15 Dec 2020Daniel Studer
How are functions in the financial industry changing?

Over the past few years, people working in a bank’s Front, Middle, and Back Office have grown skilled in navigating the choppy waters of changing tides. But how do they plan to cope with the swells of new technology and waves of increased challenges that will hit these functions in the years to come? That’s what we wanted to find out with the first edition of Avaloq’s Front-to-Back-Office Report.

To gain exclusive insight into the fast-changing environment of financial functions, we made use of our unique position in the industry as a solution & service provider and interviewed several of our clients’ executives in Europe and Asia. More than just uncovering how things look like today, these experts shared their profound understanding of how processes and the client experience of banking will change in the years to come. Moreover, to link to the driver behind the innovation – the changing customer needs – we extended our research even further and conducted a survey among an investor community.

We‘re excited to share with you the result of this undertaking, the Avaloq Front-to-Back Office Report 2020, an exclusive look at how investors and leaders in the financial industry worldwide perceive the future.

The investors – informed, self-confident, principled

Today’s investors like to take their own, informed decisions. Half of the surveyed investors (48%) reported to check the performance of their investments daily and almost all stated to consult online sources prior to taking their investment decisions. And these decisions are driven by more than just the prospect of a decent return. The current survey supports a hypothesis in our recent report on the Democratization of Wealth Management - sustainability and purposefulness become commonplace values in a society increasingly aware of the wider impact of their decisions. This is reflected in our survey by the 44% of investors who would switch their financial service to one that offers better ESG investing opportunities. To prevent this – or even to profit from an inflow of net new assets – a wealth manager needs to have ESG products in the line-up and prepare the organization to make ESG investing an integral part of their investment advisory process. Read the top 10 insights in the investor’s section of our Front-to-Back report and learn more about their readiness to accept computer-generated advice and their personal perspectives on future technologies.

The Front Office – personalized, empathic, human

For the report, we interviewed Front Office executives of selected clients in Singapore and Hong Kong. When asked about the relationship between technology and client advisory, they had to admit that it’s easy to see technology as a threat to their wealth management business. But they firmly reject the idea that technology will replace the human advisor one-to-one because this theory unfairly overlooks the ways in which human advisory can actually outperform what technology currently has to offer.

“If people are worried because the world seems to be collapsing, because there’s a new virus, a new trade war, or markets are dropping, I think a human, for most clients, will be able to provide a better conversation and be able to take into consideration the complexities of personal situations.”

Yes, there will be computer-generated advice and robo-advisors, but humans have a personal touch. It’s for this reason that human advisory will continue to shine in those situations that require greater levels of flexibility and understanding than technology can currently provide. The essence of our interviewees’ statements is that technology is best viewed as an advisor’s side-kick. Client advisors should leverage technology to automate simple tasks, in order to use this new-found time and energy to focus on those tasks in which they can truly add the most value – ones that require more emotion, creativity, or an understanding of complicated, personal situations.

“Customers don’t see technology as technology. They see what they receive from the bank. The customer won’t say, ‘I like artificial intelligence.’ They’ll say, ‘Hey, you’re coming to me with this product at the right time.’ They won’t say that they like biometric authentication, they’ll say ‘Wow, it’s so easy to log into my mobile banking because I don’t need to remember my password.’”

The above statement nicely summarizes where wealth managers should set their focus: on making sure that technological evolution creates tangible benefits for their end-clients and on ensuring that new products or features are communicated in that way.

The Middle Office – robust, agile, precise

The adherence of existing and new regulation is an ever-increasing challenge for the Middle Offices of our clients. It forces them to do more things in less time, while the pandemic and its travel bans further complicate important global collaboration. Although our executives in the interviews, representing banks in Australia and Hong Kong, were able to see the positive side of the current situation.

“If you’re in the Middle Office, it is more pressure on you, but equally, for hose that work in technology, we feel like that’s not such a bad thing, because it meant that they had to tighten up their processes. They had to get away from using spreadsheets and access databases and become more robust.”

There is a silver lining on the horizon of compliance in finance: Regtech. Our interviewees expect a short, but painful, adjustment period when it comes to adapting current processes together with regulators. But, from then on, banks can expect improved accuracy and precision in their processes, which will help save resources in the long run. To drive this shift, organizations require agile people in the Middle Office with a strong willingness to change and the ability to overcome roadblocks.

The Back Office – efficient, flexible, innovative

When speaking to Back Office executives, one thing becomes clear – the Back Office isn’t the dusty attachment to innovative and digital Front Offices that it once might have been. On the contrary, the Back Offices are the new spearheads of digitalisation and innovation and the enabler of a new digital client experience. The self-concept of the operations team as an innovation engine shines through all the razor-sharp statements of the executives on automation, cloud technology, open banking and blockchain. We interviewed Back Office executives in Germany and Australia. Their approach to new technologies is a practical one, and always puts the client benefits and a superior client experience in the centre. For such ambitious plans, a specific profile of Back Office employees is needed.

“In a fast-changing world, we have to cope with ten new regulations for the financial industry each year. We are overwhelmed with new regulations and requests that we have to implement. That’s why I need Back Office employees with a certain willingness to learn and adapt to new situations. I need an innovative spirit and people who love to work with new topics, a real willingness to change.”

From connecting with fintechs to the development of business models with digital assets, the Back Office has become the place where innovation happens. Far away seem the days where automation, efficiency and cost savings were the sole targets of the operation teams.

A finger on the pulse of banking

Our brand new “Avaloq Front-to-Back Office Report” plunges even deeper into the value chain of banking, an industry challenged by evolving client needs, constantly-tightening regulation and a good deal of new technologies – all with a market in turmoil during a global pandemic. We wanted to hear from those people who have to guide their organisations through these tough times – and now we’re sharing their insights, in their own words, pure and unspoilt in this new industry report. We invite you to read the full report and gain a unique perspective on an industry at its turning point.

Written by Daniel Studer
With 20 years in the financial industry under his belt, Daniel has a wealth of insights and experience on banking. After his studies on Banking & Finance he started his career in the operational front support of a major bank, implementing front-to-back optimization projects. He moved on to work in marketing and communications roles for several years before joining Avaloq as the Head of Content.
Front-to-Back Office Report

The Front-to-Back Office Report

How should financial institutions react to changing client needs? How will digital transformation change the functions of the Front, Middle, and Back Office? What skills does a team in these areas need for the industry of tomorrow? Read what leading executives in the financial industry have to say on these topics, in our newest edition of Avaloq's Front-to-Back Office Report.