managing risk in a digital world: successfully enabling the quest for new revenue
TRANSCRIPT
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
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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.
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FUNDING TODAY’S
PRIORITIES 1
BUILDING FOR
THE FUTURE
SOLVING FOR
THE PAST
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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)
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VALUE AGGREGATOR
ADVICE PROVIDER
ACCESS FACILITATOR
Source: Accenture, The Everyday Bank, 2013
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
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Technology
innovation
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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
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NEW ENTRANTS & MODELS
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
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OLD APPROACHES WILL NOT DELIVER NEW RESULTS AND THE TIMING FOR ACTION IS NOW
Time
Mark
et P
enet
rati
on
Traditional strategy
Digital Enabling Strategy
“A new form of market creation is emerging, radically impacting timelines”
Accenture Institute of High Performance (Nov, 2013)
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Today
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WINDOW FOR DECISION
1 GOVERNANCE
Risk Appetite Financial Management
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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
IT Resilience & Business Continuity
Talent & CultureCredit Risk Decisions
Operational Risk (incl. 3rd Parties)
2 PROCESS
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• 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
Cyber Security & Financial Crime
Digital Data Sourcing
Analytics & Insight Data Privacy
3 DATA & TECHNOLOGY
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• 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
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