Following the outbreak of Covid-19, financial institutions across the world are navigating through a volatile economic and regulatory landscape. With 90% of the workforce, functioning from home, risk and compliance operating models are under incredible pressure. Maintaining markets and levels of service at par during this heightened volatility has become a business imperative. However, managed services arrived as a strategic response to these areas where seamless organization & streamlined operations with security are the prime mandates.
Primarily, Covid-19 has ensued significant operational, financial, and human capital risks for the BFSI sector.
Infographic Source: Deloitte
Profitability concerns are at the highest: Among the most potential risks, BFSI is facing today, foremost is around the repayment of loans. With the regular income stream of the consumers, coming at a halt, they are naturally unable to repay the loans. On the other hand, banks are showing resilience with the increased moratorium, staggeringly low-interest rates, and waiving fees to SMEs and consumers. However, the process will eventually boil down to profitability concerns and credit risks for the banks.
Escalating Operational Costs for Risk & Compliance Regulation: According to Citigroup, risk and compliance regulation spends account for 10% of the operational expenditures normally. However, the pandemic has doubled up the figure, following a rapid shift towards digital banking
Legacy Systems SlowingDown the Process: Resources being often engaged in the manual management of the internal process, have limited availability to address “risk and compliance” risks. Many processes are still adhering to legacy systems, which underpins their shortcomings to address operation process in the Covid-19 scenario.
Technical Incompetence Becoming a Barrier: Though AI (Artificial Intelligence) supported new age technology is already in place, building in-house capabilities to run the legacy systems clubbed with technology is still a distant dream. Moreover, it is commercially unviable. Finding people with the necessary technical competence and experience is another hitch down the line.
Offshoring trends have been in the financial premises for a decade backbit has, however, evolved significantly in recent times. “Megadeals” for a specific segment of the banking process once dominated the market. Today, the industry is embracing a multi-sourced ecosystem model, where the traditional system falls short in every possible aspect.
However, the current needs in the financial domain are multidimensional. So far, outsourcing in the financial sector was mostly involved in offering discrete services. Banks were likely to subcontract their tier-1 helpdesk or any non-IT task like data entry or document scanning. With traditional outsourcing to any external provider, banks can address specific business needs. For example, the Know-Your-Customer (KYC) Registry launched by SWIFT, back in 2014, which has addressed the liability of banks’ KYC compliance regulations through cost mutualisation.
Secondly, IT and business process outsourcing (ITO and BPO) offerings have converged in recent times. The objective is to offer a synchronised solution in a cost-efficient manner. Today, when the providers are offering full-stack solutions, traditional outsourcing addressing specific is no more a viable option.
In the current scenario, when a rapid remote transformation has become a survival strategy, handling client service, risk management, liquidity, and cost pressures in a completely new ecosystem arrived as a challenge. Even if some key areas of the banking process is outsourced to different specialized providers, it involved the risk of exposing your business-sensitive data to several third party entities.
Precisely, cost management has been the primary driver of outsourcing decision in the financial domain. It’s still been so. But, financial firms are now looking for the specialized knowledge suite at scale to solve complex problems alongside cost efficiency. Today, when cybersecurity threats are at their peak and a series of complexities are already on the scene, the use of a traditional, cost-focused BPO stands inarguably suboptimal in this sector.
Leveraging the scalable delivery infrastructure of the managed services helps financial institution run business operations seamlessly while serving customers in an uninterrupted ecosystem. The ever-evolving digital disruption has already triggered several opportunities for banks to fuel future growth.
Touch beyond the core in a cohesive ecosystem
Banking has now emerged way beyond its core operations in every possible manner.
Source: McKinsey& Company
In the past, banks have relied on making customers aware of relevant products as a path to growth. However, in the evolving digital ecosystem, banks can monitor user behaviour, operational capabilities, reinforce engagement, and capture data that will provide a more complete view of customers’ needs.
For example, ICICI Bank has extended into banking adjacencies; by providing services like spending overview, preapproved offers, transaction history, as well as smart tips for spend management.
Source: icici banking app image taken on 8.7.2020
Thanks to the capabilities of multi-channel managed services that helps bank bring everything on a single platform. Extending beyond the core helps banks serve customer demands and convenience, without separately investing in each area.
Creating a financial Supermarket leveraging the facilities of a cohesive service provider, a bank can bring a curated mix of internal and third-party offerings. This way, customers can access easy, one-stop access to financial products while address multiple financial needs through a single, integrated channel. At ICICI Bank’s mobile app, customers can explore a plethora of financial products for investments as soon as they log in.
Source: icici banking app image taken on 8.7.2020
This way banks can focus on streamlined operations as well as expect the high-return side of the industry.
Leveraging managed services can help banks and financial institutions to refocus attention where it counts. At the end of the day, deficiency in the process and offerings can hurt the long term sustainability of the firm’s reputation. In fact, the quality and integrity of its internal controls have nothing to do with the services it offers.
“Banks have long relied on the dedicated talent for internal controls, but it no more holds significance coming to the current face of digital disruptions. The high-velocity digital transformation brings a specific mix of challenges, which can be better addressed by multi-functional managed services”, believes Souvik Chaki, SBU Head of Indus Net Technologies.