I was recently asked for my predictions for risk management in 2014 by Retail Banker International. My comments for that publication would also be germane to readers of this blog.
First, all of our banking clients are focused on regulation, even while they restart the revenue growth engines. Banks are also focused on the customer experience, which will drive investments in both mobile solutions and fraud management systems. As lending continues to pick up in markets recovering from the recession, so will fraud.
Here are some of the areas we see getting greater attention next year.
Fraud Management Technology Advances
Lenders will increase their adoption of new technologies such as proximity location services, which compare the physical location of a cardholder's registered mobile phone against the location of the ATM or point-of-sale terminal.
Banks will also rethink their contact strategies, increasingly using mobile devices to confirm whether fraud is occurring. Our data has shown that response rates after working hours (between 8pm and 8am) to SMS alerts for fraudulent activity were higher at 66% than between business hours (50%). This shows that interactive texts for simple transaction verification have become effective and acceptable to most consumers. We predict that banks will take notice of these trends and look to increasingly incorporate after-hours contact strategies.
Restoring the trust of consumers and regulators is critical for retail banks as we move into 2014, and this will need to be achieved through a systematic approach to conduct risk. Leading banks will begin to adopt an analytics-based system to ensure an efficiently run organisation with clearer, deeper insight into policies and processes that will safeguard them against any potential customer or industry damaging misconduct. It will not only be the regulators that will demand greater responsibility from the financial institutions but consumers as well, who will want to ensure the banks they have entrusted their financial stability to are not culpable for their treatment of customers.
Mobile Customer Experience
Our recent research has shown UK customers have been slow to adopt mobile communications with their banks – with only 17% considered 'Mobile Natives'. These were defined as people who interact with businesses via mobile devices every day. Of the 14 countries surveyed, the UK ranked fourth lowest, well behind countries such as China, Korea and India. In better news for the UK, however, it leads the West for interest in mobile services, with 41% of UK respondents stating they found the idea of receiving alerts on their mobile for overdue bills via a payment alert app attractive – compared to only 27% of French respondents. With ever-growing proliferation of smart devices, we see the number of mobile natives as likely to increase over time as we move through 2014.
Wanto know if you are a Mobile Native? Take our Mobile IQ quiz!
Banks will continue their search for ways to identify which customer pockets have the potential to be more profitable, and will target these customers extensively to drive growth. But simply finding more customers isn't enough — banks need to strike the vital balance of increasing profitability needs while creating an excellent customer experience and maintaining financial sustainability.
Cloud-Based Cost Control
Banks will continue to aggressively focus on reducing costs. As they seek to improve their risk management processes and systems, more bankers will turn to the cloud. There are data protection concerns to address, but the possibility of escaping the heavy cost burden of legacy systems with a cheaper infrastructure that drives higher performance will provide the incentive to solve these challenges.
Next week I will share the results of our latest survey of European credit risk managers, where we asked for their 2014 risk priorities. Here’s a bit of a spoiler: More of the capital banks have been amassing since the crisis will find its way into the hands of consumers and small businesses. Yes, lending is going up!