In the aftermath of the recent financial crisis and accounting malpractices by institutions such as Enron and Lehman Brothers, governments and central banks are tightening their regulatory grip on companies, especially financial institutions and banks. There is an increasing list of regulatory compliance procedures like the 2010 Dodd-Frank Act and Sarbanes and Oxley Act in the US and Basel-II in Europe etc. that financial institutions need to follow, ranging from ‘know your customer’ regulations, accounting regulations, reporting compliance and even environmental regulations.
But what is the impact of these regulations on the financial institutions? The regulatory grip, combined with more stringent capital adequacy requirements and increased risk of fraud and identity theft, especially for online transactions, have eroded discretionary budgets at financial institutions. This throttles innovation and aggressiveness in market expansion – critical aspects that can’t be overlooked in today’s hypercompetitive environment. So what can financial institutions do to overcome these regulatory roadblocks?
I think the solution lies in technology. It is technology that can help in overcoming these hurdles through an integrated reporting and compliance solution. There are several obvious advantages of following this approach to compliance issues. IT enables variabilization of costs associated with compliance in a pay-as-you-use model. Tier 2 banks, for instance can enjoy most or even more of the cost advantage in loan origination and processing that Tier 1 banks enjoy due to their scale of operations, by using IT to cut down costs. A turnkey IT solution can help banks expand into new geographies on the backbone of flexible systems that can quickly adapt and deploy according to new regulatory practices and local laws. This leaves the bank to focus energies on other business critical functions like marketing, alliances, sales and business development.
In addition to navigating the complex regulatory landscape, bank customers are increasingly becoming more aware of their rights and more demanding of a seamless and hassle free customer experience. For instance, a customer can originate a request online and follow it up through several touch points like the call centre, mobile app and even walking into the nearest branch to complete the transaction. A seamless IT backbone that can provide a single view of the customer and his/her interaction history across the touch-points is increasingly becoming hygiene for an acceptable customer experience.
Apart from tying together the customer facing touch-points, technology can also enable the backend processes to be much more efficient, especially with mobile and handheld devices becoming commonplace. Even plain vanilla offerings like processing insurance claims and offering wealth management options have the potential to give a differentiating customer experience through mobile platforms that can be used by the bank workforce.
Finally, another indirect advantage of having a seamless and flexible IT backbone is the amount of data that can be collected from the customers. Run through advanced analytics, this data has the potential not only to give a single view of the customer to the bank, but also to provide information to predict frauds and cases of identity theft. This can have a direct impact on the bottom line. Studies have revealed that effective fraud detection can reduce fraudulent claims by 40% - 60%.
I strongly feel that banks and financial institutions can benefit from an integrated and flexible approach to technology. Do you think technology can open new doors of growth for financial institutions? Please share your thoughts in the comments section below.