Ian Johnson, Managing Director of Europe, Marqeta
COVID-19 has left its mark on every industry, and banking is no exception. Cash usage has halved and digital engagement levels have risen by up to 20 percent – just two of the changes that banks have had to respond to. But the crisis has taken its toll on many digital banks, with collective app downloads sliding nearly a quarter from February to March. There have been notable casualties – RBS recently made the decision to “wind down” its digital bank, Bo, after only five months. However, as is often the case, alongside these challenges there are opportunities.
As more countries emerge from lockdown and the world slowly returns to “normal”, there will be some changes that remain. For instance, many people who never tried banking online or new digital payments, may emerge from lockdown as regular users. UK Finance recently found remote banking had increased across all age groups during the pandemic, with 72 per cent now using online banking and 50 per cent using mobile banking. If these changes are indeed part of a longer-term shift, then COVID-19 could accelerate the need for modernisation and the key to achieving this will be the digital capabilities that banks build at their core.
Competing customer experiences
Since the UK’s lockdown began in March, the way consumers spend, and interact with banks, has become digitally led. But banks have historically been slow to address digital channels. Even before COVID-19, efforts towards digital transformation were limited; for instance, one report from Accenture found that only 12 percent of banks were committed to digital transformation last year, with 50 percent having made little progress, and the remaining 38 percent with digital strategies lacking in coherence. Now, the fallout from the pandemic coupled with the shift to digital could expose any gaps traditional banks have in their digital infrastructure.
We now live in a world where the bar for customer experience is set by the likes of Amazon and Uber. Consumers expect this “on demand”, “click and go” type of service everywhere. In banking, new battlegrounds are forming around digital customer experiences. Whilst traditional banks will always benefit from loyalty and credibility, it seems more and more clear that as consumers increasingly adopt digital services, these banks will face growing challenges from digital natives.
Traditional banks are built upon robust systems and services dating back to the 1970s and 1980s, and have done well to adapt these to the challenges of multi-channel banking. However, this has introduced multiple layers of complexity, and as the pace of modernisation accelerates, and as the use of digital channels and payments increase, banks will face growing pressure to ensure their legacy infrastructure can keep up.
As such, banks’ dependencies on legacy systems make it difficult to transform and offer new digital experiences. In contrast, digital banks are far better placed to innovate quickly because they have been built on modern cloud infrastructure, which provides the flexibility and scalability needed to adapt quickly. It’s clear that traditional banks need to make some changes to keep pace.
Banks and legacy infrastructures
But how to go about achieving this change? Many traditional banks’ critical applications are written in old coding languages, such as COBOL, which are extremely difficult to integrate with newer systems. Additionally, the individuals with the skills to develop on these old systems may be few and far between, with many rapidly approaching retirement. As they leave, they take decades worth of knowledge and expertise around these old systems.
The option of migrating across to newer platforms may seem obvious but it is a complex challenge, involving the integration of dozens of interdependent systems. Because of this, migration comes with risk; with millions of customers reliant upon services, any disruption or outage could lead to reputational damage, revenue leakage and even regulatory fines. As such, it’s understandable that many banks are reluctant to modernise.
Building a solution from within
However, there are other options available. Instead of taking on the risk of full migration, some banks are instead focusing on ‘hollowing out’ certain services – leaving core services that are too risky to move, whilst shifting other services onto more modern platforms. Another approach is to start from scratch and instead build a stand-alone digital ‘bank-within-a-bank’ – a “Russian Doll” of sorts. Such digital banks are built upon modern core banking platforms, allowing them to modernise the entire stack by incentivising customers to switch to the newer entity. An example of this bank-within-a-bank approach is Goldman Sachs’ digital bank Marcus, which has debuted to much success and strong demand.
In response to COVID-19, we have already seen some banks react quickly to deliver new services; Santander, for instance, launched its cross-border payments application, PagoFX, allowing customers to transfer money abroad with no fees on payments up to £3000 until mid-August, no matter who they bank with. For banks to be able to consistently deliver this kind of innovation at speed, they need to look at how they can make changes to their core banking and payment platforms. This is where we’ll see modern payment platforms come to the fore, helping banks rapidly develop and launch new payment services, such as digital wallets and customised cards, to meet rising demand. Those that take on the challenge have a great opportunity to innovate and lead, allowing them to step up and meet the ever-changing demands of the new normal in our post-lockdown world.
