Digitalisation means far more than increasing the efficiency of business processes using digital tools. It primarily entails a cultural change that banks have to adapt to in a particular way. Customer expectations are increasing, while brand loyalty is declining. A decades-long relationship between a customer and their bank is a thing of the past. Banks have to actively shape digital change in order to remain attractive. But not every "hip" new customer experience that is technically feasible and desirable from a sales perspective actually satisfies the legal and security requirements. Modern risk management has to navigate the bank through this conflict. This role as a strategic controller in a complex and constantly changing environment is a huge upgrade for the risk management function, but also means it is faced with previously unknown challenges.
Never before has the market environment for banks been so dynamic, yet at the same time so confusing and complex. Technical possibilities have grown hugely as a result of digitalisation. Many customers now use their smartphone as their bank branch. From video authentication to photo transfer, from mobile credit checks to account balance apps, (almost) all banking transactions can now be carried out on the move. Along with the technical possibilities, expectations are also growing. Anywhere, any time, immediately, how I want it – these are the customer requirements that have to be met. In this situation banks no longer have a choice of whether or not to open themselves up to digitalisation. If they don’t, customers will quickly drift away as the next competitor is only a mouse click away.
Thus, the crucial factor is not "whether" but "how". The risk of incorporating digitalisation with insufficient consideration is at least as significant for banks as the challenge of not responding to the digital revolution at all, or missing the boat. If digitalisation is not correctly managed, the bank will quickly be faced with a strategic threat to its entire business model.
Thanks to these changes, risk management is gaining massively in significance, but has to get involved in the conflict between high customer expectations in terms of speed, mobility and usability on the one hand, and safeguarding against the resulting increased risks for customers and the bank on the other hand.
Read the complete article by Bernd Geilen (Member of the Board / Chief Risk Officer, ING-DiBa AG, Frankfurt am Main) and Daniel Vogler (Head of Market & Integrative Risk Management, ING-DiBa AG, Frankfurt am Main) in the FIRM Yearbook 2018.