Where can banks and wealth managers stand out from their competitors these days? Certainly not in the area of back-office processes and performance. Today the battleground is elsewhere – in the areas of new and engaging customer experiences, intelligent digitalization and even radically changed business models. 

With lean, hungry fintechs snapping at the most lucrative segments of your market, and both retail and investment client segments wanting faster, richer and more personalized services, margins are under pressure, and investment needs to be targeted at where it can make an immediate and significant impact.  

Innovation is vital, but it costs money. The emphasis in your unseen back-office processes has to be on ensuring the highest rates of efficiency, timely and cost-effective compliance and a stable and robust platform to support your digital initiatives.

Market needs

Avaloq is constantly improving the automation rates that can be achieved within the Avaloq Banking Suite. But for many clients, the most pressing challenges are external system integration, optimized system setup and the limited availability of suitably skilled back-office resources. Cost reduction is the key to margin improvement, and most banks have already invested heavily in improving operational efficiency through standardization, core automation and centralization. The next level of automation will undoubtedly improve performance and lower costs, but it will also demand major investments in new technologies such as robotics, AI and machine learning.

For global banks, these efficiency improvements must be seen in a worldwide perspective. It no longer makes financial sense to have back offices in separate countries. Banks and wealth managers have to develop follow-the-sun operations that are equally efficient in every region, providing access to global expertise when and where it’s needed without the cost burden incurred by duplicating specialist skills across different markets.

Vision

Like other leading software developers (including salesforce.com, Microsoft and Google), Avaloq knows it has unrivalled expertise in running its own software. We have the experience that comes from working with 135 global banks and running the day-to-day back-office operations of 36 banks around the world. We have worked out the very best ways to fine-tune the Avaloq platform and configure processes that deliver world-class levels of automation. Our BPaaS clients enjoy STP rates approaching 100% and reversal rates that are close to zero, and our first-hand experience of running back-office operations enables our R&D teams to exploit the full potential for automation that’s available within the software.

Our BPaaS goal is to create a back office that’s as close to human-free as possible. We’re doing this by continually improving our best practice processes within the Avaloq Banking Suite and using robotics, AI and machine learning to handle integration with external applications and feeds. Thanks to our state-of-the-art control room, we’re able to monitor processes continuously across our operations, reducing risk and ensuring safe, reliable back-office operations for all our clients.

Robotics and AI/ML

Avaloq has been applying robotic process automation (RPA) techniques since 2017, when we worked with a leading supplier, Automation Anywhere, to create an initial ten bots in areas like global trade processing, global income and market messages. These bots integrate Avaloq with third-party software such as Microsoft Office, global messaging and web-based custodian tools. In 2019, we tripled the number of bots. We now have 79 live bots serving 19 clients, with 240 daily runs.

To further automate BPaaS services where Avaloq’s software, alone or combined with RPA, cannot address a particular problem, we’ve identified several use cases in which the application of AI and machine learning could be used. We’ve identified eight use cases in AI/natural language processing to transform unstructured data into structured data that can be processed through an Avaloq API. The first use case we’re developing is for securities transfers, where today’s requests for position transfers from market counterparties are received as email, PDF and Excel files that require reading and interpreting to allow unstructured data to effectively become structured. We’re working on this project in collaboration with a Swiss university and we expect to go live with the first clients in early 2020.

With Avaloq making such investments in robotics, AI and machine learning technologies, all our BPaaS clients are able to take advantage of these revolutionary technology platforms without having to invest in developing them. The community aspect of our BPaaS operations means that Avaloq is also able to share best practices across clients, speeding up time to market for these new technologies for all Avaloq users.

Locations and skills

Avaloq currently supports global clients from three service centres in Switzerland, Germany and Singapore. We’ve recently begun operations in Pune, India, to provide further support for IT development and maintenance for the existing centres and assist in facilitating follow-the-sun working. All these centres are connected in a global service mesh to ensure continuity of operations and to enable teams across the globe to support our clients, irrespective of location. We expect our service centre network to continue to grow in the coming years (e.g. new country operations), as we’re finding more and more banks that are interested in working with us to transfer existing operations and make the transition to a service model for the back office.

An additional service initiative, in the last year, has been to improve client access to our highest skilled resources by establishing centres of excellence within the service centre network. While client-specific tasks that regulators insist must be processed locally are spread across our service centres (with data, of course, maintained locally, where this is required), those tasks that are location agnostic (such as trade processing) are being centralized to create pools of expert resources that can be quickly and easily accessed by all our clients.

