Traditional banks are finding their profit margins increasingly squeezed. Fintech start-ups with new business models are luring consumers with new products that undercut the longstanding players. There is growing pressure and expectation from consumers, magnified by social media, that puts products and companies in the spotlight if they are not considered to be performing well, or are selling something too expensively. And there is a higher cost of doing business in the current climate, with the increased reporting and levels of control all adding up.
This all puts banks in a dangerous position claimed Jacques Beyssade, Group Secretary General, BPCE, speaking at RiskMinds International 2019. They need to innovate to survive, and not just rearrange but reinvent, he said.
Enablers not blockers
For the risk function this presents opportunities as well as challenges, said Brad Carr, Senior Director of Digital Finance, IIF. And it is important that risk professionals are seen as enablers not blockers.
This means starting with the people – the customers – not the numbers argued Julia Dunn, Chief Risk Officer at Nationwide. Once you have the customer part of the business right, the profits will follow, she said.
She gave the example of the risk team’s involvement in the bank’s approach to Thomas Cook’s administration earlier in the year. Knowing that the collapse of the travel company was likely to leave many people stranded and unsure of where they stood with regards to travel money and insurance, Nationwide used its data scientists to work out which of its customers were likely to be affected. Once the news broke, they were sent a text message reassuring them that their credit cards would work, and their travel insurance would cover them. As well as generating goodwill among its customer base, in the immediate weeks following Nationwide also saw an uptick in the number of people applying for current accounts as a direct result of referrals from customers affected by the fall-out.
Risk by design
Picking up this theme, Jeremy Arnold, Chief Risk Officer, NatWest Markets, pointed out that we are all consumers. It is important that risk professionals put themselves in the shoes of the customers, test out products, and use that knowledge to inform their work.
Moreover, risk teams should be involved in new products and innovation from the very start. It is no good having risk and compliance at the end of the development journey added Mark Smith, Group Chief Risk Officer, Standard Chartered. He points out, while it’s important not to lose sight of the oversight and control function that risk professionals have, you don’t exercise control by just saying ‘yes’ and ‘no’.
‘Risk by design’ should be the new mantra for businesses as they innovate. It is important to put the best risk people on new products from the start, so that risk is a consideration from the offset, and subsequent updates and improvements are easier as a result.
Education will be a key part of a more customer-centric approach, Arnold added. Risk appetite statements used to be something created by risk professionals and seen by the board but not disseminated throughout the firm. But things have changed – risk professionals need to spread the message. Customers need to understand more about risk, as do in many cases boards. The sign of a good risk function, he said, is not having to say ‘no’ very often because the business is already up to speed.
The power of partnerships
As banks innovate, they are increasingly partnering with other providers and third parties. In this way, businesses can achieve more together than they ever could alone. But this brings with it an additional layer of risk. The best partnerships are both complementary and compatible, and both parties will learn from each other.
The panel concluded that there was a lot banks could learn from the hospitality and retail industries about creating a business model that put customers front and centre. If customers walked into their bank branch and felt the same way as they did when they walked into a hotel, they would have cracked it.
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