Should we be concerned when the strategic path for financial institutions
is agreed by all of the leading thought leaders (see below)? They also agree, fortunately, that
implementing, adapting, and integrating that pathway will be the challenge. However
they also agree that legacy strategies will no longer suffice.
Financial service providers designed and developed products and services
which kept margins high and customer loyalty stable through crisis and boom;
and unless a bank created a self-inflicted wound the momentum of past
businesses begat future revenues in an annuity model. Of course the problem was the multitude of
self-inflicted gaffs; from too much growth to too little proper underwriting;
and we now have companies devoting enormous energies (and cash) to legacy
regulatory and cost issues.
While every banker devotes increasing efforts to the past, the customers
transform. Although the legacy customer base moves slowly, it does indeed
change, and the adaptation of technology by customers and an army of new
competitors has left the banks slow to begin their own transformation.
The first risk must be considered to be inertia. I had a recent advisory project for a Board,
where a dashboard complete with colors and arrows included ‘strategic risk’ and
was negative and red from the outset. It
took the Board several quarters to recognize the importance of strategic risk,
but not until the lending pipeline evaporated and the customer share of wallet
plunged. Senior managers get comfort from dealing with credit and market risk,
not strategy.
But if our experts are even partially correct, there is a lot of work to
be done in the transformation of strategy while preserving the sentiment of
integrity and confidence required to retain customer groups. Banks have begun
to move – to test strategies in isolated segments, or launch a separate brand
linked to technology, or create entire new brands to participate in the ‘used
to be sleepy’ payments competition. Old
line bankers now talk about being ‘top of wallet’ as much as share of wallet.
And how do risk analysts evaluate the strategic risk associated with
these transformations? In theory, some metrics must be available. We can look
at news articles for innovative activity, but many of those are purchased
placements. We can track market share
data, but the frameworks and for traditional business lines. I suggest that new
frameworks (yes, scorecards) will be required across selected strategic
dimensions. Using the Deloitte framework:
Balance
Sheet Efficiency –
M&A
Growth
Payments Transformation
Compliance and Risk management
Data Management
Cybersecurity
Do these risk criteria supplant or replace the weighting of traditional
risk criteria? The financial accounting criteria, if the accounting rules are
transparent, should no longer show the volatility of the past ten years; so I would
offer the suggestion that ‘core risk analysis’ comprised of traditional variables
will have a reduced ‘share of voice’ in risk analysis of financial
institutions.
Strategic Risk, Market Risk in the context of new volatility, and
Operational Risk including the adaptation and transformation of new tactics
will take a greater influence in risk analysis.
High levels of risk impede a bank from gaining new high margin business
and erode traditional legacy annuity flows. The time frame for these risks is
focused on current phenomena, whereas traditional risk analysis flows from the
historical base.
A
selection of experts in the consensus:
Banks
struggle to find the right business model http://www.euromoney.com/Article/3412974/Banks-struggle-to-find-the-right-business-model.html
Banking
2016 - Accenture http://www.accenture.com/sitecollectiondocuments/pdf/financialservices/accenture-banking-2016.pdf
The bank of the future McKinsey
http://www.mckinsey.com/insights/financial_services/the_bank_of_the_future
Transforming banking: Global Banking Outlook 2015 E&Y
2015 Banking
Outlook Boosting
profitability amidst new challenges
No comments:
Post a Comment