This centralization programme is just one aspect of the changing model of highly-automated back-office operations. As every bank seeks to achieve these high levels of efficiency, the roles played by our staff, like the staff in any bank, are changing equally rapidly. Historically, the back office has been populated by teams of task specialists, region by region. In the future, we’ll see back-office staff becoming process specialists, bridging the roles of process owner and task specialist. Staff will increasingly focus on client interactions for problem-solving and to identify new opportunities for process innovation and restructuring (e.g. efficient client onboarding), using advanced technologies like machine learning and AI. To enable this transition, Avaloq has invested heavily in training and certification programmes (for example, looking at topics like design-thinking principles and continuous improvement methodologies) for all of our global service centre teams. This will ensure that individuals can develop their skills in step with the digital transformation of back-office infrastructures and roles. Our BPaaS clients all benefit equally from our investments in this transformation of skills and competencies.

Roadmap

The next six months

•    We plan to complete the setup programme for our global centres of excellence, creating expert teams accessible to clients wherever they may be located. As noted earlier, this will not reduce our local support capabilities. Highly skilled resources will still be accessible in all our service centres, with a particular focus on those processes that regulators require to be processed locally.

•    We’ll further expand our programme of RPA bots across service centres and will initiate a pilot using natural language processing and machine learning to process securities transfers that involve email instructions from a counterparty. This will involve reading and interpreting emails and their attachments in order to translate unstructured data automatically into structured data, reducing the risk of manual re-keying errors and the need for any associated reversals.

 

The next 24 months

 

Our goal is to continuously transform and improve our operating model to ensure that we provide the safest and most cost-efficient back-office services for our clients. This process will entail: • accelerating the application of intelligent technologies to optimize performance wherever feasible; • focusing on our control centre’s ability to monitor all aspects of process operations in real time and ensure the minimization of operational risk; • adding new service locations to offer greater resource levels for our global clients; • emphasizing data security and appropriate proximity to clients for processing.

 

The next 12 months

Avaloq’s experience in optimizing operations using the Avaloq Banking Suite is quite unique. With our service centres providing back-office operations for 36 banks globally, offering both IT and business services, we have a proven ability to reach and maintain truly world-class efficiency levels. One of our goals is to enable every Avaloq client to take advantage of this knowhow to improve cost–income (CI) ratios, irrespective of the deployment model that is being used.

•    In 2020, we’ll introduce a benchmark offering, enabling any Avaloq client bank to compare itself with best-in-class operations, across a broad range of KPIs and right across the software stack, and directly highlight key areas of potential improvement. The benchmark will also allow any client bank to obtain an open and transparent view of the costs and benefits that could be derived from software standardization (e.g. migration to Avaloq’s standard SaaS product) and the optimization of back-office resourcing.

•    For banks seeking to improve performance within their own customized installations, Avaloq will offer new BPaaS consulting services. These will help clients optimize their setup, workflows and process structures to align with best practices. We foresee clients making significant efficiency improvements by moving towards such standardized processes. This may be a worthwhile and profitable initiative in its own right or it may be used as a stepping stone towards a future SaaS or BPaaS migration.

•    For clients seeking to outsource back-office operations, the back-office portal solution will continue to allow a bank to selectively outsource specific aspects of the back office to the global Avaloq team, while keeping its own software setup. In combination with our BPaaS consulting services, this should allow clients to substantially improve their CI ratios.

•    The benchmark will also allow any client bank to explore the potential benefits, risks and complexities of migrating to a standardized version of Avaloq (SaaS) and handing over back-office operations to the expert Avaloq team in a full BPaaS model. In practice, this option of fully standardized processes and operations will always be the most efficient and hassle-free path, with Avaloq taking end-to-end responsibility for contracted KPIs and SLAs.
In 2020, we’ll also be extending our unique control centre, the hub that monitors processes in real time for all our BPaaS clients. We’ll add 40 new controls – and, particularly, new quantitative controls – that will allow us to detect anomalies rapidly and automatically, which will significantly reduce operational risk for all our clients. 

Lastly, we’ll be looking at integrating additional nearshore and offshore service centre locations as part of our strategy for supporting global clients and to further optimize our service capabilities.