How Do Banks Use Automation: Benefits, Challenges & Solutions in 2024

by Aashish Chhabra 19 min read

Published: May 29, 2022 ● Updated: Apr 23, 2024

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Banking and Finance have been spreading worldwide with a great and non-uniform speed, just like technology. Banks and financial institutions around the world are striving to adopt digital technologies to provide a better customer experience while enhancing efficiency. But, We still have to see progress there.

91% of European banks see digital disruption coming, but only 21% of them report being ready to seize the opportunity of digital disruption. (Accenture 2015)

Banking customers want their queries resolved quickly with a touch of personalization. For that, the customers are willing to interact with automated bots and systems too.

Nearly three-quarters of banking customers, for example, say they are willing to receive automated support regarding which type of bank account they should open. (Accenture 2017)

In such a scenario, it makes sense for banking institutions to move towards adopting robotic process automation to optimize costs and provide better services to their customers.

In this blog, we will discuss how banks can automate their manual tasks using robotic process automation.

What is Robotic Process Automation?

Human mistake is more likely in manual data processing, especially when dealing with numbers. Not only is the procedure time-consuming, but it is also costly.

Businesses waste around $20,000 per year on document issues.

RPA, or robotic process automation in finance, is an effective solution to the problem. For a long time, financial institutions have used RPA to automate finance and accounting activities. Technology is rapidly growing and can handle data more efficiently than humans while saving enormous amounts of money.

Nearly 85% of banks have already adopted intelligent automation to expedite several core functions.

Financial technology firms are frequently involved in cash inflows and outflows. The repetitive operation of drafting purchase orders for various clients, forwarding them, and receiving approval are not only tedious but also prone to errors if done manually.

RPA combined with Intelligent automation will not only remove the potential of errors but will also intelligently capture the data to build P's. An automatic approval matrix can be constructed and forwarded for approvals without the need for human participation once the automated system is in place.

Some of the most obvious benefits of RPA in finance for PO processing are that it is simple, effective, rapid, and cost-efficient. Invoice processing is sometimes a tiresome and time-consuming task, especially if invoices are received or prepared in a variety of forms.

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Why do banks need banking automation?

Banks struggle to raise the right invoices in the client-required formats on a timely basis as a customer-centric organization. Furthermore, the approval matrix and procedure may result in a significant amount of rework in terms of correcting formats and data.

Automation can handle time-consuming, repetitive tasks while maintaining accuracy and quickly submitting invoices to the appropriate approving authority. In the finance industry, whole accounts payable and receivables can be completely automated with RPA. The maker and checker processes can almost be removed because the machine can match the invoices to the appropriate POs.

Invoice processing is a key business activity that could take the accountant or team of accountants a significant amount of time to guarantee the balance comparisons are right. Back-and-forth references and logins into various systems necessitate a hawk's eye to ensure no mistakes are made, and the figures are compared appropriately.

To put it another way, an organization with many roles and sub-companies maintains its finances using various structures and processes. Based on the business objectives and client expectations, bringing them all into a uniform processing format may not be practicable. The central team, on the other hand, is having trouble reconciling the accounts of all the departments and sub-companies. The procedure is time-consuming, error-prone, and monotonous.

Banking automation can automate the process by reviewing and reconciling data at each step and procedure, requiring minimal human participation to incorporate the essential parts of these activities. Only when the data shows, misalignments do human involvement become necessary.

With the use of financial automation, ensuring that expense records are compliant with company regulations and preparing expense reports becomes easier. By automating the reimbursement process, it is possible to manage payments on a timely basis. With the use of automatic warnings, policy infractions and data discrepancies can be communicated to the appropriate individuals/departments.

What are Automation and Artificial Intelligence?

Automation is the advent and alertness of technology to provide and supply items and offerings with minimum human intervention. The implementation of automation technology, techniques, and procedures improves the efficiency, reliability, and/or pace of many duties that have been formerly completed with the aid of using humans.

Automation is being utilized in numerous regions inclusive of manufacturing, transport, utilities, defense centers or operations, and lately, records technology.

