Risk and compliance technology has been on the horizon for a long time but there is a very simple reason that many banks and financial institutions were not using it – risk and compliance management does not result in profits. However, certain changes in the market that have occurred over the past 5 years have completely changed the dynamic of risk and compliance technology for smaller companies and has resulted in increased technology adoption in companies across the country.
Why Businesses Hesitate to Invest in Risk and Compliance
Businesses invest money in places from where they can earn a profit – because businesses exist only to generate a profit. This means that any investment which will not provide a benefit to the bottom line will be avoided as much as it can. It is also important to remember that the organizational dynamics of smaller organizations are very different when compared to larger organizations.
Large enterprises that operated nationwide have had risk and compliance technology implemented for more than a decade. Large enterprises can afford to spend hundreds of thousands of dollars on risk and compliance management because hundreds of thousands of dollars barely make a dent on the bottom line of the enterprise. Many of these large enterprises have billions of dollars of assets and investments – spending a million to ensure risk and compliance are managed properly is barely a blip on their financial radar.
Smaller organizations work on different scales. Many smaller banks are only able to generate a small profit, which would be significantly affected by an investment of a million on risk and compliance management. Therefore, most risk and compliance solutions were focused on helping large enterprises – smaller organizations preferred to use manual methods of risk and compliance management.
This means that other businesses will focus on risk and compliance technology only if it becomes important for their bottom line – which is exactly what has happened in the past few years.
Risk and Compliance Technology and the Bottom Line
There have been many changes in the market and in the way customers interact with banks and financial institutions that have completely changed the way businesses look at risk and compliance technology investments. A major driver for change has been new customer expectations. This is often overlooked, but we need to focus on how much the new customer that is opening a bank account for the first time has changed over the past decade. Most people from our generation who opened a bank account for the first time had to do it when they got a job or wanted to have some savings.
For most people opening a bank account is the first time they interact with a financial service or company. This first experience gave us all a good idea of what it meant to interact with a financial service. We knew that there were certain bank processes which took some time to be completed and there was nothing we can do about it. This is important because we understood that financial transactions and account openings can have some delays built into them due to risk and compliance requirements and thus we accepted these delays.
This is no longer true for the new generation that is now opening a bank account for the first time. This generation is used to online payment platforms and mobile applications that allow them to instantly transfer money to their friends and family. These people are used to financial transactions that occur instantly and account openings that can be done in a few seconds. When these people go to a bank to open our account at their told that their account will be opened in 3-4 days, they are dissatisfied with the speed of operations at banks and financial institutions.
This was a wakeup call for banks. They realized that they would have to rework the way they delivered their services to customers and make them faster and more efficient. Risk and compliance technology is an important part of making banking better for customers because risk and compliance requirements are the main drivers of delay for many banks and financial services. These organizations know that they cannot skip the risk and compliance requirements therefore the only remaining solution is to automate risk and compliance to the degree where they can easily deliver services to customers while also fulfilling risk and compliance requirements.
Another major factor that acted as a catalyst is the lowering prices of risk and compliance technology solutions. While there was a time when a business would have to invest millions to be able to access risk and compliance technology, nowadays cloud based risk and compliance management platforms can be procured at a very reasonable cost.