By Israel Hersh, SVP Business Development, tekVizion

The term ‘back office’ doesn’t do justice to banks’ operations teams and their pivotal role. It invokes an image of people dutifully beavering away to keep the lights on, happy for those on the frontline, the trading floor, to take the credit. Nothing could or should be further from the truth.

In McKinsey’s 2019 article entitled “Banking operations for a customer-centric world”, the authors discuss the future of back office automation. A bank’s operational overhead represents 15 to 20 percent of its budget. By 2030, it is predicted that most manual processes will be automated in order to reduce human bias in decision-making and dramatically reduce errors. It is also clear that the back office as we know it today will slim down and customers will be benefitting from these changes. They will be alerted about mistakes and be informed when these issues are corrected. This kind of preemptive outreach can dramatically boost customer satisfaction and financially reward the banks.

With fintech start-ups presenting an existential threat to traditional banks, the fate of banks’ future competitiveness and relevancy rests on the Ops teams’ shoulders. In truth, the ‘back office’ is the true driving force of innovation.

While big banks are constrained by legacy, fintech companies are working with a greenfield, free to innovate and refine the rules of the game. There is immense pressure on banks to modernize and automate processes and back-end systems. Nevertheless, they are going into battle with one hand tied behind their back. In an industry where trades are conducted in milliseconds, things seem to occur in warp speed; yet, regulatory red-tape and legacy processes impair banks’ ability to move quickly. Simply put, innovation takes time.

Innovation is just part of the story — if an idea cannot be put into practice, it’s not worth a dime. These vital teams are named ‘Operations’ because everything they do improves the bank’s operational efficiency.

Deployment of new improvements is equally important as the innovations themselves.

The McKinsey article introduces a concept of a journey-based model. Under this model, banks will reorganize operationally from a product or segment based process to a customer-focus based process where operations handle the customer inquiry from cradle to grave. A journey-based model will combine resources with different skillsets and backgrounds to eliminate the current organization silos. To do this, banks will need to re-think how they staff, measure, and track performance, and ultimately deliver to customers. More specifically, as the McKinsey article observes, “Operations employees in 2030 will need to know how to code, develop products, and understand data, but they will also need the personal warmth and insight to manage exceptions and deal with complex customer problems”. The authors are warning banks to start building a roadmap that accelerates the transformation to digitization and automation or find themselves a decade from now struggling to survive.

At the heart of this debate is the realization that banks’ operations teams need to undergo a mindset change. If they are to compete with the nimble, dynamic and disruptive challengers, they need to think like a challenger. They need to move from the old ‘waterfall’ model of software delivery to a DevOps model of continuous innovation and delivery.

Research by the managed services provider Claranet found that of 750 IT professionals it surveyed from across Europe, 30 percent of financial services organizations have already made the transition to a DevOps approach, with a further 61 percent expected to make the switch over the next two years.

However, at the same time the biggest challenge reported about this shift was that operations teams themselves were limiting the potential of DevOps.

The challenge for the Ops team is that they are facing competing pressures. The business wants innovation and software adaptability to reflect today’s competitive climate; but at the same time, they need existing IT systems to be stable and uninterrupted by changes.

This balancing act is most acute on the trading floor. Every new improvement and innovation must be fully tested and validated before deployment. Remember, this isn’t a fintech-style greenfield – if something breaks or a trading floor goes down, that’s millions in lost revenue.

To cope with these competing pressures, they must develop a DevOps mindset and embrace automation.

Automation is at the heart of DevOps, with continuous delivery (CD) pushing out software upgrades, patches and changes to configuration. Without it, upgrades, patches, and other software improvements are stuck in a pre-production environment. Until now, the solution has been for this to happen first in the lab, and then be rolled out into the live trading floor over the weekend, with the Ops team having to quite literally walk the floor to check every voice trading Turret and Dealerboard.

Proactive automated testing is a significant step in addressing this. It not only frees up back-office time, but also enables the business to balance the competing pressures of innovation and production deployment.

Thus, banks must adopt a DevOps mindset to modernize and compete in innovation and deployment. It can’t be all Dev, and no Ops; it must be both. Only by addressing both, and nailing the testing and validation, can they move quickly, securely and safely from the lab to the live production network.

For more on how IPC and tekVizion is working with investment banks to augment manual testing of voice trading platforms such as Dealerboard or Turret systems with the fully automated tekVizion Automation, dramatically mitigating risk and reducing the cost while increasing the coverage of testing, visit https://www.ipc.com/resource-center/ipc-and-tekvizion/

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