A Teenage Perspective is The Fastest Way to Understand Your Risk Appetite
Enterprise Risk Control
Many institutions still face difficulties discussing, articulating, and documenting their risk appetite. It is similar to articulating and documenting your culture. However, establishing parameters or ‘bumpers’ to support a risk appetite statement can guide how we wish to operate the institution. Defining and evaluating three bumpers provides the start to a successful risk appetite statement.
I recently had the experience of opening basic checking accounts for my three teenage children who are starting their first part-time jobs. This ensued with 45 minutes in a branch that included a discussion on why we don’t need checks. Although we walked out with a working debit card, it would take 24 hours before the internet banking/mobile banking platform would be available. Interestingly enough, these teenage children asked me the night before why we couldn’t open an account on the internet with an institution that could complete the full online experience, immediately enable internet and mobile banking and next day deliver the debit card. The fact that teenage kids understand a full Omni-channel banking experience quicker than a financial institution illustrates that some institutions continue to have a stalled innovation and digital strategy. Standing between three teenagers and a financial institution, I can only surmise that perhaps the fear of using the technology vs. the availability of resources could be the roadblock.
Peer-to-Peer payments are no longer relegated to younger consumers settling their nightly restaurant bill. If the institution has a project team in place to evaluate the market dynamics, go to market strategy, and compliance issues that surround PayPal or Venmo integration, our appetite for new product introduction is low considering the technology is arguably ten years old. The Zelle consortium and platform is an attempt by the banking industry to combat PayPal and Venmo. Momentum continues to build with the next wave of institutions as the early adopters are petitioning the consortium for inclusion. Don’t allow a low risk appetite for new products to delay your application to the consortium and not provide time critical peer to peer solutions.
Personal Financial Management
Consumers increasingly are looking for financial advice in conjunction with banking products. If our branch and online platforms can open basic DDA and retail loan products, and our success is defined by signing up new accounts and loans, then once again our risk appetite to try new product and service models is low. The innovative approach is based on total personal financial management. If the customer needs to replace their banking relationship or borrow money, they likely have a financial profile that includes several financial products. Understanding their total need and teaching them how to use personal financial management tools (and yes, these should be available on your digital platforms) leads to a higher level of service and customer loyalty. The simple, vanilla offerings of the past are not sufficient when trying to earn the business of modern customers.
Creating your Risk Appetite Statement
Having a higher risk appetite does not mean placing the capital of the institution at risk. It does mean a willingness to experiment with new ideas. The fastest way to understand your risk appetite is through specific metrics that the management team will use as “bumpers” to keep the organization safe, such as customer experience, payments, or personal financial management. The fastest way for me to see that technology is not moving fast enough is to ask my teenage children. Risk assessment software, offered for banks, needs to take into account the customers of today and tomorrow.