THE OUTPERFORMER’S APPROACH TO FINANCIAL PROCESS AUTOMATION
By Michelle Trapani, Director of Product Marketing at Kofax
Achieving more with less is the mantra of our times. C-suite leaders demand greater efficiency. CFOs are looking to reduce costs. Customers and employees expect stellar experiences. The ability to outperform these expectations hinges on your financial operations, a vital area impacting every facet of your business.
For instance, if vital master data is incorrect, it’ll have a negative impact on service level quality, as well as the reputations of the finance and purchasing departments. Without accurate and timely visibility into processes, transparency is reduced, and it’s more difficult and time-consuming to manage compliance. The combination makes it harder to please executives, CFOs, customers, and vendors.
That’s why financial process automation is the key to operational efficiency and the overall success of your business. Even small- and medium-sized businesses are investing in process automation to optimise the financial processes within enterprise resource planning (ERP) systems, such as SAP.
For many, accounts payable is the first financial process to be automated. Like many other financial areas, Accounts Payable (AP) is mired in paper and consumed by highly manual tasks. For these reasons, once AP is automated, the benefits become quickly apparent, leading firms to immediately consider which other financial processes they can optimise. However, outperformers know the approach that yields the greatest return is automation of the entire purchase-to-pay process chain.
Why? Let’s consider what benefits can be gained from automating document-driven and transactional processes tied to an SAP ERP system – in AP and beyond.
Why a high-level of automation is an advantage
We don’t have to look far to see how end-to-end automation eliminates labour-intensive work, reduces costs, and increases process efficiency. Organisations with high levels of automation provide indisputable proof of the advantages of the outperformers’ approach.
According to research by Shared Services Link and Kofax, just 12 percent of organisations with high levels of automation manually process their invoices compared to 74 percent of those with low levels of automation. In addition, only 41 percent of highly automated companies experience problems with purchase orders, 24 percent have poor visibility into spend, and 8 percent fail to capture early payment discounts. By comparison, those with low-level automation report these same problems significantly more often: 68 percent, 23 percent, and 24 percent, respectively.
In an age when process automation has become table stakes, there are clear advantages for organisations that optimise processes across the business. “Best-in-class” firms – those with high levels of automation – don’t only become more competitive, they save time and resources as well.
Comparing “best-in-class” organisations to others illustrates the sharp differences. According to Ardent Partners, a “best-in-class” organisation processes 57.1 percent of all invoices “straight-through,” in just 3.9 days at an all-inclusive cost of $2.87 per invoice. By contrast, the gap with other organisations – those with low levels of automation – is wide: Only 16.1 percent of invoices are processed straight-through, and a single invoice takes 17.1 days to close and costs $15.38. Further, “best-in-class” organisations experience 81 percent lower invoice processing costs and 77 percent faster invoice processing cycle times.
Why ERP optimisation?
Another reason to follow the outperformers’ approach is to increase the return on investment of Enterprise Resource Planning (ERP) software. Many organisations haven’t fully leveraged their investments in ERP software, like SAP, giving them plenty of hidden opportunities to exploit.
“ERPs are not optimised for all the complex activities occurring today, such as matching printed or electronic invoices with supplier master data, purchase orders, shipping, tax and discount data,” says consultancy The Hackett Group. “Since it can be cost-prohibitive to replace a legacy ERP, companies often augment them instead with document management systems.”
When processes are paper-driven and manual, financial teams struggle to meet the volume-based performance requirements set by their CFOs. Meeting the high bar for raw numbers of invoices and payments processed is exceedingly difficult without automation. Think back to the pain points listed above. Every time the process is interrupted because the PO number is wrong, there’s an invoice exception or an early pay discount is missed, the process slows appreciably – or breaks down entirely.
One option is to use a certified add-on solution providing a single software platform to automate a series of processes directly within the ERP system. For SAP users, this type of solution offers more than integration with the ERP system; it provides the exact same look and feel as any other SAP transaction. It can be presented inside of the SAP GUI, providing non-SAP users an intuitive interface, and offering a real-time view of workloads, pending tasks, document inflow, ongoing transactions, and up-to-the-moment validation against SAP data. Solutions like this are proven to help users become more cost efficient, improve control over financial processes and shorten total processing times.
