Rethinking the Back Office: Financial Organizations Grapple with Reinvention’s Promise and Pitfalls

Banking/financial services/insurance (BFSI) executives recognize that legacy processes rooted in decades of manual tasks, paper records, and siloed systems can’t meet the demands of digital-native customers or the operational efficiency needed to compete with agile fintechs. The answer isn't incremental optimization but full process reinvention. The rewards are great, but a new HFS Research in partnership with Iron Mountain survey of more than 500 BFSI organizations indicates that so are the obstacles.

Process reinvention involves rethinking how work is done, using automation, artificial intelligence (AI), and modular technologies that adapt to process change. The HFS/Iron Mountain survey found that 78% of senior executives believe that failure to digitize could result in permanent competitive irrelevance for their companies. The need for reinvention is made more pressing by the emergence of more than 30,000 fintech startups worldwide that are unencumbered by the weight of outdated processes.

Reinvention automates workflows to cut processing times from days to minutes. Embedded audit trails and real-time monitoring reduce regulatory risks. Cloud-based, application programming interface-driven IT systems enable firms to adapt quickly to new requirements without replacing infrastructure. All of these factors combine to allow hyper-personalized services to be developed that are critical at a time of unpredictable customer loyalty.

Grand plans

The survey data make clear that executives see reinvention as a route to competitive advantage. Fifty-eight percent of firms plan to build a fully digital back office within two years at an average investment of $25 million. They see reinvention as an opportunity to introduce new products, adjust to regulatory changes, and tailor offerings to customers without expensive, time-consuming reengineering.

Executive views of the back office are changing. Once seen as administrative overhead, it is now central to delivering digital products and services. The survey found that 78% of leaders believe autonomous, API-driven workflows should replace manual tasks.

Executives also see process reinvention as a way to empower employees. Eighty-one percent expect AI agents to handle more than three-quarters of routine tasks eventually. The top reinvention benefit they expect to realize is shifting their workforce from performing repetitive tasks to strategic decision-making roles, a windfall cited by 58%.

Despite the clear advantages, BFSI firms face an array of challenges to full process reinvention. Chief among them are decades-old core systems built on fragmented architectures that resist integration with modern AI-driven tools. Legacy systems were the most-cited roadblock to achieving fully digital back-office outcomes by a 46%-to-35% margin over budget constraints. Although 78% support autonomous workflows, only 21% are moving boldly toward that goal, with 53% making only selective or incremental improvements and 26% reporting little progress.

Paper trap

Generative AI holds the potential to extract insights from decades of records, but only 23% of executives reported success in that area. Furthermore, only one-third are confident they can digitize records at scale securely and compliantly, even though 72% rank digitization as a top priority. Paper locks firms into sequential processes and prevents the real-time, parallel workflows needed for reinvention.

The skills gap further complicates reinvention. The survey found that realizing the productivity benefits of AI and no-code tools is often hindered by shortages of qualified staff and reliance on outdated vendor products. Reskilling and upskilling people to work alongside AI agents needs to be a priority.

The survey outlines several strategies financial services firms can adopt to overcome these obstacles.

• Escape the “efficiency trap” and broaden the metrics of reinvention success to include customer experience, trust, and compliance.
• Create playbooks for AI deployment with human-in-the-loop safeguards, explainability standards, and performance dashboards for monitoring and risk reduction.
• Consolidate vendor ecosystems. That doesn’t mean just reducing the number of vendors, but choosing those that build on modern, cloud platforms that enhance customer agility.
• Prepare the workforce to supervise and collaborate with AI “colleagues.” systems. Reinvention should be framed as a way to elevate, not eliminate, human roles.
• Ally with fintechs, regulators, and industry consortia to establish standards, share costs, and accelerate adoption across the business landscape.

The stakes are clear: Firms that succeed in reinventing their processes will differentiate themselves in a crowded market. Those that remain tied to analog processes will risk fading into irrelevance.