Leaders of the pack

The year ahead is shaping up to be a challenging one for businesses, regardless of size. Banking groups will need to be open, transparent and well-led in order to thrive in this environment

All is not well in the banking sector. Low interest rates have hit banks’ profit margins hard, and there is every indication that they are here to stay for the foreseeable future. At the same time, financial institutions have had to grapple with changing regulations and heightened competition across the board.

While banking groups generally operate on a large scale and have sizable income streams, this does not mean they are immune to the challenges affecting the finance sector: they may also have larger outgoings than smaller financial entities and can more easily succumb to complacency. Several of the world’s best-known banking groups have histories stretching back over a century – unsurprisingly, some of them have begun to feel untouchable.

But despite its longevity, the banking sector is not monolithic. In recent times, it has been disrupted by artificial intelligence, mobile apps, fintech companies and neobanks. Regulatory changes have also encouraged customers that may once have stayed loyal to a tried-and-trusted brand to move their money elsewhere. For banking groups that lack agility, this has added to their woes.

Not all banking groups are mired in inertia, though. The organisations singled out for praise by this year’s World Finance Banking Group Awards are among the industry’s most innovative players.

Open for business One of the biggest changes that banking groups have had to get to grips with is open banking. While this concept originally came into force in early 2018, it has yet to truly take off – there is hope that 2020 will be the year it finally reaches its potential. In its simplest terms, open banking is a series of reforms that affect how banks hold financial information. Under the new rules, banks must share customer financial data, such as how and when they spend their money, with other authorised financial service providers (providing the customer gives their consent). These other providers may include budgeting apps and, indeed, other banks. In this more open environment, it is hoped that new products and services can be produced, leading to a better banking sector for all stakeholders.

Getting prepared for the world of open banking has come easier to some institutions than others, however. According to open banking platform Tink, only 41 percent of European banks managed to meet the March 2019 deadline to establish a sandbox environment for third-party access. Many have also struggled to make their application programming interfaces available.

Although banks have, for good reason, usually encouraged a risk-averse culture, this has allowed fintech firms and neobanks to outflank them, offering cheaper and more convenient services to consumers. The best banking groups understand that consumer tastes are changing. Customers have long expected digital innovation in industries like retail, healthcare and hospitality – now, they expect it from their bank too.

Crucially, banking groups that view open banking as an opportunity rather than a challenge are faring best. The ability to share information with third parties provides a fantastic chance to launch new products, and is likely to inspire new feats of collaboration. Banking groups need not fear third parties gaining access to their customer data: as long as they have the appropriate security protocols in place, open banking can lead to a brighter future for established banks, new players and customers alike.

Moving forward With such large financial rewards on offer, the banking sector has always been open to abuse from disreputable players. For banking groups, even when blame can easily be attributed to a particular actor, reputational damage to the entire organisation can be hard to shift. Often, large-scale changes are required.

At Swedbank, new CEO Jens Henriksson believes that his firm is only now coming to the “beginning of the end” of a scandal that first came to light more than a year ago. To regain trust, Henriksson has been blunt about the bank’s failings, accepting responsibility on behalf of the entire group for the missteps that allowed money laundering to take place on a mass scale. Other banking groups can surely learn from the way Swedbank and other organisations have responded to their troubles.

The first thing to do is conduct a proper assessment when an incident occurs. This ensures a full apology can be issued and reduces the likelihood of any nasty surprises coming to light while the fallout is taking place. The next steps involve publicly acknowledging the problem, formulating a strategic response and implementing response tactics.

Of course, prevention is always preferable to a cure, so banking groups should ensure they adhere to current regulations. The regulatory outlook for banking in 2020 will likely see a renewed focus on banks’ resilience, particularly as multiple markets attempt to recover from economic distress.

One route to greater financial security is through the adoption of new technologies, but these come with their own compliance issues. Aside from data security challenges, many institutions choose to implement new defence protocols at the same time that they overhaul their technology infrastructure. The ‘three lines of defence’ framework has proved popular: this approach involves safeguarding the business itself, then looking at independent risk functions and, finally, conducting an internal review.

It is no surprise that Swedbank felt the need to change its CEO in order to move beyond its recent difficulties. Strong leadership is vital in the banking sector, and never more so than during a crisis. With 2020 expected to be a difficult year for many markets – the April World Economic Outlook predicts global growth will fall to minus three percent this year – there will inevitably be a knock-on effect for banking groups. Having the right members of staff in leadership positions will provide some stability in these troubling times.

As banking groups navigate a changing and uncertain world throughout 2020, their survival and success will rest on their staff as much as it will their technological innovations. The top banking groups in this year’s World Finance Banking Awards strike the perfect balance between human and digital excellence.