Managing Risk in a digital world: successfully enabling the quest for new revenue
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For the 4th consecutive year Accenture was a co-sponsor at the 21st Annual RiskMinds International conference in December 2014. Steve Culp, senior managing director, Accenture Finance& Risk Services, presented to more than 500 Chief Risk Officers in the plenary session on Managing Risk in a digital world: successfully enabling the quest for new revenue.
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Managing Risk in a digital world: successfully enabling the quest for new revenue
- 1. MANAGING RISK IN A DIGITAL WORLD Successfully enabling the quest for new revenues
- 2. FINANCE & RISK EXECUTIVES IN BANKS ARE INCREASINGLY COMING TOGETHER TO HELP ADDRESS MANY CHALLENGES How do we make our BUSINESS AND OPERATING MODELS AGILE, FLEXIBLE and suited for LONG TERM PROFITABLE GROWTH? How do we reduce the DUPLICATION & COMPLEXITY in our business operations? How do we manage the sudden increase in VOLUME & INTENT OF REGULATIONS in a cost-effective manner? How do we make our FINANCE & RISK FUNCTIONS more efficient & effective to drive better BUSINESS INSIGHTS? KEY QUESTIONS FACING EXECUTIVES 2Copyright © 2014 Accenture All rights reserved.
- 3. 3 WHILE BUDGETS ARE BEING RAPIDLY CONSUMED ON REGULATORY, INFRASTRUCUTRE AND TACTICAL ISSUES 2014 Compliance Risk Study: Respondents expect spend to grow by 10 to 20 percent or more over the next two years. Copyright © 2014 Accenture All rights reserved. FUNDING TODAY’S PRIORITIES 1 BUILDING FOR THE FUTURE SOLVING FOR THE PAST
- 4. 4 WHILE THE DIGITAL REVOLUTION IS RADICALLY RE-SHAPING EVERY ASPECT OF THE BANKING INDUSTRY Digital banking transactions are now worth c. £1bn a day, with c. 40 million mobile and internet banking transactions every week (Source: BBA) Copyright © 2014 Accenture All rights reserved. VALUE AGGREGATOR ADVICE PROVIDER ACCESS FACILITATOR Source: Accenture, The Everyday Bank, 2013
- 5. DIGITAL REVOLUTION DRIVERS: CHANGE WILL BE DRIVEN BY EMERGING CUSTOMER BEHAVIOURS While also answering to Regulators and Shareholders Regulatory Compliance New digital competition Deteriorating industry boundaries Pressure on profitability DIGITAL INTENSIFIES CUSTOMER POWER DIGITAL CREATES NEW COMPETITORS Copyright © 2014 Accenture All rights reserved. 5 Technology innovation
- 6. 6 NEW ENTRANTS AND BUSINESS MODELS ARE EMERGING ACROSS THE INDUSTRY AS DISRUPTORS LARGE DIGITAL PLAYERS & FINTECH STARTUPS FS P2P lending Virtual & direct banking Self service banks & kiosks Mobile insurance Mobile banking Mobile points-of-sale Mobile payments & e-wallets Real-time dynamic pricing Data-driven credit-rating Personal financial management tools P2P payments Copyright © 2014 Accenture All rights reserved. NEW ENTRANTS & MODELS
- 7. 7 WHILE FINTECH COMPANIES ARE CONTINUING TO EMERGE BRINGING NEW INNOVATIONS AT PACE, WORKING WITH ESTABLISHED MARKET LEADERS UBS Bank of America Merrill Lynch Credit Suisse Santander HSBC RBS Barclays Lloyds Bank VocaLink JPMorgan Chase Deutsche Bank Morgan Stanley Citibank Goldman Sachs Nationwide PixelPin Logical Glue uTrade Solutions FinGenius PhotoPay Waratek BehavioSec Digital Shadows Open Bank Project Erudine Squirro Kiboo Growth Intelligence OP3Nvoice Copyright © 2014 Accenture All rights reserved.
