Banks, although they look like the place for money, seldom use their own money for business. Bank’s majority of the business runs as intermediaries or brokerage. Given that is personal loans, mortgages, or investments, and or fixed deposits. Banks rotate money between investors and borrowers and charge small fees for the maintenance. Banks must follow the investor guidelines as well as having to define their own set of rules.
Although the current business models are working and the banks are making profit out of it, the ever-increasing technology and fintech’s pose greater challenges to banks. Fintech using latest technology in origination to servicing, utilizing the analytics to identify the credit worthiness of the customers can service larger group of customers those otherwise thought as credit risk1 by the banks following the legacy rating system and other parameters deciding the lend.
Banks have paper guidelines from investors on what process to follow, on approving certain tasks for individual borrowers. Investors are lending bulk amounts of money and have their own IT infrastructure. Banks must be in-coherent with investor IT infra to have smoother transactions.
The main problems come in retail bank settings where the banks deal with the end customer as commoner. As technology transcends the devices with the customers as well that increases the expectation of banks to provide updated date IT infra.
Banks on one hand have the investor stubborn to change other hand have customer proactive in expectation. Meeting these 2 expectations will be a challenge.
change must go through rigorous internal discussion before going through the investor. Change must achieve one of the 3 goals:
Changes related to security/scrutiny can be put forth directly as it is a direct benefit to the investor. The other two changes are hard to obtain.
If an investor is already making profits in his business model with all the resources, they have at their disposal. If we introduce a new change to get the same profit with lower resources with an IT infra change, that is less appealing to them as an organization. The same applicable for reduction of time taken for completion of tasks as well.
For each degree a plane veers off course, it will miss its destination by one mile for every 60 miles it flies. Any change may look smaller in the short term but the implications of it can be seen in the long term. Providing the benefits that will be achieved in the tenure of 5 to 10 years and upfront calculation and communicating the results will be the initial approach to gain investor interest in gaining the initial traction on their interest to change [4].
The 1-degree principle also applicable to the applied change as well, as per 6 sigma, the standard process must be followed, and the iteration must be as small as possible to avoid the chaos in the business as well as number of changes will multitude the number of errors that could potentially impact the business.
The 1-degree principle is not the shirt for all sizes. The change OfCourse sometimes needs to be an abrupt change in the existing process to survive. E.g., Blackberry reluctance to change to android or similar OS in the initial days has lost its market, and it did opt for Android but its already too late [3].
Not always the change needs to happen on the Banks end, seldom the proactive investor initiates the upgrades, and the banks now must comply with the investor. But extending the change to all the investors within bank space to standardize the process to avoid human errors, the change must be asked the following 7 questions [2].
When an institution has the clearly defined R’s now it is the matter of conveying the Reason, Risks and Returns with other stakeholders and pulling them under the umbrella.
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Sources:
[1] Responding to Technology Disruption in Wholesale Banking
[2] What is Change Management : 7 R’s of Change Management