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Monday, April 15, 2024

Back Office Automation in Digital Lending

The FinTech industry is seeing major developments and rapid growth, owing to new technology that keeps emerging, along with changing customer behaviour and increasing competition. Companies have been quick to adapt to changes by implementing new approaches in their operations and service offerings to ensure profits and productivity were maintained at all times.

However, one area that often gets overlooked by organisations are back office operations – which go a long way in improving a company’s efficiency. This article takes a look at the importance of back office automation in the digital lending space and explores some of the top core process improvement ideas to help companies be more productive and profitable in their operations.

What is Back Office Automation & Why Is It Important?

The back office of any organisation is the segment of work that typically comprises the administration and support operations that do not directly face clients or customers. These operations are carried out behind the scenes and may include functions such as IT services, accounting, record maintenance and so forth. Most back office work consists of mundane, repetitive and labor-intensive tasks that support the company’s core offerings, yet take up a lot of time and resources.

Back office automation refers to the usage of digital technology to replace repetitive manual tasks in order to streamline company operations and let employees focus on more important aspects of the company. There are many reasons as to why back office automation is greatly beneficial to companies.

Saves a lot of time:

Simplifying and automating complex tasks, which once needed a dedicated human resource, saves a great deal of time and money.

Cost reduction:

Letting employees focus on more important aspects of the business helps with better resource allocation and will help with bringing down costs..

Less human error:

Unlike manual work, automated processes are less prone to errors and mistakes, improving business efficiency and productivity.

Back Office Automation in Digital Lending

The usage of technology is not something new in the FinTech industry. However, most companies tend to focus on using technology to transform customer experience and make front-end changes – as opposed to looking into back-office automation.

Survey results from Fannie Mae’s Mortgage Lender Sentiment Survey suggest that 41% of lenders are mainly focused on front-end changes whilst only 30% of lenders see back office automation as a top priority. Source

Therefore it is evident that most lenders and institutions overlook the importance of their back-office functions and instead prefer to focus their attention on customers and marketing automation – in order to grow its customer base.

Interestingly however, according to Capgemini Consulting research, 60% of customer dissatisfaction is believed to originate in the back office. Source

Isolated data storage and manual paperwork based processes lead to a great deal of time wasted, unnecessary costs and ultimately customer dissatisfaction and turnover – which affects company revenue. Therefore it is important to understand that true digitisation cannot take place without the digital transformation of company back offices too.

Research from McKinsey Digital states that banks and financial lenders can achieve over 50% improvement in terms of productivity and customer services by automating their back processes. These processes can range from decision making to resource planning to data storage and workflow. Source

What Are the Challenges?

However, there are challenges. Banks have adopted a mindset of not being too keen to re-look at their procedures and instead have chosen to focus more on regional growth or launching new products. One reason for this is due to the fact that they possess a complicated IT architecture that could potentially cost massive amounts of money if it were to be redesigned. Mergers and acquisitions, product launches and regulatory changes are often the cause of their complex IT architecture which requires investment of substantial capital and also needs implementation in the shortest amount of time possible.

On the other hand, it is not uncommon for IT departments to have different agendas and lack the necessary understanding of business priorities – in order to embrace true back-office automation. With the IT departments of banks being trained to develop big projects, most banks often lack the internal capabilities to introduce automated processes into their operations.

How Can the Back Office Process be Automated?

Three core areas need to be addressed when updating internal processes with lending management software – integration, automation and analytics. Integration means you need to find a way of integrating your existing operations with your automation solution – instead of creating everything from scratch – which is much simpler and also cost-effective. Automation refers to eliminating as many manual processes as possible – which is the ultimate goal, in order to embrace efficiency and reduce human error. Analytics is what you use to measure your performance to identify any gaps in your operations, enabling you to correct them and achieve even greater results.

A CRM platform is a good idea to help you manage everything related to customer relationships – ranging from loan applications to data collection to debt management to statistics. According to FinanceOnline, a dedicated CRM solution can improve customer relationships by 74%, increase sales quota by 65%, boost productivity by 50% and reduce labor costs by 40%. Source

It also states that contact management is the number one feature that 88% of users request, followed by track interactions, scheduling, and software’s ease-of-use in general. Thus it is important that you identify which features are important for your business and that you focus on those, to prevent unnecessarily complicating your workflow and slowing it down. Generally, some of the main areas that need to be looked at in terms of back office automation include – customer segmentation, viewing customer relationships, personalised dashboards, advanced roles and user models as well as targeted marketing campaigns.

What You Need to Keep in Mind

In the end, automating your back office is a pretty big task and there are several factors to keep in mind before deciding to go ahead with it. The most important thing is to always keep your business priorities in mind during automation. Back office automation is pointless if it does not help you achieve your desired business goals – so remember to keep a constant eye on how you can plan your automation strategy around this.

Another tip is to use multiple integration technologies and approaches – which simplifies the process and avoids massive architectural complexity. Also, it is wise to opt for agile development methods in order to achieve faster development cycles and seamless workflow with ongoing business operations.

Remember that automating your back office is key to improving your business efficiency and helping you manage your company better with less effort. Eliminating unnecessary manual processes that are holding your company back is important and will truly benefit your company in the long run.

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