- 8. 8 OLD APPROACHES WILL NOT DELIVER NEW RESULTS AND THE TIMING FOR ACTION IS NOW Time MarketPenetration Traditional strategy Digital Enabling Strategy “A new form of market creation is emerging, radically impacting timelines” Accenture Institute of High Performance (Nov, 2013) Copyright © 2014 Accenture All rights reserved. Today 8 Copyright © 2014 Accenture All rights reserved. WINDOW FOR DECISION
- 9. 1 GOVERNANCE Risk Appetite Financial Management 9Copyright © 2014 Accenture All rights reserved. Conduct & Regulation • Leveraging alternative data sources into credit scoring e.g. using social media and customer ‘behaviour’ data • The ‘speed’ vs ‘control’ trade off during the transition periods to a pure digital back-office will need to be assessed • Portfolio monitoring rather than ‘name by name’ and an associated new ‘expected loss’ limit may need to be agreed • Provision of “advice” to a customer in a digital world will need to be offered and evidenced differently given the lack of person contact • Product development for a Digital channel needs to be fully scenario tested as flaws will be spotted early by customers • Demonstrating Treating Customers Fairly (TCF) will be even more acute given the lack of physical evidence. • Relationship to Pricing and Capital/Liquidity Management • Alignment of Finance & Risk data/systems to support accelerated decisioning • Digital money
- 10. IT Resilience & Business Continuity Talent & CultureCredit Risk Decisions Operational Risk (incl. 3rd Parties) 2 PROCESS 10Copyright © 2014 Accenture All rights reserved. • Increased speed to decision will be important in order to capture / retain highest credit quality customers • Hand-offs to third parties (e.g. under- writers) can’t be the manual ‘weak link’ in the chain • Better devices and better connectivity will improve user experience, but be an entry point for business risks. IT supply chain has specific assurance challenges • Cloud computing will transform the way businesses rely on IT. This will increase information stewardship control testing • As customers demand ‘contextual’ services or links and bundled products, the management of 3rd party suppliers to the same standard as the bank’s internal targets is equally important • Linkage from Mobile apps at the front end to core accounting platforms & payments systems • Digital support may challenge the traditional positioning of the three lines of defence. Real time operation will require risk and finance professionals to be more closely aligned • Senior Managers Regime accountability heightened
- 11. Cyber Security & Financial Crime Digital Data Sourcing Analytics & Insight Data Privacy 3 DATA & TECHNOLOGY 11Copyright © 2014 Accenture All rights reserved. • Using more data from disparate sources will require enhanced control, ‘big data’ management strategies, and ‘data conflict’ testing in order to build a more comprehensive view of the customer • Digital data monitoring can trigger early warning (customers searching for credit card deals, unsecured loans, payday lending) • Customers will have to become more savvy in terms of sharing data to avoid the burden falling on the Bank • Banks may need to ‘entice’ or compensate customers for using their data • Digital channels may attract customers who posses a higher tendency to ‘stress the boundaries of the truth’ due to the anonymity that the channel affords • Data and information (both customer/client and the banks) have a currency, but the reputation cost of breaches often eclipses the value of the underlying data • Capturing additional data sources and data points both from internal ‘silos’ and external ‘new media’ will build a more representative profile of the customer and validate historic assumptions
- 12. 12 Learn more about Accenture Finance and Risk www.accenture.com/financeandrisk Copyright © 2014 Accenture All rights reserved.
Notes de l'éditeur
- A number of fundamental questions are forcing Banks to re-evaluate their strategies in order to stay competitive and relevant in the market place
- Customers no longer expect banks to be a simple transaction provider, but to also play the role of… VALUE AGGREGATOR Assembly components (financial and non financial, own and third parties) to create an integrated solution for "real world" customer needs ADVICE PROVIDER Provide specific buying suggestions, based on deep customer knowledge and purchasing algorithms ACCESS FACILITATOR Support the customer in "everyday/everywhere" buying processes (shopping, access to daily services) Going forward, banks need to expand their capabilities to meet new customer expectations to increase and retain the customer base.
