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Co-founder and service director at Quocirca

Clive is the founder of Quocirca and is a highly respected and globally recognised industry analyst, covering a range of business and technology areas. He has worked as an analyst for more than 20 years...


Are financial services ready for automation?

10 Nov, 2016 03:03 pm

The financial sector is ripe for automation and to clear away decades of bureaucratic processes, but can it be done when so many legacy systems so well entrenched? The benefits of automation could mean that processes are speeded up, with application forms for bank services taking only hours to process instead of days.

How and why is automation coming to the financial services sector?

Automation has continuously been forced on the finance sector. If we focus on the retail banking sector, the advent of credit cards meant that they had to become able to do automated reconciliation; web retailers and PayPal forced faster settlements. The consumer becoming aware of how they were being taken for a ride forced through Faster Payments, and so on.  Overall, it is the market that is forcing the banks to automate - not really the banks themselves.
The next level will be around traceability. My belief is that banks will be forced to adopt blockchain technologies to provide the level of traceability required to recover funds and to prevent the kind of incident we saw earlier this month at Tesco Bank, where money was taken from 20,000 accounts. Banks also need to be able to demonstrate cleaner hands to government bodies when it comes to money laundering and hidden funds, although some governments are, of course, complicit in this.

From the banks' own point of view, automation can drive down costs - this is where they have embraced automation, such as encouraging customer self-service.

What are the benefits of automation to the financial sector?

Automation would make life so much easier for finance and would help plug so many bad holes in bank operations.  Moving to a distributed ledger approach would create a completely traceable transaction chain on everything. Scams where money is moved from bank A to D, then to L to C over to P and then to T via E would no longer be a chain that was too complex to trace. Everything would all be there to see in real time. The last bank where the money went would be visible, as would information about who created the account and all the details they provided to set up that account.  If the bank hadn't carried out the checks that it is mandated to under world finance rules, then the bank is responsible for the loss of the money.

How can automation improve financial controls and effectiveness as a business?

Automation allows for anomalies to be more easily and quickly identified, making it possible for money laundering and fraud to be stopped in its tracks.

Claims processing in the insurance sector would also be far easier if automation was used. The capability to pull together information from the insured party, claims adjusters, workmen and so on would make the whole process less costly and stressful.

Is the financial services industry still in the early stages of automation? What could speed it up or derail it?

I remember covering straight-through processing (STP) in the financial sector when I was at Meta Group - 20 years ago. The sector has been ripe to be pulled kicking and screaming from the 18th Century since the 19th Century. It is inherently conservative, and believes more strongly than any other sector - possibly apart from defence - that it can do everything better if it does it itself.

What limits are there to automation in this industry?

The only area where full automation has been put in place is in trading. Strangely enough, here there has been enough money to throw at the problem and make it a leader in automation. Trading is done algorithmically with fully automated trading engines. Deals are struck and settled using automated means. Money is transferred at the speed of light through automated exchanges. Yet, somehow, for far too long a time, the use of such technology in retail banking and insurance was not seen as being possible. Strange, eh?

Is there a gap in what automation can deliver in the short term and savings it will produce in the long term?

The financial sector could be completely transformed through the adoption of advanced automation.  However, a conservative mentality points towards a lack of will to truly go for it. Will it change?  Only if one of the challenger banks can make a real go of it and start to take custom away from the incumbents in a very noticeable manner.
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