What does the digital disruption actually mean for risk managers?
RiskMinds International kicks off next week, so we spoke with Ebbe Negenman to about the buzz words on everyone's minds, digital disruption, and what is actually means for those in the risk management industry. Ebbe will be speaking at the event, on risk management in the digital world.
“Technology is nothing. What is important is that you have faith in people, that they are basically good and smart, and if you give them tools they'll do wonderful things with them.” is one of the many quotes attributed to Steve Jobs.
Although still not a consensus in the industry, we believe that the current evolution in finance will be disruptive, as improved alternatives oust legacy systems. It is true that banks have undergone various technology-enabled innovations already, like the introduction of the ATM in the ’60’s. But all of these innovations accelerated business of banks instead of disrupting them.
We believe that with the growing adoption of Fintech, the nature and the scope of banking, and therefore banking risks as traditionally understood, will significantly change over time, in the form of both the new technologies and the business models of banks.
New risk will arise primarily because clients will have different needs. At this stage, a lot of banks are just in the product business, e.g., selling mortgages. While actually the banking business is about Service (with a capital S). That is the service for the customers to achieve what is important to them. We are not in the product business. In other words people dream of owning a home, not a mortgage.
Technology is key in banking as it provides a new toolkit to help to deliver a superior customer service. Missing new developments is losing the game.
But also the technology introduces new risks as well. For example, our increased dependence on business modelling (e.g. Distributed ledger, Cloud Computing) requires that risk managers acquire different skills.
With all this, there are also positive effects on risk management: technological innovations will improve the risk function by enabling new risk-management techniques, e.g., Artificial Intelligence, Machine Learning and advanced data analytics. These will help the risk functions to make better risk decisions at lower cost.
We believe risk management is most fascinating and will not likely be fully robotized. Most important to the core of risk is the Risk Manager. Although the statement of Steve Jobs lacks some nuance, on the technology part it looks correct on the people aspect: it will be the risk managers that can and will do impactful things for the banks.