Banks and credit unions have been embracing automation for decades, at times ahead of the pack. Few innovations can compete with the ATM in the category of game-changing technology, to cite just one example.
But keeping up in an era of near-constant technological innovation is a challenge on a completely different level for traditional financial institutions. Many banks and credit unions struggle to apply new digital technologies and approaches to their legacy banking systems, according to a new report sponsored by MeridianLink and written by by Jim Marous, owner and publisher of the Digital Banking Report.
The Future of Digital Lending report outlines a variety of contributing factors, along with strategies for ending the struggle.
Lender Obstacles for Becoming Future-Ready
Among the reasons cited by management consulting and technology services company Accenture are increasing client expectations—particularly regarding digital lending—regulatory requirements, technology-driven innovations, and competition from fintechs.
The banking operating model is maturing more slowly than the operating models of organizations in other industries, Accenture observes. Operational maturity is critical to determining whether a financial institution is future-ready.
8 Future-Ready Characteristics for Banks & Credit Unions
“"Future-ready banking leaders use rich data for decision-making, augmenting workers with technology and employ agile workforce models,” according to American Banker. “As a result, they benefit from higher market valuations, reduced operational costs, and the agility to thrive amid uncertainty.”
A future-ready organization is able to scale eight characteristics of operating model maturity, according to Accenture:
- Leading functional practices
- Business-technology collaboration
- Agile workforce
- Advanced automation
- Stakeholder experience
- Artificial intelligence
Banks and credit unions only beat out other organizations in one area—impressive amounts of quality data. Still, most are unable to glean the information to make better business decisions and provide real-time insights to consumers.
Artificial intelligence, analytics and automation is the solution, according to the Accenture report.
4 Operational Maturity Stages
Accenture detailed four separate operational maturity stages: stable, efficient, predictive, and future-ready.
“"Each level is grounded in and enabled by progressively more sophisticated technology, talent, processes and data insights,” according to Accenture. “Organizations that achieve a high level of maturity become future-ready.”
Future-ready organizations leverage digital technology to transform operations and develop resiliency and agility for competitive advantage.
As part of the report, Accenture surveyed 1,100 executives globally across 13 industries, including 100 banking executives. While the operations of financial institutions were less mature than organizations in other industries, the industry showed progress from the earlier stages of operational maturity to future-ready.
“"Today, 6% of banks say they have reached the threshold of future-ready operations and 57% say they have evolved to predictive operations,” Accenture notes. “Three years ago, no banks identified as future-ready, and only 14% described their operations as predictive.”
Two major factors holding banks and credit unions back from future-ready status include investments in legacy systems and fixed cost structures, according to Accenture.
Consequently, traditional financial institutions often approach operational improvements incrementally. They “plug the biggest hole first and those holes are often defined by regulatory and compliance priorities rather than enhancing competitiveness,” the Accenture report observes.
How Financial Institutions Can Improve
Rather than making improvements little by little, financial institutions would do well to “think big,” which could include implementing remote process automation, adopting cloud integration, and deploying artificial intelligence at scale, the report says.
In another report, “Rebuilding Financial Service from the Inside,” 11:FS recommends that financial institutions leave clunky legacy systems, technology and processes behind and instead deploy small, modular components they can easily use to build any product. Additionally, focusing on modules rather than products will help banks and credit unions break down organizational silos and streamline mortgage and consumer loan origination.
“Organizing horizontally leads to more knowledge sharing and dynamic allocation of people as the pressures on the business change,” according to the 11:FS report. “Ops teams are more empowered to make decisions quickly.”
11:FS also noted that banks and credit unions can gain more flexibility by moving from large technology vendors to smaller, specialist providers. And according to Accenture, developing partnerships with these specialist providers will help financial institutions “leapfrog” operational maturity levels, accelerating their digital transformation journeys while still maintaining and building on their core operational processes.
Future of Digital Lending: Get the Report
As sponsor of the publication, MeridianLink is making a limited number of copies of the Future of Digital Lending Report, which normally sell for $495, available on a complimentary basis – click here for your copy.
To learn more about how MeridianLink mortgage and consumer loan origination software (LOS) can drive your banking and credit union digital transformation efforts forward, contact one of our digital lending experts today.