PERSPECTIVES

UK Banks’ Perception of Risks Shifts in the Aftermath of Coronavirus

2021-04-22


A newly released benchmark on anxiety is a harbinger of where banking across Great Britain is headed.

Twenty-twenty was a year like no other for banking, and the 2021 Banana Skins Index reflects how the pandemic’s tumult has reordered the industry’s perception of risk. The survey found that it’s not the soundness of banking systems that worries respondents so much as their ability to handle the changes forced on the industry. While the findings mirror our clients’ experiences, we also see the seeds of change: Banks are emerging from the pandemic with the beginnings of a more confident, sophisticated outlook towards technology’s role in their operations and business models — and that’s key in an industry that Big Tech looks to disrupt.

The Banana Skins Index is published by the Centre for the Study of Financial Innovation (CSFI), a London-based think tank. This year’s rankings are based on a survey conducted in November and December 2020 of financial service professionals and observers such as analysts and consultants. We are a co-sponsor of this year’s edition.

Cybercrime tops the list

Topping the index, which serves as a barometer of risks, are cybercrime, the macroeconomic environment and technology. Crime’s emergence as the number-one risk underscores the growth of online fraud and the potential vulnerability of the still-evolving digital systems and procedures banks established during the global shutdown. Banks we work with are increasingly exploring ways to safeguard their systems and customers through the proactive detection of threats. For example, we recently partnered with a payments solutions company on an early-warning solution that blocks stolen card numbers in real time. We also hear a growing demand for AI and machine learning applications in cyber-defense strategies.

What’s interesting about technology’s rise to the number-three position — its highest ranking in Banana Skins’ 20-plus years of surveys — is the nuanced role technology plays in banking. Our clients view technology as a mixed blessing, as much a cure for the industry’s challenges as it is a threat. That is, technology is a force that allowed financial institutions (FIs) to survive and adapt, with much of banking’s continued operation during the pandemic attributable to the scaling of technology that would have been incomprehensible even a few years ago. As banks process their digital advances, the next step is to develop a greater understanding of how to use the technologies they’ve built to create customer experiences that are predictive and personalised. Take debt collection, for example. Even before the pandemic, banks and card companies were taking steps to proactively evaluate the use of technology to run collection operations in a more humane, managed way. In partnership with a credit card issuer, we applied predictive technology to better understand the behavior of customers who default and identify those most likely to repay debts.

That confident, more sophisticated outlook on technology represents a mindset change for banks that is a silver lining of the pandemic. This ”digital awakening,” as it’s been termed, is forcing many FIs to abandon overcautious approaches and embrace technology — or risk failure. One great example is cloud. After years of banks’ hesitation, we see increased demand for accelerating cloud adoption to lower costs, add agility and enhance customer experience. Discussions about cloud migration and advice on the cloud journey are weekly if not daily occurrences with clients, with many now willing to explore multi-cloud approaches that leverage a range of public, private and hybrid solutions.

All important advances, yet banking’s continued fear of Big Tech’s competitive threat is real — and valid. We need look no further than Goldman Sachs’ small-business lending alliance with Amazon and Walmart’s planned fintech startup to see the future. The challenge for banks going forward is to form new partnerships that enable them to thrive in banking’s changed ecosystem. In our conversations with clients, the acquisition of digital talent is top of mind for banking executives. Demand from all quarters — fintechs, Big Tech and FIs, not to mention other industries — has intensified banking’s digital skills shortage, and filling those jobs has become a priority.

More change ahead

It’s worth pointing out that behind the industry’s perceptions of risk is a year in which, much to everyone’s surprise, banks and financial institutions have dealt relatively well with everything the pandemic has thrown at them. FIs adapted to the remote work model, streamlined the loan application process and implemented straight-through digital processing. Banking customers have signaled they’re receptive to talking with chatbots rather than contact center agents. The robustness of cloud security and the easy migration of data have been put to the test, and worked.

The good news is banks have so far managed the crisis. The challenge is they need to live with the results. The shifts that the pandemic introduced aren’t going away, and they’ll require systemic change in the way banks think and act.

This article was written by Andrew Warren, Cognizant’s Head of Banking & Financial Services and a member of the Executive team at Cognizant UK & Ireland.

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