known services (using approaches like APIs) thus fundamentally lowering their investment costs. They also partner with known standard service providers, rather than trying to develop on their own.
  • Banks like AFG, Lending Club, and Western Alliance Bancorp have all chosen to adopt cloud-based back office corporate solutions—which are low cost and faster to deliver—thus increasing their agility in financial reporting and enabling them to focus their investment dollars on customer-centric activities.
  • Banks have historically customized and over-invested in building custom processes, thus increasing costs of running the bank. Billions of dollars are stuck in on-premise solutions; developing a strategy to migrate low-value-added business capabilities to the cloud should be high on the priority list. Banks have a huge opportunity to relieve these stuck investments by embracing cloud-based modern solutions and get efficiency ratios similar to what fintechs achieve.

With the speed at which fintech competitors are growing, now’s the time to start enabling your organization to innovate its own solution. If you’re interested in learning more about moving back-office systems to the cloud, we encourage you to read our CFO guidebook, “Best Practices for ERP Cloud Migrations.”



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