The Covid is turning the balances of bank risks around. Since the coronavirus pandemic became clear last March, non-financial risks (NFRs) have begun to have a more negative impact on financial institutions every day. The 2008 financial crisis altered the landscape as the risk surrounding credit, liquidity and consumer protection led to tighter controls from supervisors and greater regulatory demands. Now, however, it is NFRs that are expanding the most, and “show little sign of abating,” according to a Capgemini banking report.
According to this analysis, banks must increasingly grapple with threats on strategic and operational fronts such as human resources, data, legal, fraud, cyber, or infrastructure, broadly defined as non-financial risks. The experts of this consultancy ensure that as technology (cloud, API) and regulations (PSD2, GDPR) evolve, so will the NFRs.
Increasingly, in fact, non-financial risks are becoming one of the leading causes of significant bank losses. Worldwide, the fines issued to banks for this cause can exceed $ 8.4 billion (more than € 7.032 billion in 2020).
Internal conditions, such as inefficient processes with a high potential for human error, are at the root “of an alarming increase in NFR-related losses. In fact, 35% of data breaches in the banking and insurance sector involve internal actors, ”according to a 2020 report from Verizon, mentioned by Capgemini.
Banks have activated business continuity plans to maintain operations while employees work from home in the wake of the pandemic, increasing exposure to cybersecurity threats. Covid is responsible for a 238% increase in cyber attacks against banks, according to Capgemini.
Faced with these high cybersecurity attacks, entities have begun to worry more about this post-pandemic scenario. As a result, more and more banks will allocate staff and budget to hiring teams dedicated to managing different complexities of non-financial risk incidents.
But the coronavirus has brought with it other problems for the current banking structure. As the sector’s profits have fallen as a result of lower business due to the pandemic, higher provisions and negative interest rates, competition from new innovative rivals has been growing until margins are reduced. The players of the new era, fintech, neobanks or big tech, continue to attract more and more customers.
Capgemini’s research on the impact of Covid on banking indicates that 36% of clients have discovered a new financial provider in the crisis and plan to continue with it during the post-pandemic, as 55% of fintech clients claim to be satisfied with the offers you receive from these providers.
According to the 2020 climate risk survey of the Global Association of Risk Professionals (GARP), whose data is collected in the Capgemini report, 90% of financial companies have a governance at the board level around environmental risks and climate conditions, and business participation is growing. “More and more banks are developing comprehensive risk management strategies,” the analysis reflects.
Growing consumer interest in sustainability is driving demand for green products, including banking. Therefore, companies are reaching ambitious targets to reduce their carbon footprint.
Recovery. Banks that prioritize environmental and climate risks are more resistant to market disruption and could recover faster from an economic crisis stemming from the pandemic, according to one of the findings of the Capgemini report.
Mortgages. Since the start of Covid, about three-quarters of millennial home buyers say they feel stressed about their finances overall. That apprehension, combined with historically low interest rates, has sparked a boom in refinancing as a way for homeowners to save money.
customers. In 2019, it cost around $ 300 (251 euros) to attract a single new customer, significantly higher than in other industries.