“What’s past is prologue,” a line from Shakespeare’s The Tempest, is inscribed at the entrance to the National Archives, the home of the country’s legacy paper records. Paper records and manual processes are being replaced with digital files and workflows as the banking industry becomes more digital and the United States makes it way towards “e-government.”
However, it would be foolish to believe the advent of digital banking will spell the death of paper records or legacy electronic records in our lifetime — just as foolish as supposing the National Archives will cease to exist in a world of digitized government.
It is no secret that consumers love the convenience of digital transactions; the younger the consumers, the more likely they demand it of their banks. To satisfy this demand, banks around the world are moving to digital banking as quickly as they can to satisfy their customer base and ward off new competitors who eschew paper and brick-and-mortar institutions. Satisfying the needs of banks, their customers and the banks’ regulators requires careful planning and building bridges that link the legacy paper past to the digital future.
While some bankers may hope for the chance to simply chuck the paper and go digital, that is just a fantasy. Future access to paper records will be required in the digital banking industry for the following reasons:
Depending on the banking product in question, regulators may require that records be retained for five to 10 years. For loans, requirements are typically the life of the loan plus an additional period. For mortgages, this could extend for 30 years or even longer for insurance products. Of course, in the highly litigious banking industry, many records are retained for legal holds far beyond the earliest eligible destruction date. If these records are in paper form, they must be retained, as well.
One of the greatest conveniences customers want is to have all their banking records available online. This includes both current digital records and the legacy paper records they might need for a tax audit, for instance.
The transition to digital banking will require a transformation in business processes. Twenty-five years of using digital imaging and workflow systems in banking notwithstanding, it is not unusual today for bank employees to work from paper files until a process is completed and then archive the paper to digital at the end of the process. This must change in the digital world, especially since customers themselves may be the ones engaging in “self-service” in an automated environment. McKinsey characterizes the transformation to digitally enhanced processes as a matter of “do or die,” but when done properly, the transformation can remove 20 to 25% of banks’ cost base by leveraging this digital shift to transform how they process and service.
Moving to a digital banking industry will not happen overnight. It will require a period of many years to accomplish. For example, the Bank of England, which implemented Enterprise Content Management in 2004 and integrated electronic records management in 2010, found in December 2013 that the bank was still struggling with workflows and employees whose paper-based practices had not yet changed.
Regulatory Requirements for Electronic Alternatives
Some banking customers — particularly older ones — prefer paper bank records. Currently, regulators in the United States and United Kingdom require that customers consent to having banking records provided in electronic form. In the United Kingdom, less than 15% of customers elect to continue to bank on paper, but this still requires accommodation in the bank’s records management system.
Fortunately, a bank can digitize and still address these challenges. Read Part 2 for tips on how to keep pace in the digital era.