Modern problems require modern solutions – this little mantra explains how we develop technology and why we need technology. We are living in a rapidly advancing era. The changes that used to take centuries are now occurring in decades. It is hard to believe that most of us were not regular internet users when the 90s began, and now, just three decades later, we are at the point where our businesses cannot function without the internet and they must know their risk appetite. This new frontier has brought new problems, that will require better and more efficient solutions. Risk management is one such domain, where technology has outpaced the current tools.
The Changing Speed of Banking
The reason that we need to increase the speed and efficiency of risk management is very simple – the speed of banking itself has increased exponentially over the past few decades. Actions that used to take days to complete are now being carried out instantaneously. Think about how hard it was to open an account before banks started using computers. You had to submit documents, fill out forms, the information would then be verified, faxed over to the headquarters, and much more. The process could take multiple days. Now? You can walk into a bank and come out an account-holder, because all the work is done instantaneously via computers.
As awesome as this increase in speed is, there is one important part which is often overlooked – less time to complete a process means less time for introspection and monitoring. Think about it – back when it took days to open a bank account, the bank’s risk department had days to ensure that everything was satisfactory. Now that the process takes minutes, the risk department has minutes to ensure that everything being submitted fulfills all required criteria.
Born Digital Competition
Another major reason that the speed of banking is increasing exponentially is that there now exists competition from new entrants in the market. Banks did not have to focus on speed because the slowdowns were mostly related to fulfilling regulatory requirements. Banks had to perform some checks, required by the law to combat money laundering and other banking frauds, which took time. Since all banks had to comply with the regulations, all of them were playing with the same handicap, and customers were used to the slow pace.
The rise of born digital competitors has completely changed the rules of the game. Tech giants are now entering the financial domain, but they are not becoming banks. Services like Apple Pay and Google Pay are handling billions of dollars in transactions. However, since they do not provide banking services, they are often exempt from many banking regulations, which allows them to be instantaneous. Customers love Venmo because it offers speed and convenience which no bank app can match.
This means that banks will have to match the speed and convenience if they want to make sure that those transactions still happen through the banking network, and not through an alternate payments network controlled by giant tech companies, which have more resources than most banks and also have much more experience in delivering excellent experiences to customers using technology. Google and Apple have user tracking data for hundreds and millions of customers – they can analyze the data and perform A/B testing at a level that is impossible for banks to compete with.
That is why it will be necessary for banks that want to retain their customers to ensure they are using all the technology available to them.
How Banks Can Win
While the situation may seem dire, there is one important aspect that should not be forgotten: this is a banking domain and banks have much more experience delivering banking services compared to the tech giants. The biggest difference is in customer relationships; the tech giants are faceless corporations which customers often have trouble connecting with, while banks make an effort to create a personal connection with customers. This advantage can prove to be very beneficial because customers are more comfortable handing over their savings to an organization that they trust.
Banks will need to upgrade their arsenal to be competitive with born digital competitors. As the tech giants try to figure out how they can bring their tech and use it to encroach on the banking domain, banks should be focusing on how they can use specialized tech solutions to compete with the tech giants. There is enough time to prepare for the fight right now – it will take years for the tech giants to be able to offer more banking solutions.
As they say, the best time to prepare was yesterday, and the second-best time to prepare is right now. Banks should look at their risk management frameworks and detect the bottlenecks which are making it hard for them to compete with born digital competitors.