Artificial intelligence (AI) automation is the most advanced degree of automation. With AI, robots can "learn" and make decisions based on scenarios they've encountered and evaluated in the past. In customer service, for example, virtual assistants can lower expenses while empowering both customers and human agents, resulting in a better customer experience.

What is Banking Automation?

Source

Banking automation is a method of automating the banking process to reduce human participation to a minimum. Banking automation is the product of technology improvements resulting in a continually developing banking sector. The result is a significantly more efficient, dependable, and secure banking service.

Platform automation is another term for branch automation. Location automation enables centralized customer care that can quickly retrieve customer information from any bank branch.

Banks must find a method to provide the experience to their customers in order to stay competitive in an already saturated market, especially now that virtual banking is developing rapidly.

McKinsey sees the second wave of automation and AI emerging in the next few years, in which machines will do up to 10 to 25 percent of work across bank functions, increasing capacity and freeing employees to focus on higher-value tasks and projects.

RPA, on the other hand, is thought to be a very effective and powerful instrument that, once applied, ensures efficiency and security while keeping prices low.

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What are the challenges for banks today?

As it transitions to a digital economy, the banking industry, like many others, is poised for extraordinary transformation. While most bankers have begun to embrace the digital world, there is still much work to be done.

A lot of innovative concepts and ways for completing activities on a larger scale will be part of the future of banking. And, perhaps most crucially, the client will be at the center of the transformation. The ordinary banking customer now expects more, more quickly, and better results. Banks that can't compete with those that can meet these standards will certainly struggle to stay afloat in the long run. There is a huge rise in competition between banks as a stop-gap measure, these new market entrants are prompting many financial institutions to seek partnerships and/or acquisition options.

Following are the challenges faced by banks and financial institutions :

Manual Data Collection Process

Manual processes and systems have no place in the digital era because they increase costs, require more time, and are prone to errors. To address banking industry difficulties, banks and credit unions must consider technology-based solutions.

As a result, financial institutions must foster an innovation culture in which technology is used to improve existing processes and procedures for optimal efficiency. The greater industry's adoption of digital transformation is reflected in this cultural shift toward a technology-first mindset.

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Continuous Innovation

In order to be successful in business, you must have insight, agility, strong customer relationships, and constant innovation. Benchmarking successful practices across the sector can provide useful knowledge, allowing banks and credit unions to remain competitive.

Benchmarking, on the other hand, simply allows institutions to stay up with the competition; it rarely leads to innovation. Businesses must benchmark to survive, but innovate to thrive. As the cliché goes, innovation is a critical differentiator that distinguishes the wheat from the chaff.

Insights are discovered through consumer encounters and constant organizational analysis, and insights lead to innovation. However, insights without action are useless; financial institutions must be ready to pivot as needed to meet market demands while also improving the client experience.

Security Breaches

41% of the time, consumers think that the services offered by the bank are offered with only the bank’s interest in mind. (Temkin 2018)

Banks face security breaches daily while working on their systems, which leads them to delays in work, though sometimes these errors lead to the wrong calculation, which should not happen in this sector.

AVS

AVS "checks the billing address given by the card user against the cardholder's billing address on record at the issuing bank" to identify unusual transactions and prevent fraud.

E2EE

End-to-End Encryption (E2EE) is a "secure communication technology that prohibits third parties from accessing data while it's being transported from one end system or device to another." To encrypt and decrypt private messages, E2EE uses cryptographic keys that are maintained at each endpoint. E2EE can be used by banks and credit unions to protect mobile transactions and other online payments, allowing money to be transferred securely from one account to another or from a customer to a store.

Outdated Mobile Experiences

42% of consumers report that they now use their banking provider’s mobile app more now than they did 12 months ago. (The Financial Brand, 2018)

Mobile app presence has become a necessity for banks around the world. Every bank and credit union has its very own branded mobile application; however, just because a company has a mobile banking philosophy doesn't imply it's being used to its full potential. To keep clients delighted, a bank's mobile experience must be quick, easy to use, fully featured, secure, and routinely updated. Some institutions have even begun to reinvent what open banking may be by adding mobile payment capability that allows clients to use their cellphones as highly secured wallets and send the money to relatives and friends quickly.

A high volume of omnichannel customer data

47% of customers say they would open a new bank account online via their computer. 37% would do so via a mobile app or website. 47% would prefer face-to-face with an advisor (Accenture, 2020).

