_Retail Banking – why the back office is the new front office

Historically, retail banks have employed outsourcing and offshoring strategies for their back offices. As a result functions such as answering customer queries, technology or payment processing were either shifted to lower cost centres in cities like Warsaw and Bengaluru or completely outsourced.

Whilst outsourcing/offshoring will continue to be key tools in driving required efficiency and cost savings, particularly for process and administrative heavy work, in today’s operating environment certain functions that were previously considered back office are now returning to front and centre. With traditionally labelled front and back office functions blended to provide optimal customer service.

A number of factors are driving this shift…

First, the “front office” at a retail bank is defined as “the portion of the business that markets, sells and serves customers”.

The next big idea in retail banking could come from a customer service operative or someone working in payment processing

The structural shift from branch to online and desktop to mobile means that the “front office” is changing. In the digital world, it is less about advisors and cashiers in branches and more about people in customer contact centres, technology talent coding chat bots and robo-advisors, developers creating outstanding apps, platforms and websites that enhance the customer experience and assist data analytics teams.  

With regards to data, regulation including PSD2, the UK’s open banking reforms and GDPR elevates the importance of efficient and innovative handling of client data and could be the difference between winning and losing. 

Second, a number of retail banks have experienced problems with outsourced providers, including outages in payments processing and customers not being able to access online banking.

In this digital world customers expect a seamless user experience. Glitches or failures in processing, badly designed apps/websites or poor customer service have the potential to cause huge harm to retail banks in terms of customer attrition and reputational damage.

Having these vital functions in-house and closer to home provides greater control and allows for development of proprietary tools that can deliver competitive advantage. 

Third, as our latest Retail Banking Sector profile shows, continual innovation is now a core strategic imperative for any retail bank. It is well acknowledged that innovation requires collaboration across teams that work together in agile and fluid manner.

The next big idea could come from a customer service operative or someone working in payment processing.  In addition, it is at the processing/customer service end where invaluable customer data is captured. Gathering and nurturing these ideas/data is more restricted if functions are outside of the core. 

A case study that supports the competitive importance of these new front office functions is Monzo. Monzo is one of the new wave of digital led challenger banks. It wants to be the bank of the future and delivering an excellent customer experience is key to this.

It was recently hit by a series of outages at its third-party service provider which caused severe disruption to customers.  In response, Monzo wanted to regain total control of the customer experience, so it brought all critical systems in-house, while developing its own platform and proprietary technology.  

The people working on this are not in an offshore location but in an office five minutes from Old Street in London.  In addition, the company is investing in its in-house customer operations, hiring up to 60 customer operations staffers in Cardiff with potential plans to open a large-scale office in the Welsh capital. 

Returning to where we started, this is in no way a piece which calls out the death of outsourcing/off shoring, but functions that were once at the forefront of such initiatives are now of such great importance that they are increasingly being placed at the centre of the organisation, managed internally and constitute reclassified front office services.

Accordingly retail banks need to review current locations and optimal workplace design to ensure that advantage rather than constraint derives from the front office.  In the UK this means more retail banks investing in customer service centres; greater demand for office space that attracts and retains this type tech talent and permits innovation and / or a repurposing or disposal of existing portfolios that are no longer fit for purpose.

STRUCTURE OF A RETAIL BANK

BACK OFFICE: The portion of a company made up of administration and support personnel who are not client-facing. This might have encompassed functions like I.T., operations, payments processing, HR, accounting and compliance.

MIDDLE OFFICE: Manages risk. Usually consists of risk management, research and compliance departments, as well as some elements of technology.

FRONT OFFICE: Markets, sells and serves customers.  Examples: Sales, research.