By Marc Murphy, Fenergo CEO
So far, 2020 is already shaping up to be one of the toughest years for the financial services sector since the 2008 financial crisis. The Coronavirus is a perfect example of how challenges can expose vulnerabilities in the global banking system. While certainly not at the same crisis level as a global pandemic, banks need to be aware of critical market challenges, which include:
Threat of BigTech
Big tech’s grip on the customer experience will be one of the biggest threats to banks this year. When you buy a snow shovel or a book on Amazon, the customer journey is the same. Banks traditionally apply a product-centric approach to the customer journey, and this is now out of date. To deliver on the customer’s expectation of a true digital experience, banks will need to shift to the Amazon model, or they will be left behind.
That said, most of the big tech firms are set to partner with existing financial institutions which will provide their regulatory know-how and payment and account backbone in banking. This will allow the likes of Google or Apple to focus on the customer experience and technology side of things. In my eyes it is these partnerships which will determine big tech’s success or failure. You cannot underestimate the cross jurisdictional regulatory obligations so my advice would be to not tackle it alone and ensure they deploy a regulatory rules engine to ensure compliance by design.
Emergence of challenger banks and regulation
The sheer number of new and evolving regulations that are coming down the road is simply staggering and cannot be underestimated. Each regulation needs thorough examination to analyse and determine its impact to the bank, its clients, their processes, and technology. My message to digital challenger banks emerging is to take regulation and compliance seriously and focus on integrating with a sophisticated compliance rules engine. This will take client information and validate it against relevant regulatory-specific questions that must be answered to gain compliance with the identified regulations. Too often, the regulatory burden is a secondary thought and that leads to problems in the future. We’ve seen this happen too often with big banks. Every customer and account journey requires compliance by design.
Digitalisation of banks
Customers expect a quick, easy and seamless digital journey so what we are seeing in the industry is a shift from very manual, product centric workflow processes towards a true digital client experience. The industry is moving to automated humanless workflows with straight through processing front and centre. The only time a human should interact with a customer journey is by exception only. For regulatory purposes you have that workflow lineage to show the audit trail that it executed within policy, this is where the world is moving. A customer-centric technology ecosystem can deliver that true digital client experience where every participant in the workflow has a 360-degree view of the data, documents and what’s actually needed to execute that process while always delivering compliance by design.
We are in an era of constant regulatory change. The US and Europe may ease the rules on the bank, but the bottom line is regulation will never go away. There will always be a need to comply fully with many global regulations. The work is in researching the commonalities between each of the regulations and aligning on a policy that works for the financial institution. While there maybe talk of an ease in rules in some jurisdictions, I don’t believe regulatory obligations will slow down any time soon.
When a crisis hits the global banking system, it exposes major cracks in the system, so banks need to ensure that they are well-prepared to meet market challenges. It’s critical that banks have an understanding of the marketplace so that they can be well-positioned to take on anything that mother nature throws their way.