The world has become more digital and customers now demand instantaneous interactions with their banks. This has directly facilitated the rise of Fintechs, whose digital foundations ensure the delivery of superior customer experiences. However, many traditional banks have been slow to accommodate this change. Inmost financial institutions, complex risk-averse processes pose a challenge in providing a frictionless customer experience. Further, the risk environment is constantly evolving, making it difficult for the institutes to keep pace.
According to Ballard Spah “Bank secrecy act (BSA) and anti-money laundering (AML) compliance risk management systems may not keep pace with evolving risks, constraints on resources, changes in business models, and an increasingly complex risk environment.”
The need of the hour is to find a balance in this dynamic risk climate between speed and exposure, essentially, to have some risk agility.
Why Do Banks Urgently Need Risk Agility?
- Evolving Customer Expectations
According to McKinsey researchers, “The current tech-savvy younger generation will be the major revenue contributor to banks by 2025 because banks make most of their money with customers over 40.”
The new generation of customers expect real-time interactions with their banks. Further, senior customers are expected to increase their use of technology. To deliver on these expectations and to stay ahead in the digital race, financial institutions need to redesign customer experience to accommodate agility.
- Dynamic Regulations
Post global slowdown, the emphasis on loan regulations has strengthened considerably.There isa need for banks to continually demonstrate urgency in complying with these constantly changing norms.
- The Burden of Legacy
Banks are now realizing that their traditional systems are rigid, expensive and resist innovation. Therefore, they are now shifting to new-age technologies.From cloud adoption to application programming interface architectures, these technologies are so customizable that they can be modified at a high speed.
The Four Strategic Imperatives for Achieving Risk Agility
A technology platform that helps manage risks with agility is essential for banks. Risks that were previously given a “wait and watch” treatment, such as cyber risk, conduct risk, business model risk,are now given serious consideration. Financial institutions have now realized that good risk management can’t be based on strict methodologies and processes alone. On the contrary, risk departments should be agile. Earlier, they were mainly concentrated on historical data analysis. Now, the need of the hour is to predict what’s coming in future i.e. use of various stress-based scenarios – using artificial intelligence and machine learning.
It is critical for managing the requisite changes for new regulations in time, and this needs to be done in line with other business demands. To achieve this, it’s imperative to build agile processes. This becomes even more important since it’s difficult to foresee and establish a regulatory direction with consistency. Banks need to look for ways to better equip themselves on monitoring and risk assessment.
1) Adaptability for Automated Operations
Banks need technology that can seamlessly integrate with core systems and third-party applications. It should allow for comprehensive integration with external systems and timely modifications and real-time updates in the system. Moreover, it should engender a digital workflow environment that automates the lending processes from end-to-end.
2) Configurability for Quick Changes
The technology should allow for quick changes to the lending process through quick adaptation to changes in regulations (in the form of business rules and workflows). This will allow banks to stay future-ready by adapting to market and customer dynamics in time. A robust process orchestration engine with a fast model-to-deploy cycle can ensure real-time change management. This needs to be done with all ingredients falling in place through a unified platform, coupled with configurability.
3) Transparency for a Holistic View
The technology should offer a customizable reporting module to present a bird’s eye view of the loan status, mandatory document/process check-list displayed at the time of initiation to reduce rejections. It should automatically route cases to concerned officials based on applied/approved loan limit, inbuilt loan calculators and scorecards.
4) Decisioning for Instant Review
The technology should ensure that all the pre- and post-disbursement loan documents are tracked and reviewed automatically in accordance with credit policy and compliance. It should offer centralization of credit risk operations for leaner branches, inbuilt loan calculators /score engines for automated credit risk assessment, and instant summary template for review and approvals.
In a nutshell, banks should invest in a platform that delivers risk agility while ensuring easy and rapid process customization along with uniformity in the appraisal, risk mitigation, and compliance.
(The author Senior Vice President Sales & Marketing-Products at Newgen Software)