How to dominate your financial process
As the examples above show, expanding process improvement from AP to the entire purchase-to-pay process chain allows you dominate your financial processes in SAP, realise maximum efficiency and take your current ROI to the next level. Whether you’re just starting your automation journey or want to expand past AP, a full-scale strategy for end-to-end financial process automation will enable you to begin working like tomorrow, today.
About the author
In her role as Director of Product Marketing, Michelle Trapani delivers market positioning, strategic narratives and go-to-market strategies driving awareness, preference, and growth – bringing an increased level of insight, leadership, and overall execution discipline to Kofax’s growing business. Michelle was most recently with Cinch Connectivity Solutions where she reduced product launch times from eight months to eight-12 weeks. Previously, Michelle was with Adobe, Equinix, IBM, Infogix, iPass, Macrovision and Vision Solutions. Michelle earned a Bachelor of Arts degree at Illinois State University.
WHY TECHNOLOGY IS KEY TO THE FUTURE OF AUDITING
By Piers Wilson, Head of Product Management at Huntsman Security
The Financial Reporting Council (FRC), which is responsible for corporate governance, reporting and auditing in the UK, has been consulting on the role of technology in audit processes. This highlights growing recognition for the fact that technology can assist audits, providing the ability to automate data gathering or assessment to increase quality, remove subjectivity and make the process more trustworthy and consistent. Both the Brydon review and the latest AQR thematic suggest a link between enhanced audit quality and the increasing use of technology. This goes beyond efficiency gains from process automation and relates, in part, to the larger volume of data and evidence which can be extracted from an audited entity and the sophistication of the tools available to interrogate it.
As one example, the PCAOB in the US has for a while advocated for the provision of audit evidence and reports to be timely (which implies computerisation and automation) to assure that risks are being managed, and for the extent of human interaction with evidence or source data to be reflected to ensure influence is minimised (the more that can be achieved programmatically and objectively the better).
However, technology may obscure the nature of analysis and decision making and create a barrier to fully transparent audits compared to more manual (yet labour intensive) processes. There is also a competition aspect between larger firms and smaller ones as regards access to technology:
Brydon raised concerns about the ability of challenger firms to keep pace with the Big Four firms in the deployment of innovative new technology.
The FRC consultation paper covers issues, and asks questions, in a number of areas. Examples include:
- The use of AI and machine learning that collect or analyse evidence and due to the continual learning nature, their criteria for assessment may be difficult to establish or could change over time.
- The data issues around greater access to networks and systems putting information at risk (e.g. under GDPR) or a reluctance for audited companies to allow audit firms to connect or install software/technologies into their live environments.
- The nature of technology may mean it is harder for auditors to understand or establish the nature of data collection, analysis or decision making.
- The ongoing need to train auditors on technologies that might be introduced, so they can utilise them in a way that generates trusted outputs.
Clearly these are real issues – for a process that aims to provide trustworthy, objective, transparent and repeatable outputs – any use of technology to speed up or improve the process must maintain these standards.
Audit technology solutions in cyber security
The cyber security realm has grown to quickly become a major area of risk and hence a focus for boards, technologists and auditors alike. The highly technical nature of threats and the adversarial nature of cybers attackers (who will actively try and find/exploit control failures) means that technology solutions that identify weaknesses and report on specific or overall vulnerabilities are becoming more entrenched in the assurance process within this discipline.
While the audit consultations and reports mentioned above cover the wider audit spectrum, similar challenges relate to cyber security as an inherently technology-focussed area of operation.
Benefits of speed
The gains from using technology to conduct data gathering, analysis and reporting are obvious – removing the need for human questionnaires, interviews, inspections and manual number crunching. Increasing the speed of the process has a number of benefits:
- You can cover larger scopes or bigger samples (even avoid sampling all together)
- You can conduct audit/assurance activities more often (weekly instead of annually)
- You can scale your approach beyond one part of the business to encompass multiple business units or even third parties
- You get answers more quickly – which for things that change continually (like patching status) means same day awareness rather than 3 weeks later
Benefits of flexibility
The ability to conduct audits across different sites or scopes, to specify different thresholds of risk for different domains, the ease of conducting audits at remote locations or on suppliers networks (especially during period of restricted travel) are ALL factors that can make technology a useful tool for the auditor.
