The Risks and Rewards of Digitalisation in the Banking Industry

Digitalisation has revolutionised the banking industry, enhancing accessibility to financial services. However, this advancement also brings with it a range of risks that need to be addressed. To explore these risks and identify strategies for mitigation, banking experts and technology professionals gathered at a discussion organised the Mumbai Chapter of PRMIA (Professional Risk Managers’ International Association).

One of the key points raised during the discussion was the transformation of the Dow Jones Index over the years. Partha Ray, Director of the National Institute of Bank Management, highlighted how the composition of the index has changed. While it primarily comprised railroad companies in 1884, it shifted to manufacturing companies in 1956, and in 2019, it consisted mostly of financial and technology companies. This shift demonstrates the evolving landscape of the banking industry.

Traditionally, bankers followed the 3-6-3 rule, which meant taking deposits at 3 percent, lending them at 6 percent, and enjoying leisure time at 3 p.m. However, as Partha Ray noted, this rule has been transformed in the digital age. Now, bankers find themselves engaged in digital banking activities even in the early hours of the morning.

The discussion also shed light on the importance of managing cyber risks in the banking sector. Justin McCarthy, CEO of PRMIA, emphasised the need for banks to accept cyber risks and develop robust plans to mitigate them. With the increasing interconnectedness of our society, any breakdowns or disruptions can lead to reputational risks. This highlights the need for an effective risk management ecosystem within banks.

Another risk that was brought up during the panel discussion was information asymmetry. Shailesh Dhuri, CEO of Decimal Point Analytics, highlighted the importance of incorporating digital banking into school curricula to educate young individuals about basic security precautions. By doing so, there is a greater likelihood of reducing information asymmetry and enabling individuals to make informed decisions in this digital era.

To further strengthen risk management practices, Sreedevi Pillai from the State Bank of India stressed the need for recruiting well-qualified talent and continuously upskilling employees. This ensures that banks stay ahead of the curve and are equipped to manage the risks associated with digitalisation.

In conclusion, digitalisation in the banking industry has undoubtedly improved accessibility to financial services. However, it also introduces various risks that must be addressed. By embracing these risks, developing robust risk management plans, and keeping employees well-equipped and informed, banks can thrive in the digital age.

Sources:
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