Intelligent Document Processing

The Ultimate Guide to Document Automation for Financial Services

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The Ultimate Guide to Document Automation for Financial Services

The vast amount of data that financial institutions deal with is stored in various documents such as bank statements, contracts, and disclosures, to name a few. An organization's productivity and profitability depend on the accuracy and efficiency of its document processing system. Automation is one of the best ways to achieve this.

Document automation refers to the use of technology to streamline the process of creating, capturing, and processing data from complex documents with minimum human intervention. By automating document processing, you can free up considerable time required to process paperwork. As a result, you channel your focus more on strategic tasks and improve your organization's overall operational efficiency.

This blog will discuss Document Automation in detail, including its benefits, challenges, and use cases. We will further help you understand the best practices for implementing a document automation system and ways to leverage digital transformation.

So, let's jump right into it:-

What is document automation?

Document automation in financial services refers to the use of software tools to automate the creation, management, and distribution of financial documents such as contracts, reports, and invoices. This technology performs data extraction via OCR, NLP, and machine learning techniques to retrieve relevant customer information from documents. 

With the extracted data, you can streamline your document processing workflows, reduce errors, and improve compliance with regulatory requirements. All this with minimum to zero human intervention. 

Benefits of document automation for financial services

Document automation is one of the most critical aspects of seamless financial operations and has immense benefits. Let’s look into them.

1. Increased productivity & profitability

Document automation eliminates the need for manual data entry, formatting, and assembling of financial documents, thereby saving you time and inconsistencies. You can also train intelligent APIs to recognize specific data fields, such as customer name, address, and invoice amount, and extract them automatically from documents.

In turn, your team processes more documents in less time, leading to increased efficiency and productivity that translates into profitability.

2. Version control and consistency

Document processing tools also enable workflow automation that lets multiple teams and individuals work simultaneously. They can integrate with different systems in an organization to automate complex processes involving numerous steps, users, and data. By automating repetitive tasks that otherwise require human intervention, automation tools reduce errors and improve accuracy.

3. Improved compliance and auditability

Automation tools simplify regulatory compliance and improve auditability by streamlining compliance and providing clear audit trails. They minimize errors and inconsistencies that could lead to compliance issues resulting in accurate, complete, and up-to-date data. You can easily demonstrate compliance with regulations and provide a clear record during an audit.

4. Cost savings

By streamlining workflows, reducing errors, and improving efficiency, document automation helps companies save costs. It significantly enhances your bottom line and helps your organization reach its financial goals.

5. Enhanced customer experience

You can directly impact multiple customer touchpoints by simplifying and streamlining processes through automation. Document automation platforms increase your processing speeds, reduce errors and offer your clients a friendly and transparent digital interface. They also help you provide more engaging and personalized experiences to individual users. In short, automation is a unique opportunity to craft a stellar customer experience and deliver the maximum value out of your product/service.

Challenges of document automation and how to overcome them

Despite its benefits, document processing automation presents unique challenges. Before implementing the same, it is essential to understand them to get the desired outcome for your organization.

1. Data security and privacy concerns

Given the sensitive nature of financial documents, protecting customer data is paramount in document automation. Unlike physical records that can be tucked away in a locker, electronic records are vulnerable to cyber fraud, especially in the BFSI sector. Hence, you must ensure that your tool complies with regulatory requirements mandated by governing bodies such as CCPA, NAR, or FTC, amongst others.

2. Integration with legacy systems

Any software update at an enterprise level is daunting, with several stakeholders involved. Legacy technologies, such as mainframe-based platforms supporting core banking functions, are decades old. Due to their limited ability to interface with other systems, they deter an organization’s ability to deliver advanced products and services.

Moreover, integrating legacy systems with newer technologies requires significant time and resources. For instance, if the legacy system is highly customized and has a large amount of data, it can be a complex and time-consuming task to undertake migration.

Using adaptable and flexible automation solutions is advisable to avoid higher costs and longer project timelines. Take stock of factors such as technical debt, business objectives, and data security for a phased approach to modernization while avoiding drastic operational changes.

3. Cost of implementation and maintenance

The cost of implementing a document automation system differs based on the industry and size of your organization. It accounts for several aspects, such as software upgrades, maintenance, training, and support. While considering your options, factor in your company’s budget, goals, and desired ROI. 

Going for cloud-based solutions or SaaS vs. on-premise software is more cost-effective because they offer transparent pricing and simplified maintenance and support. Also, depending on your organization size, you can avail of different pricing tiers based on features and scalability.

4. Resistance to change

Automation in the workplace goes through challenges due to resistance from people. While implementing it, ensure that the tool is user-friendly and requires minimal training for your team. A flexible automation tool that doesn’t disrupt your processes has a higher chance of adoption.

Use-cases of document automation in financial services

Document automation has multiple use cases in the financial services sector.

