The Current Account: The Latest Headlines From Across The Banking Sector - April

Welcome to The Current Account! We hope you enjoy our latest round-up of the top news from the industry in April.

Headlines from the banking sector this month

In this edition of The Current Account, we look at the US banking crisis and automation in banking.

A turbulent few months in the banking sector…

• A turbulent few months in the banking sector with three bank failures in the US since March, with First Republic Bank becoming the latest, and second-largest bank, to fail in US history

• The US banking system has been under further pressure as Pacific Western and First Horizon, following updates that unsettled the market, saw a decline in share price for both institutions and could lead to customers shifting funds to larger banks
• The continued Interest Rate rises by the Federal Bank to tackle inflation is exacerbating the issue, particularly for smaller banks
• Over in the UK, the Treasury has confirmed the country’s “banking system remains safe, sound and well capitalised”
• The Bank of England has been on heightened alert for further turmoil since the US bank failures in March and the takeover of Credit Suisse, and there is the belief that rising interest rates are less of an issue for UK lenders

PEN Point Of View:

Banks have been putting additional controls in place since the 2008 crisis – they are now required to hold more capital, and tightened regulation around risk and operational resilience make the system more stable and able to deal with such fluctuations. However, financial institutions need to be monitoring such threats closely - the speed at which Silicon Valley Bank collapsed caused alarm and highlights the ability of customers to transfer deposits at the click of a button. Consumer nervousness is often contagious, and with the health of banks globally making a lot of recent headlines, the challenge for financial institutions, and central banks, is keeping consumer confidence steady.

Automation in banking and challenges to overcome

Banks are increasingly adopting automation in their operations, however, to maximise the benefits of automation in terms of cost savings, efficiency, and compliance, it is important to engage in thoughtful planning and consideration. This involves addressing potential drawbacks and striking a balance between automation and human involvement to effectively meet customer expectations.

Several factors can hinder the effective implementation of automation, with some of the most common challenges for Banks being:

1. Legacy Systems: Legacy systems can lack compatibility, hindering seamless automation implementation.

2. Data Quality and Complexity: Data quality and accessibility is crucial for automation. Inadequate data quality or incomplete data can hamper the effectiveness of automation initiatives.
3. Regulatory Compliance: In this highly regulated environment, implementing automation whilst ensuring compliance with various regulations can be complex.
4. Change Management: Implementing automation often requires changes to existing processes, workflows and culture. This often leads to resistance from staff who may be hesitant to adopt new technologies or fear potential job losses.
5. Cybersecurity Risks: Automation introduces new vulnerabilities, and banks must implement robust cybersecurity measures to protect data
6. Customer Adoption and Expectations: Introducing automation may impact customer experience. Some customers may prefer human interactions or face challenges adapting to automated services.
7. Cost and Return on Investment: While automation can bring long-term cost savings, there are upfront costs associated with implementing new technologies, upgrading systems, and training employees. Banks must carefully assess the return on investment and justify the financial commitment required for automation initiatives.

PEN Point Of View:

Banks are well into their automation journey already – they have selected automation tools, identified target processes, and delivered projects at scale in a factory environment. However, we believe the additional focus should be on a) maximising the use of automation by looking at E2E journeys to ensure the entire lifecycle is as efficient as it can be and b) measuring automation capabilities and undertaking benchmarking to understand RoI fully. One of the biggest challenges banks face is embedding the cultural shift required to embrace automation, which organisations will continue to wrestle with in the near term.

And in case you missed it…

• The FCA has warned it is prepared to take ‘robust action" against firms that fail to meet the upcoming Consumer Duty deadline

• Banks are currently offering customers up to £200 to switch accounts
• With the rise of AI, here are the Top 10 Use Cases For ChatGPT In The Banking Industry

Thanks for reading the latest edition of The Current Account. If you're interested in hearing more about any of the topics discussed here, feel free to connect with me on LinkedIn or contact me via our website. 

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