- Digital is empowering society to make informed decisions in a more timely manner. Advancements in technology are enabling customers to examine the views of Bill Gates who said “banking is necessary, banks are not?”. As such, Banks across the globe are responding by placing Digital at the heart of their strategies . Digital technology is transforming the way customers choose to interact with their bank, they are demanding tailored services in a more convenient way Customers will be attracted by the ability to interact in a simple and seamless manner across online, mobile, branches and call centres – and addressing this challenge can also bring efficiencies to an organisation Digital banking transactions are now worth c. £1bn a day, with c. 40 million mobile and internet banking transactions every week* Financial Service institutions are recognising that fundamental changes to their Operating Models are required in recognition of the changed emphasis digital channels require, and the opportunity to ‘re-think’ how services are provided and supported The impact of digitalisation on Finance and Risk management will be far reaching, and will also require working with less familiar parts of the organisation
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- Risk Appetite Alternative data sources e.g. using social media and customer ‘behaviour’ data will provide the ability to develop more tailored customer credit scoring Traditional customer segmentation boundaries and clusters will be challenged to reflect potential skews from new volumes of different customer types Portfolio monitoring rather than ‘name by name’ and an associated new ‘expected loss’ limit may need to be agreed in advance The ‘speed’ Vs ‘control’ trade off during the transition periods to a pure digital back-office will need to be assessed Conduct & Regulation Provision of “advice” to a customer in a digital world will need to be offered and evidenced differently given the lack of person contact Product development for a Digital channel needs to be fully scenario tested as flaws will be spotted early by customers Demonstrating Treating Customers Fairly (TCF) will be even more acute given the lack of physical evidence Customer treatment equality across digital and non digital channels needs to be maintained Moving from a simply reactive regulatory approach (acting only when new regulation is released) to a proactive approach should help in shaping the regulators thinking Financial Management Finance will need to be able to understand and predict the impacts of bank decisions on Capital, Liquidity, Leverage, Profitability etc. in near real time – in order to apply the brake or change direction New approaches to funding and product development will require increased knowledge of extraction tools for mining business intelligence, data modelling and analysis Trend analysis, benefits tracking and cost triggers will change the way Finance manage costs within banks Planning cycles are likely to be shorter and more in-depth
- Credit Risk Decisions The shift from physical to electronic distribution, including customer self service will require the replacement of manual processes and ‘in-trays’ Decisioning should draw on a boarder set of data sources in order to build a ‘digital enabled’ view of the customer. This data can also be leveraged to accelerate checking / verification steps Hand-offs to third parties (e.g. under-writers) can not be allowed to slow down the process and as a result the digital supply chain will require reengineering Increased speed to decision will be important in order to capture / retain highest credit quality customers Operational Risk (incl. 3rd Parties) A decision will need to be made as to which processes/products are truly Digital end-to-end. For some the bank may want to keep the ability to enable ‘human overwrites’ or adjustments As customers demand ‘contextual’ services or links and bundled products, the management of 3rd party suppliers to the same standard as the bank’s internal targets will be equally important As the concept of money/currency evolves policies with respect to payments will also need redesign Where employees have access to market sensitive information additional consideration will be required IT Resilience & Business Continuity Better devices and better connectivity will improve user experience, but be an entry point for business risks. The IT supply chain is likely to face specific assurance challenges Cloud computing will transform the way businesses rely on/use IT. This will increase information stewardship and control testing The key is to provide a 24 hour on demand real time service and ensure the infrastructure (and continuity options) are invested in and tested Even minor failures (ATM in a remote town down for 30mins) can gain notoriety via social media channels Talent & Culture Digital support may challenge the traditional positioning of the three lines of defence. Real time operation will require risk and finance professionals to be closer aligned with intra-day monitoring of the service As digital tools become more pervasive within F&R functions, mundane and repeatable tasks are likely to be performed by technology (Robotic processing, Artificial Intelligence), as such F&R professionals will need to up skill F&R professionals will need to make faster decisions , waiting for month end or x-week planning cycles will need to be replaced
- Analytics & Insight ‘Big data’ has the potential to commoditise some traditional aspects of F&R work, but at the same time enable F&R professionals to move more into the front office to support strategic business decisions New metrics will be required in the form of early warning alerts both to risks and business opportunities Predictive, scenario –based, risk-weighted and trending analytics will all grow in use. F&R professionals will need to help define ‘cause and effect’ relationships for such models We are likely to see an increase in forward looking information within published accounts making it imperative for F&R professionals to gain insights sooner Financial Crime Mobile is the fastest growing channel for banks, it is also the fastest growing area for Financial crime Digital channels may attract customers who posses a higher tendency to ‘stress the boundaries of the truth’ due to the anonymity that the channel affords KYC and AML solutions will need to be amended in a Digital world as the frequency of face-to-face contact becomes less likely The more digital entry points the increased risk from malware or embedded ‘Trojans’ within source code Data Privacy Uptake of the digital channels will depend on greater certainty and comfort that data privacy is being maintained via new ways of encrypting, acquiring and securing customer data Transmission of data generally will have to be proven to be more secure Banks may need to ‘entice’ or compensate customers (via enhanced quality of service) for using their data Terms and conditions will have to be simplified in order for banks to make sure they are not later faced with customer complaints Digital Data Sourcing Capturing additional data sources and data points both from internal ‘silos’ and external ‘new media’ will build a more representative profile of the customer and validate historic assumptions Customers are starting to expect better contextual service, given their experience with other companies, and therefore more data usage while complying with Data Protection Act should become the norm A clear understanding of useful data will be vital to filter out “noise” and save costs as data multiplies Cyber Security A holistic plan spanning, procedural, physical and technical security will need to be developed and updated on a more frequent basis Personal financial data is considered the most sensitive data to customers, it’s protection will be a key consideration for customers choosing where to bank As ‘bring your own IT’ to work becomes more pervasive, security from within will also need to increase Beyond 2025 research indicates that biotech-engineered bacteria may also be able to contain electronic circuits