Customers are interacting with banks using multiple channels which increases the data sources for banks. The banks have to ensure a streamlined omnichannel customer experience for their customers. For eg. The continuity of service across channels is an important criterion. Customers expect the financial institutions to keep a tab of all omnichannel interactions. They don't want to repeat their query every time they're talking to a new customer service agent.

Streamlining e-KYC processes

Know your customer processes are rule-based and occupy a lot of FTE's time. Also, an error in this process can cost banks a lot. With multiple documents to check, scan, and validate, KYC is an error-prone and manual process for most of banks.

A large number of checks and rules to be followed

Banking institutions follow a lot of rules and regulations. They're heavily monitored and therefore, banks need to ensure all their processes are error-free. But with manual checks, it becomes increasingly difficult for banks to do so.

How does banking automation work?

Source

Automation may be implemented in a big wide variety of enterprise system automation projects, there are numerous well-described use instances in this space.

The digital world has a lot to teach banks, and they must become really agile. Surprisingly, banks have been encouraged for years to go beyond their business in the ability to adjust to a digital environment where the majority of activities are conducted online or via smartphone. Banking Automation can help in every aspect of banking.

Know your customer (KYC) and Anti-Money laundering (AML)

The reality that each KYC and AML are extraordinarily facts-in-depth procedures makes them maximum appropriate for RPA. Whether it's far automating the guide procedures or catching suspicious banking transactions, RPA implementation proved instrumental in phrases of saving each time and fees compared to standard banking solutions.

Customer Onboarding

With RPA, in any other case, the bulky account commencing procedure will become a lot greater straightforward, quicker, and more accurate. Automation systematically removes the facts transcription mistakes that existed among the center banking gadget and the brand new account commencing requests, thereby improving the facts high-satisfactory of the general gadget.

A wonderful instance of that is worldwide banks' use of robots in their account commencing procedure to extract data from entering bureaucracy and ultimately feed it into distinct host applications.

The effects withinside the removal of an error-prone, time-consuming, guide facts access procedure and a pointy discount in TAT while, at the identical time, retaining entire operational accuracy and mitigated costs.

What are the benefits of Automation in Banking?

Banking Automation is the process of using technology to do things for you so that you don't have to. This reduces the amount of human intervention. Because of the multiple benefits it provides, automation has become a valuable tool in almost all businesses, and the banking industry cannot afford to operate without it.

Increased Productivity

Banking activities become more efficient as a result of automation. There are advantages since transactions and compliance are completed quickly and efficiently. Besides, there are fewer chances of human error. For example, ATMs (Automated Teller Machines) allow you to make quick cash deposits and withdrawals.

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Low Cost

If 7%-10% of tasks could be automated, generating additional cost savings of US$12 billion for banks, US$7 billion for insurers, and US$4 billion for capital markets firms. (Accenture)

Bank automation can assist cut costs in areas including employing, training, acquiring office equipment, and paying for those other large office overhead expenditures. This is due to the fact that automation provides robust payment systems that are facilitated by e-commerce and informational technologies.

Without automation, banks would be forced to engage a large number of workers to perform tasks that might be performed more efficiently by a single automation procedure. Without a well-established automated system, banks would be forced to spend money on staffing and training on a regular basis.

Productivity Improvements

The automation of the banking industry has helped to boost productivity. This is because it eliminates the boring, repetitive, and time-consuming procedures connected with the banking process, such as paperwork. An automated business strategy would help in a mid-to-large banking business setting by streamlining operations, which would boost employee productivity. For example, having one ATM machine could simplify withdrawals and deposits by ten bank workers at the counter.

Increased adaptability

Banking business automation can help banks become more flexible, allowing them to respond quickly to changing banking conditions both within and beyond the country. This is due to the fact that automation can respond to a large number of clients with varying needs both inside and outside the country.

For example, automation may allow offshore banks to complete transactions quickly and securely online, especially in volatile market conditions if your jurisdiction restricts banking to a set amount of money outside your own country. Offshore banks can also move your money more easily and freely over the internet.

