How BFSI Sector Can Gear Up For Black Swans

Sudhakar Singh, Editor | Sunday, 11 April 2021, 19:17 IST

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Resilience in business is measured by the capability of an organization to adapt to an unforeseen circumstance while being encumbered in terms of resources.Covid-19 pandemic has compelled organizations to rethink their business processes and devise effective strategies for a paradigm shift. While some of them have successfully managed to stand the test of resilience, many got swept away by the wave of disruption. BFSI sector is one of the segments that have experienced this change first hand. The BFSI domain witnessed a global increase of more than 200 per cent in the number of cyber-attacks aimed at it within the period of February 2020 to April 2020.  

It posed serious threat to the continuity of business processes that involved direct touch points with the customer. For a technology infrastructure that was already under pressure to meet the exponentially rising digital needs, it further added to the woes. Although we are no longer in the eye of the storm, it is far from over. The technology teams are still getting acquainted with the new normal wherein they have to shore up the IT infrastructure to facilitate burgeoning digital customer engagements. Even though the BFSI sector has to a large extent managed to overcome the repercussions of the pandemic, the chink in the armor of its technology ecosystem has certainly been exposed. 

The big question now is how to build the capability to be able to ensure sustained operations in the face of an unanticipated adversity in the future. Let us try to find the answer from a technology perspective. There are three primary dimensions that if taken care of can equip banking and financial services organizations to become immune to black swans.

Security and Privacy

The first and foremost dimension which needs undivided attention is information security. It is no longer sufficient for BFSI companies to align their security framework with ISO 27001 standard and rest assured. They must look beyond it and explore proactive mechanisms such as threat modeling. In a scenario where it is difficult to tell a normal financial behavior from a potential fraud, threat modeling can prove to be an effective tool for banks and financial institutions. Using different methodologies to have a better insight into the vulnerabilities in the system and working towards mitigating them can give security initiatives the kick-off needed. Decomposing the application, identifying the threats, and devising countermeasures is the way forward. This is especially important given the increasing popularity of mobile banking which leaves the door ajar for malware variants to enter more easily. At the same time, ATM hacks are rising in number and different approaches are being followed by hackers to withdraw cash from ATMs by hacking them.

“The action can be taken at two levels. First, secure their digital ecosystem and two, assure customers about the safety of online transactions and the data that they are willing to share, so there are no data security concerns lingering in their minds. By doing so, the BFSI sector can build on the momentum that digital transactions have now garnered, owing to the pandemic and general concerns around personal visits to any service provider’s outlets,” says Seshadri PS, Senior Director - Governance, Risk and Compliance, Office of the CISO, Unisys India.

When we look at the IT infrastructure of banks today, in many cases we find legacy systems in use which have not been updated for years. Operating through such systems can sound a death knell for bank’s security. With the ecosystem of hacking and fraud getting stronger by the day, such complacency in terms of security can only make the job easier for hackers. The support system at their disposal can easily enable them to target such weak areas. In fact, there is now more than a monetary motivation for hackers to do their job. The drive can sometimes be funded and carried out at the behest of a person or an organization with enmity. Hence, there is also a need to boost the collaboration between security and fraud management functions to be at the top of the game in terms of curbing financial frauds. When it comes to privacy, banks are yet to interweave it completely in their operational procedures. Technology safeguards need to be deployed to protect private data. Formulation of privacy policies and privacy impact assessments can address the issue comprehensively.

Customer Service

A disruption need not always be induced by a contagion wherein switching to digital tools and platforms can be considered the way forward to remain connected with the customer. It can also present itself in the form of a behavioral change when customers would expect a completely new approach from the banking and financial service provider during acquisition as well as retention. What works for an IT services company may not work for a bank. For instance, in the current state of the BFSI sector, the customer prefers a combination of physical and digital model. An all-out digital approach has failed to garner desired returns. However, it might just be a matter a time when the trust deficit wanes and the customer starts demanding holistic digital experience. So, if a BFSI company has put off any CX related implementation thinking it would not be needed anytime soon, it may want to embrace a modular approach and get on with it.         

Business Facing Process Enhancement

Improvement of non-customer facing processes is the final frontier to conquer. The aim of any business process improvement is to up the efficiency quotient of the enterprise through a combination of automation and streamlining initiatives. However, restricting business process management to workflow automation and managing tasks would be a costly mistake. The business objective of optimization must be the ultimate driver. In the event of an unpredicted incident or scenario, the BPM system must be able to factor in new data inputs in real time and act accordingly. Agility ought to be the way forward wherein the system would be capable not just to respond in real time but to embark on a different path away from the pre-defined process. It can be achieved by empowering BPM with new technologies like artificial intelligence/machine learning and adopting low code/no code platforms.

As the second wave of infections spread, rating agency Fitch Ratings has predicted the business of banks being affected. “We consider the micro, small and medium enterprises (MSME) and retail loans to be most at risk. Retail loans have been performing better than our expectations but might see increased stress if renewed restrictions impinge further on individual incomes and savings,” the rating agency said.      

Factoring in all the scenarios, if the aforementioned measures are undertaken, the sector can set off on a transformational journey that can make it impervious to turbulent market dynamics. In cases where there is an impediment in terms of budgetary concerns or the ROI of the implementation, a piecemeal or modular approach can be resorted to. With continual effort towards optimization and robustness of operations, scaling up the business can be approached with more confidence.    

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