Benefits of transparency
One part of the FRC’s perceived problem space is that of transparency, you can ask a human how they derived a result, and they can probably tell you, or at least show you the audit trail of correspondence, meeting notes or spreadsheet calculations. But can you do this with software or technology?
Certainly, the use of AI and machine learning makes this hard, the learning nature and often black box calculations are not easy to either understand, recalculate in a repeatable way or to document. The system learns, so is always changing, and hence the rationale that a decision might not always be the same.
In technologies that are geared towards delivering audit outcomes this is easier. First, if you collect and retain data, provide an easy interface to go from results to the underlying cases in the source data, it is possible to take a score/rating/risk and reveal the specifics of what led to it. Secondly, it is vital that the calculations are transparent, i.e. that the methods of calculating risks or the way results are scored is decipherable.
Benefits of consistency
This is one obvious gain from technology, the logic is pre-programmed in. If you take two auditors and give them the same data sets or evidence case files they might draw different conclusions (possibly for valid reasons or due to them having different skill areas or experience), but the same algorithm operating on the same data will produce the same result every time.
Manual evidence gathering suffers a number of drawbacks – it relies on written notes, records of verbal conversations, email trails, spreadsheets, or questionnaire responses in different formats. Retaining all this in a coherent way is difficult and going back through it even harder.
Using a consistent toolset and consistent data format means that if you need to go back to a data source from a particular network domain three months ago, you will have information that is readily available and readable. And as stated above, if the source data and evidence is re-examined using a consistent solution, you will get the same calculations, decisions and results.
Benefits of systematically generated KPIs, cyber maturity measures and issues
The outputs of any audit process need to provide details of the issues found so that the specific or general cases of the failures can be investigated and resolved. But for managers, operational teams and businesses, having a view of the KPIs for the security operations process is extremely useful.
Of course, following the “lines of defence” model, an internal or external “formal” audit might simply want the results and a level of trust in how they were calculated; however for operational management and ongoing continuous visibility, the need to derive performance statistics comes into its own.
It is worth noting that there are two dimensions to KPIs: The assessment of the strength or configuration of a control or policy (how good is the control) and the extent or level of coverage (how widely is it enforced).
To give a view of the technical maturity of a defence you really need to combine these two factors together. A weak control that is widely implemented or a strong control that provides only partial coverage are both causes for concern.
Benefits of separation of process stages
The final area where technology can help is in allowing the separation and distribution of the data gathering, analysis and reporting processes. It is hard to take the data, evidence and meeting notes from someone else and analyse it. For one thing, is it trustworthy and reliable (in the case of third-party assurance questionnaires perhaps)? Then it is also hard to draw high-level conclusions about the analysis.
If technology allows the data gathering to be performed in a distributed way, say by local site administrators, third-party IT staff or non-expert users BUT in a trustworthy way, then the overhead of the audit process is much reduced. Instead of a team having to conduct multiple visits, interviews or data collection activities the toolset can be provided to the people nearest to the point of collection.
This allows the data analysis and interpretation to be performed centrally by the experts in a particular field or control area. So giving a non-expert user a way to collect and provide relevant and trustworthy audit evidence takes a large bite out of the resource overhead of conducting the audit, for both auditor and auditee.
It also means that a target organisation doesn’t have to manage the issue of allowing auditors to have access to networks, sites, data, accounts and systems to gather the audit evidence as this can be undertaken by existing administrators in the environment.
Making the right choice
Technology solutions in the audit process can clearly deliver benefits, however if they are too simplistic or aim to be too clever, they can simply move the problem of providing high levels of audit quality. A rapidly generated AI-based risk score is useful, but if it’s not possible to understand the calculation it is hard to either correct the control issues or trouble shoot the underlying process.
Where technology can assist the audit process, speed up data gathering and analysis, and streamline the generation of high- and low-level outputs it can be a boon.
Technology allows organisations to put trustworthy assurance into the hands of operations teams and managers, consultants and auditors alike to provide flexible, rapid and frequent views of control data and understanding of risk posture. If this can be done in a way that is cognisant of the risks and challenges as we have shown, then auditors and regulators such as the FRC can be satisfied.
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