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Can true innovation happen when so much of the industry is still working on systems built in the 20th century?
September 21 -
Big banks are making critical risk management decisions with data that is old, incomplete or even inaccurate. This endangers the safety of the global financial system in more ways than one.
February 27 -
Payment system transformation has become a pressing need for banks today. The rate at which this is happening is largely controlled by the conflict between rapid technological shifts and the barriers to product acceptance.
August 3 -
Many community banks are trying to determine the right balance of in-house staff and outsourced assistance in the area of risk management. Cost cutting and regulatory oversight loom large over such decisions.
June 8
As consultants to the banking industry, we see a lot of processes and benchmark a lot of data. Here are four statistics that will blow your mind:
- 75% of time spent with new customers involves computer input versus building relationships through a conversation.
- More than 50% of banks still originate commercial loans manually.
- 60% of financial institutions still use a paper-based new accounts process.
- Over 70% of statements are still being mailed.
Why? Let's dig into the details for a minute and research the causes and solutions for each of these.
1. The Problem: Bankers spend 75% of their time during the new customer onboarding process on the computer instead of building relationships.
- Cause: The biggest reason for the problem is the lack of system integration. Systems like credit reports, debit card, online banking enrollment and ChexSystems require re-entry.
Solution: The solution to this issue is simple: before selecting new systems, make sure the vendors you have in place work will work with them. This seems like common sense, but banks frequently discover too late that the systems aren't compatible.
- Cause: Vendors tout “integrated workflow” in their systems. While that sounds like a great idea, most don't have system capabilities that allow for dynamic workflows to be customized by product. A lack of integrated sales tools also adds to the frustration.
Solution: Pick vendors that walk employees through processes and make processes idiot-proof.
- Cause: The risk pendulum has swung too far. This frequently leads to requirements such as signatures for every transaction, which creates paperwork, which necessitates manual processes and quality control. Other requirements that go overboard include demanding a paper social security card as proof of identity or risk-rating consumer accounts branches. These processes may stem from an overreaction to regulators or an overzealous compliance employee with too much power.
- Solution: Manage regulators' concerns, but don't overreact. Take a strategic approach to risk by challenging processes that seem inefficient. Rules are often subject to interpretation. As long as senior management clearly understands the risks, banks should consider exploring alternative options.
2. The Problem: Over 50% of commercial banks still manually originate commercial loans via point solutions that are typically not integrated.
- Cause: Loan officers are typically individuals driven by sales rather than process. Because their pay is tied to the loans they make, they do whatever it takes to get deals done. Automated processes directly conflict with their “who can scream the loudest” technique, which has worked for years.
Solution: Executive ownership that drives behavior is critical. From pipeline to close, everyone needs to be marching to the same drum, and often the chief executive's active involvement is necessary to bring the bank out of the Stone Age.
- Cause: Many banks have allowed loan officers creative license to reinvent the wheel for every deal, so terms can get very complicated.
Solution: Product standardization is needed, with some variations for customers as necessary. Designing processes that work the majority of the time rather than focusing on the one-offs that occur a few times a year will help.
- Cause: Vendors continue to build capabilities, but no one vendor has great sales tools (nCino) while also having strong customizable workflow (CCS) and credit analysis tools (Moody's) that integrate well.
- Solution: Sell older, less sophisticated loan officers on the fact that they will be able to focus more on sales and customers will have a quicker, less error-prone experience as long as they play in the sandbox.
3. The Problem: 60% of financial institutions still print, sign, index and manually scan new accounts documents, receipts and loan documents.
- Cause: Many platform applications haven't been upgraded or else financial institutions aren't aware of functionality that's available to them. Many vendors have punted here and rely on third parties that make the process so cumbersome it's not worth the hassle.
- Solution: Check in with your vendor to find out how others have implemented signature pads at both the teller line for cash-back and at the new accounts desk for customer documents, maintenance, and wire transfers. In many cases, it's just a matter of buying some relatively cheap hardware and a module. Be careful that you really understand the user experience of the process. There should be no need to go into multiple systems, manually search and select documents or retype information to create electronic forms.
4. The Problem: Over 70% of statements are still printed and sent via mail.
- Cause: While the trend continues to rise, many financial institutions don't create products or fees around mailing statements.
Solution: Charging for traditional paper statements is a no-brainer, even if it's $2. Typical costs are in the $2-$5 range across the county.
- Cause: Vendors want a piece of the pie and charge much more than they should for sending customer notifications and housing the statements. E-statements can be almost as expensive as traditional statements as vendors charge per page or per statement.
- Solution: Leverage your imaging system. Most of the time, statements live in the archive, so the only missing link is the integration to online banking. Statement notifications can also create some challenges, but given the proper account disclosures, I'm not sold that notifications need to even go out. That being said, there are alternatives to high-priced vendor options that should be explored via technology where banks have already made investments.
Bankers, crank up some Eye of the Tiger and let's get our teams humming by executing some of these solutions. There are several more examples of similar mind-blowing statistics in each of your financial institutions. I challenge bankers to come up with a Top Five list and feel free to share it with us here. The only non-admissible items: pie-in-the-sky projects like cardless ATMs or digital wallets that seem sexy but don't pay the bills. Let's get the low-hanging fruit fixed first.
Eric Weikart is a managing director at Cornerstone Advisors, an Arizona-based consulting firm. Reach Eric at