Risk and Compliance Reporting

RPA in financial aids in creating full review trails for each and every cycle, to diminish business risk as well as keep up with high interaction consistency.

Consistence hazard can be supposed to be a potential for material misfortunes and openings that emerge from resistance. An association's inability to act as indicated by principles of industry, regulations or its own arrangements can prompt lawful punishments. Administrative consistency is the most convincing gamble in light of the fact that the resolutions authorizing the prerequisites by and large bring heavy fines or could prompt detainment for rebelliousness. The business principles are considered as the following level of consistency risk. With best-recommended rehearsals, these norms are not regulations like guidelines.

How is automation enabling the bank sector?

Automation has likewise ended up being a genuine major advantage for administrative center methods. Frequently they have many great individuals handling client demands which are both expensive and easy back and can prompt conflicting results and a high blunder rate. Automation offers arrangements that can help cut down on time for banking center handling.

The fundamental idea of "ABCD of computerized innovations" is to such an extent that numerous hostage banks have embraced these advances without hardly lifting a finger into their current climate. While these advancements bring interruption, they don't cause obliteration. These banks empower the two-layered influence on their business; Customer, right off the bat, Experience and furthermore, Cost Efficiency, which is the reason robotization is being executed moderately quicker. The rising utilization of Cloud figuring is acquiring prevalence because of the speed at which both the AI and Big-information arrangements can be united for organizations. Utilization of cell phones across all segments of shoppers has urged administrative centers to investigate choices to get Device autonomy to their clients along with for staff individuals.

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5 Reasons to add automation to your bank

Enhanced Compliance

To begin, banks should consider hiring a compliance partner to assist them in complying with federal and state regulations. Compliance is a complicated problem, especially in the banking industry, where laws change regularly. For several years, financial services groups have been lobbying for the government to enact consumer protection regulations. The government is likely to issue new guidelines regarding banking automation sooner rather than later. A compliance consultant can assist your bank in determining the best compliance practices and legislation that relates to its products and services.

Improved Efficiency

Second, banks must use their technical advantages to develop more efficient procedures and outcomes. Technology is rapidly developing, yet many traditional banks are falling behind. Enabling banking automation can free up resources, allowing your bank to better serve its clients. Customers may be more satisfied, and customer retention may improve as a result of this.

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Reduced Employee Workload

Automation allows you to concentrate on essential company processes rather than adding administrative responsibilities to an already overburdened workforce. Back-end procedures can also benefit from automation. It may even result in human cost savings in some circumstances.

Enhancing efficiency and reducing man's work is the only thing our world is working on moving to. The workload for humans will be reduced and they can focus on the work more than where machines or technology haven't reached yet.

Improved Customer Experience

Fourth, a growing number of financial organizations are turning to artificial intelligence systems to improve customer service. To retain consumers, banks have traditionally concentrated on providing a positive customer experience. In recent years, however, many customers have reported dissatisfaction with encounters that did not meet their expectations. Banking automation includes artificial intelligence skills that can predict what will happen next based on previous actions and respond accordingly.

Forecasting

Fifth, traditional banks are increasingly embracing IT into their business models, according to a study. They've created test campaigns with specific parameters in mind. Data science is increasingly being used by banks to evaluate and forecast client needs. Data science is a new field in the banking business that uses mathematical algorithms to find patterns and forecast trends.

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Conclusion

Banking automation has advanced significantly over time. Banks used to manually construct and manage their accounting and loan transaction processing before computerized systems and the internet. Banking automation now allows for a more efficient process for processing loans, completing banking duties like internet access, and handling inter-bank transactions. Automation decreases the amount of time a representative needs to spend on operations that do not need his or her direct engagement, which helps cut costs. Employees are free to perform other tasks within the company, which helps enhance production.

Despite the advantages, banking automation can be a difficult task for even IT professionals. Banks can automate their processes with the use of technology to boost productivity without complicating procedures that require compliance.

Various financial service institutions are striving to implement more effective automated technology that will set them apart from their competitors. Businesses are striving to meet the expectations of their customers by offering a fantastic user experience, especially in these times of growing market pressure and reduced borrowing rates.

When it comes to automating your banking procedures, there are five things to keep in mind. Follow this guide to design a compliant automated banking solution from the inside out.

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