Small Steps Toward Digital Transformation Aren’t Enough

Banks need to accelerate their digital transformation to better manage through economic uncertainty. Tools to harness data are especially urgent, as this can facilitate better risk analysis, nimbler reactions to market developments, and greater resilience. It's time to finally leave behind arduous, manual processes, where analysts sift through spreadsheets or parse through disconnected data sets.

In an era where technology permeates every aspect of our lives, the banking sector has yet to fully embrace the transformative potential it offers, especially for risk management.

But the collapse of three regional banks in the spring — and the fact that many U.S. banks are scrambling for deposits — makes it clear that the health of the banking system is at stake.

My hope is that this crisis has served as a wake-up call for the banks that are not adequately assessing their exposure and that those banks now recognize the tremendous potential of technology when it comes to liquidity and risk management, portfolio optimization, and contingency planning.

If we can encourage banks to embrace digitization to support stronger risk analysis and management, the entire sector has the potential to benefit.

But where to start?

Harnessing the Power of Data

Technology can be a boon when it comes to supporting a truly integrated approach to portfolio planning, from comprehensive risk analysis to data-driven liquidity modeling, reporting, and management.

In this capacity, the power of technology lies in its ability to both contextualize a bank’s current portfolio and hypothesize a number of potential disruptions — based on predicted factors — that could impact that current view.

With the integration of artificial intelligence and machine learning, banking leaders can proactively develop scenarios that simulate a range of potential “what if” situations — from rate hikes to a sudden run on deposits — and assess the bank’s vulnerabilities if those situations were to unfold. Then, armed with this information, they can strengthen the bank’s positions in advance. This proactive and predictive approach should, ideally, replace the outdated practice of making portfolio decisions based on historical factors or best-guess estimates.

Banks also need to get a grip on their data — another area where technology can and should play a role.

It’s impossible to argue: the amount of data available to us today is overwhelming. And for banks, as with other businesses, there is a heightened risk of data overload. Banks must say goodbye to the days of arduous, highly manual data consolidation, where analysts sift through countless spreadsheets or parse through disconnected data sets, and instead use tools that will help them harness that data.

“It’s impossible to argue: the amount of data available to us today is overwhelming.”

While there is — and will continue to be — a debate around certain advances in technology (like generative AI), the rise of software as a service and the proliferation of the cloud have given us the opportunity to transform data analysis into a streamlined and collaborative endeavor. Data can be automatically pulled into cloud-native environments, shared securely with key users across the organization, monitored actively, and updated in real time to reflect the current environment.

This not only reduces waste in terms of time and resources, but it can also help banks assess their portfolios at regular intervals, which will continue to be critical for success in this rapidly moving environment. Banks can gain greater visibility, improve their performance and operational efficiency, and also foster trust and loyalty with customers as a result.

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Prioritizing Digital Transformation

The banking sector stands at a crossroads, where digital transformation is no longer optional but essential. Banks must act quickly to become more predictive in their planning, nimbler in their market reactions, and more resilient overall. That means rethinking existing risk management processes, modernizing planning functions, and getting teams on board with a completely new approach to modeling exposure in order to maintain liquidity.

I believe the reason there is still a need for this type of transformation is that banks have, historically, been less inclined to adopt these kinds of foundational changes. Digital transformation projects have been smaller in scale, serving as a kind of temporary Band-Aid in specific departments. But that approach is no longer sufficient.

Stop Hesitating with Investments:

Technology can no longer be used as a quick fix for departments when they need it. Banks and credit unions alike need digital transformation — at scale — across the institution to succeed.

Embracing technology enables banks to predict failure points, reduce exposure, ensure resilience, and optimize portfolios for greater customer value. I hope we see banks rise to the challenge in the months to come and take action to ensure their success in the evolving financial landscape.

About the author:
Adam Rhodes is a principal solutions consultant at Anaplan, where he supports financial services companies.

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