The global banking industry has gone into this crisis in a much better position than the previous one, from a balance sheet standpoint as well as a technological resiliency perspective. Joy Macknight reports.
Paul Ford
The Covid-19 pandemic has shone a spotlight on operational resiliency, as financial institutions scrambled to lift and shift the majority of their workforce from the office to the home with only a few weeks’ notice. It has stretched business continuity plans to breaking point and forced banks to quickly iterate and adapt their risk modelling and scenario analysis. Banks have also assessed the resilience of the whole value chain, evaluating, testing and strengthening relationships with both clients and correspondent institutions.
Unquestionably, the investments that banks have poured into digitally transforming their businesses over the past decade has meant this hasty transition has gone smoother than most expected. It appears that not only are banks in a better balance sheet position compared to the previous crisis, but their technology stack is also much more robust to withstand seismic shocks.
For example, the move to cloud technology has meant that an institution can quickly scale to respond to market volatility, spikes in transaction volumes and new customer demands. Using agile methodology has also allowed development teams to work productively across distributed environments. Many banks have commented on the speed of execution that is now possible, citing the ability to do things in weeks that previously would have taken years, or even deemed “impossible” before the crisis.
This agility has proven to be critical during the Covid-19 pandemic. “The speed at which liquidity has been needed by corporates, as well as the speed at which government lending schemes have been mobilised, has required banks to mobilise new, dedicated online portals to capture information and book the loans online, for example,” said Ronan O’Kelly, partner corporate and institutional banking practice at consultants Oliver Wyman, in The Banker’s ‘Banking under pressure’ podcast series.
Greater automation
In addition to cloud technology, the progressive deployment of artificial intelligence (AI), machine learning and robotics has increased automation and straight-through processing, eliminating many manual processes that can now be done remotely and without human interaction. In addition, AI technology is providing greater visibility into and control of intraday liquidity, which is essential in the current environment. “AI will separate winners from losers,” say 77% of bankers surveyed during Covid-19 by banking software provider Temenos.
Fraud and cyber security are other areas where advanced AI technologies are being applied to improve the detection of illegal activity. “Criminals are finding ways to exploit the virus and commit fraud. This has been exacerbated by the shift to digital transactions and the accompanying anonymity, making it difficult to identify the perpetrators,” says Sundeep Tengur, senior business solutions manager at SAS.
As Mr Tengur indicates, the growth in e-commerce and emerging payment types, such as instant payments, is another driver for AI adoption to combat fraud. With real-time payments comes the need for real-time analysis, but the sheer volume and surge in online transactions is putting banks under pressure. Using AI significantly reduces the time it takes to review a transaction, including all the relevant data associated with that transaction.
Staying close
The cyber threat also requires sharing insights with clients and correspondent partners. In response to this need, Financial Services Information Sharing and Analysis Centre (FS-ISAC) launched the FS-ISAC Intelligence Exchange platform in May, to facilitate the sharing of actionable cyber intelligence to reduce cyber risk across the global financial system.
As mentioned, the importance of relationships has come to the fore in this crisis. At a time when important face-to-face industry conferences, such as Sibos and BAFT, are postponed or turned into virtual events, it is even more important to keep the lines of communication open and keep the community together. Many banks are seeing a strong appetite for online advisory sessions and increased frequency in contact from clients and counterparties.
Strengthened connectivity will also help keep up the momentum of the important industry initiatives, such as the move to ISO 20022 messaging standards, which is a further catalyst for digitisation and harmonisation in cross-border payments. While some of the technical work may need to be deprioritised by banks responding to real emergencies, other practical elements could continue such as education and training.
According to Paul Ford, CEO and founder of risk management and data analytics platform, Acin: “This is a time for collaboration, rapid sharing of information and best practice. [The industry needs to] network together to make the whole system more resilient and effective.”
