Middle market banks had two responses when they were inundated with PPP loan applications. Some took an all-hands-on-deck approach to repurpose the workforce to meet the deadlines. Others turned to third parties to stand up processing capacity fast. Either way, what was initially a focus on filling a “right now” need has turned into a broader conversation about “what’s next” for the back office.
I see this as a tipping-point for middle market banks. Necessity forced their hand during the PPP surge. Now, many are not only refocusing on the back office, but they are also thinking about it very differently. Middle market bank leaders increasingly want to talk with me about getting out of the business of the back office. The conversation has morphed greatly in the last two years.
What’s changed? PPP loan processing offered a glimpse of what is possible when it comes to back-office services. Leaders also recognize they need new ways of meeting customer expectations and competitive threats in a cost-conscious environment. For some decision-makers, big banks’ success with this approach blunts the perceived risk of pursuing it themselves.
Back-office services offer an opportunity to shift labor-intensive processing tasks elsewhere so bank employees can focus on the next customer innovation. That’s exactly what banks should be doing to meet customer expectations and stay competitive today.
We call our approach to back-office services intelligent operations. It’s grounded in a human + machine platform that combines data, technology and talent to help banks transform their operating model. It gives middle market banks a more flexible cost structure, and based on Accenture experience, typically can enable them to reduce back-office costs by about 20 to 25%. Think of intelligent operations as an advanced, data-driven, digital operating model. And banks don’t have to wait years to get the cost savings.
As important as these savings are, banks can expect even more value from intelligent operations. The performance premium is compelling. Our analysis reveals that digitally-focused banks—like those with intelligent operating models—have benefited from market valuations that average 18% higher than their less digitized peers in 2019 and 27% higher in 2020.
They can also expect more rigorous security than any middle market bank could achieve alone, more insight-driven ways of working that lead to better customer experiences, smoother M&A transitions without complex integrations, and better use of talent.
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When it comes to talent—often the elephant in the room in conversations about back-office services—shifting back-office processing to a partner is not about letting people go. Instead, it’s about meeting unmet needs and redirecting and reskilling operations-center staff to higher-value work—trading processing transactions for solving customer problems. With the competition for talent escalating, this can often help fill critical roles.
I see middle market banks’ growing receptiveness to intelligent operations as a positive shift for the banking industry. The industry lags others in operational maturity—just 6% of banks think they have intelligent operations today. However, banks of all sizes aspire to improve their operations. Thirty-seven percent want to achieve the highest level of operational maturity—what we call being future-ready—within the next three years.
This is why I expect to see growing momentum for back-office services in the middle market, with the larger banks in this sector making the first moves. So the question isn’t if middle market banks should explore intelligent operations, it’s where they can get maximum impact.
When I talk to leaders about this, I advise them to consider two opportunity categories. The first is enterprise functional areas like finance, procurement, human resources and marketing. This is the lower-hanging fruit. Take finance, for example. Instead of focusing on closing the books, finance teams can focus on reporting to the Street. Consider this: The typical middle market bank closes its books in 10 to 15 days. With intelligent operations, it can be done in half the time with a target to get under five days, leaving more time for analysis and insights.
Middle market banks can also realize new value from turning to intelligent operations across areas specific to banking, including lending and credit, capital markets, compliance and core banking. I’m especially excited about the success of intelligent operations in fraud. As bad actors’ sophistication in fraud increases, so must our response. We can now spot more fraud attempts sooner, stopping them before they impact more customers.
With an understanding of your needs, I can help you build a business case for intelligent operations that spreads the cost across the life of the deal. Because any opportunity to save money and free up employees for work that makes the bank more competitive is worth talking about, isn’t it?