Global markets have always been associated with some amount of fluctuation and volatility. But the scale at which the pandemic has upended international trade and financial systems far exceeds anything that has ever been considered safe or normal. Not only have global shares taken a huge hit, but global supply chains have also stalled industrial growth across domains and verticals. The economy has slowed down, and oil prices have, in the past few days, taken a historic dive into negative territory.
In fact, the kind of disruption that technologists like me have been predicting is already here. Overnight, the banking sector has shifted multiple operations online. Companies across industries are enabling WFH (work from home) and every enterprise across domains is thinking of how to reinvent itself to enable business continuity, while delivering agility and speed.
In such an unprecedented scenario, how can the financial services sector buck the trend and navigate the new abnormal? In my view, they can do this in a couple of ways. Let us take a closer look at five trends I foresee shaping this sector in the coming few years.
Compliance gets ‘the smarts’
First up is the move I see compliance teams making towards delivering regulatory compliance in smarter, more tech-enabled ways. Consider, for example, the processes around customer onboarding. In the current context of blips in transactions, a financial institution’s ability to deploy RegTech to enable Know Your Customer (KYC) functionalities from a work-from-home model has become critical.
The question that banks and other financial institutions face is how they are to scale while being on the right side of regulatory compliance? The answer, I believe, lies in working along with what is regulatorily allowed along with what is not allowed. It would include finding, tweaking, and deploying advanced RegTech solutions empowered with next-gen functionalities that can ensure data security and privacy while conducting critical functions such as KYC for the first time in its history remotely.
Speed outperforms size
The second trend I foresee dominating the financial sector space is the emergence of players who will prioritize speed over size. Consider, for example, the case of an American community bank. It deployed a big data-enabled, smart Paycheck Protection Program (PPP) solution to offer small businesses fast relief funds. By choosing a smart PPP solution, the bank was able to leverage next-gen software and algorithms to provide a seamless online process to its customers. Parallelly, the insights that the solution provided to the bank about its prospective borrower’s operational and financial data helped it expedite the process of underwriting the loans, a crucial function in times of crises while minimizing risks.
Agile becomes the new normal
This brings me to the third trend, namely, agility. Consider, for example, the US government’s announcements regarding funding for SMEs. A federal rollout that announced a USD 349 billion rescue fund had posed banks with a twin challenge: how to take on something they’ve never done before and do it within the expected timeframe of a few months.
Two of the country’s largest banks were able to meet this requirement by finding the people, technologies, and operations that could come together seamlessly by leveraging an agile method of collaborative software development involving squads and tribes.
RegTech gets personal
The fourth trend I see in the financial services space is a shift toward increasing specialization among RegTech companies. As agility and speed grow more valuable in the post-pandemic world, RegTech companies will zero in on specific aspects of legal and regulations, according to their experience and in-house capabilities. So, while some will specialize in matters relating to compliance, others will look at surveillance or monitoring; still others may acquire domain expertise in legal, while some will specialize in risks.
The important development will be that enterprises will no longer attempt to fulfill all the RegTech requirements. Instead, whether a company in the space decides to focus on transaction monitoring, legal remediation, supervision or surveillance, it will specialize in one of these areas and ensure that what it delivers to its customers is in line with the prevalent requirements of regulatory data.
Players with industry context who are closer to customers will have an advantage as they will be able to stitch together some of the best customer-facing solutions. This is because it will become even more important for financial services companies to define their approach and RegTech solutions according to their customers’ journeys or pain points, not the other way around.
Innovation becomes an everyday requirement
This brings me to the fifth and last trend, namely innovation. As more businesses across verticals embrace virtualization of work, it will become incumbent on financial services companies to provide new, iterative, and secure solutions that innovatively recreate the Offshore Development Center concept by providing offshore development security in the house. This would enable specific micro-verticals to continue to operate remotely by securing personal data via technological enablement or monitoring.
Consider, for example, the existing regulations around customer onboarding. How are banks and other financial services institutions to roll out these functions remotely? Historically, a large part of background verification has been physical where a bank representative would verify the educational background, criminal record, history of drug use, and so on, in person on location. In the new abnormal, financial services companies will be compelled to come out with innovative solutions that take each of these requirements apart and digitize them.
Firms in the space will have to assess and decide which of these onboarding requirements can go fully remote, and how they can build smart solutions around these functionalities, which can then be used to onboard vendors, employees, and customers remotely.
As the pandemic continues to disrupt business and life, I think it will be prudent to view technology as a powerful string that can pull everything together. How long it will take for the world to transit to a post-pandemic scenario is anyone’s guess. But the financial services sector must prepare itself to stay ahead of the curve by applying the next in advanced tech.
This article was originally published on www.wsta.org and has been authored by Ravi Vasantraj, Senior Vice President and Global Head, Business Process Services, Mphasis. The Wall Street Technology Association (WSTA®) provides financial industry technology professionals, vendors, service providers, and consultants with forums to learn from and connect with each other. The WSTA is a not-for-profit association with a long history of evolving to meet the needs of its members.
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