1. Loan origination 

Borrowers go through a complex verification process while applying for loans. The process involves multiple documents such as business financial statements, identity proofs, income verification, credit score, and proof of address. Categorizing, processing, and extracting only the relevant information from all these documents is highly taxing for lenders.

Instead, banks and NBFCs can streamline the loan origination process by electronically capturing, processing, and managing all necessary documents via automation. They can eliminate data redundancy and derive better insights into customer credit scores, investment portfolios, and income statements.

2. Account opening 

Automation also helps financial institutions open new customer accounts faster and more accurately. A document automation tool automatically generates account opening forms and extracts and validates the relevant data, thus, saving time and reducing errors.

3. Mortgage processing 

Mortgage lenders process multiple identity and income verification documents. Intelligent document processing platforms simplify mortgage processing by capturing, validating, and managing all necessary documents. These solutions extract data correctly and validate extracted data against predefined rules to improve accuracy.

Lenders can also use data analytics on these platforms to detect mortgage fraud. Moreover, automated systems can get the processing done in minutes, leading to faster response times, streamlined application approvals, and happier customers.

4. Claims management 

Insurance companies can process claims more efficiently by electronically capturing, organizing, and managing all relevant documents. Intelligent document processing tools segregate queries into appropriate categories and route clients to suitable agents using rule-based workflows. They make conducting credit profile analysis and identifying exceptions faster and easier.

5. Audit and compliance management 

Financial institutions can streamline the audit and compliance management process by capturing, storing, and managing all relevant audit and compliance documents electronically. 

Document automation tool helps create templates for various audit and compliance documents, such as financial statements, tax forms, and regulatory reports. You can customize these templates to include relevant data specific to each client or account and easily update them to reflect changes in regulatory requirements.

The software can automatically populate data fields and perform calculations. As a result, you prevent compliance violations and reduce the risk of errors or omissions that could lead to regulatory penalties.

Best practices for implementing document automation in financial services

Implementing document automation entails careful planning and execution to ensure that the tool delivers the expected results. Here are some best practices to follow:

1. Conduct a workflow analysis

It is essential to identify workflows that will be subject to change post-automation. Examples include document creation, review, approval, storage, and retrieval. Map out the current processes, including the roles and responsibilities of individuals and teams, the volume and complexity of documents, and the number of vendors. You must also assess the current system's performance and identify existing bottlenecks.

2. Identify key areas

Based on your analysis, identify the pain points or areas where automation can be most effective. These may include manual or repetitive tasks, data entry errors, or delays in reviews and approvals. Based on this identification, define the requirements, such as document creation, version control, workflow automation, and more.

3. Evaluate the automation tool

While picking an automation tool, consider various factors such as your business's goals, industry, existing workflows, and systems. Take stock of the complexity of your documents and the customization required for them. For example, insurance, real estate, and lending enterprises handle high volumes of paperwork such as invoices, receipts, purchase orders, bank statements, and contracts. They can highly benefit from an ML-based document automation platform.

Also, consider the need for integration. Go for a tool with built-in APIs that integrate with your existing systems, such as ERPs and CRMs.

4. Encourage user adoption

It is necessary to demonstrate the benefits of the new software through practical and relatable training, such as test designs. Communicate your plan and let people take charge of the workflow design to encourage adoption. These steps can help you avoid significant operational disruption in the later stages.

You must also discuss the level of support you will receive from the vendor, such as training, documentation, and technical assistance.

5. Evaluate and update the system

Based on user feedback and the changing business environment, regularly evaluating and updating your system is paramount to ensure automation success. It also helps you understand whether or not the tool is helping you meet your organization’s needs.

Best practices involve regular assessments to ensure your tool’s accuracy and efficiency. Measure KPIs such as error rates, cost savings, approval time, and STP (straight through processing) rate.

Watch for integrations with the latest tools and technologies to enhance your automation system. 

Above all, always keep up with regulatory updates because they frequently change in the financial sector. Evaluations and updates ensure that your document automation tool complies with the latest laws and regulations. 

Emerging trends and technologies in document automation

With rapid technological innovations, financial organizations are redefining their services through artificial intelligence (AI) and machine learning (ML). These include automating their document processing system to increase cost-savings and positive cash flows and deriving more strategic value.

There is a dire need to streamline the high volume of transactions, complex documents, disparate systems, and regulatory compliances that are part and parcel of the game. A versatile document automation solution that factors in compliance measures, security concerns, integration, and user adoption can help you achieve that.

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Suggested Case Study
Automating Portfolio Management for Westland Real Estate Group
The portfolio includes 14,000 units across all divisions across Los Angeles County, Orange County, and Inland Empire.
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Pankaj Tripathi
Written by
Pankaj Tripathi

Helping enterprises capture data for analytics and decisioning

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