Alexandru Grigoreanu, Head of Retail Banking & Financial services, Societe Generale GSC Romania: Banks need to adapt their business model by focusing on a strategic balance sheet allocation, monetization of services and improve costs

Grasping the industry’s sentiment this year

The ITO/BPO industry is following the global trends with impacts from the current economical and geo-political context. From an economic standpoint, big companies strive to be more efficient and improve their cost to income ratio. The need to reduce cost can represent an advantage for offshore setups, as they are seen as a main lever to achieve this objective. In the same time, the ITO/BPO companies are expected to increase their own efficiency and the value they create for the onshore entities.

The highly tensed geo-political context is increasing the cybersecurity risk. Cyberattacks are having an alarming exponential growth with targets on both private and public entities. In order to keep a high level of confidence and secure the operations and reputation of the onshore companies, ITO/BPOs need to put cybersecurity on their top priority list for the years to come.

In this global challenging environment, there is an opportunity for the offshoring companies to develop. To grasp this opportunity, the companies need to have a strong value proposition, leveraging on their talent pool, their capability to transform and improve processes and displaying a commercial advantage on the services they deliver.

In the last years we have observed important changes in the banking and financial services industry, and the transformation will continue in the years to come.

According to a study performed by Oliver Wyman on “2030Banking trends” , traditional banking institutions are facing important challenges, as evolving regulatory requirements are constraining banks’ balance sheets to be less risky, hence less profitable. In the same time, non-banking financial institutions (incl. neo banks) are growing as financers of the economy and putting pressure on the traditional banks to transform.

Client expectations and dynamics in the retail and SME (small and medium size enterprises) segments are evolving as well. Geo-political context is increasing the cybersecurity risk with a strong expectation of resiliency from the banking institutions and investor and societal expectations are  focusingon the ESG ambition and social promise of the banks.

Considering this challenging environment, banks will need to adapt their business model by focusing on a strategic balance sheet allocation, monetization of services (business revenues based on fees) and improve cost efficiency in order to boost profits.

According to the same Oliver Wyman study, traditional banks are expected also to partner with NBFIs (non-banking financial institutions) to expand their client value proposition. As client expectations are evolving, banks will adapt their client value proposition. In the retail area distinct segment centric value proposition is expected, leveraging on digitization and AI to improve the cost to serve ratio. As for the SME  (small and medium-sized enterprises) client segment, banks should strive to become a cornerstone for the corporate’s ecosystem with a focus on connecting banks for treasury services, e-invoicing and so on. The value proposition for the clients becomes more sector specific and a major focus will be on supporting clients in their efforts towards a green energy transition.

Internally, banks will continue to streamline their operations and render them more efficient. One of the important levers for efficiency is, like in other industries, GenAI. Financial institutions will need to find the right deployment model in terms of business ownership and embedding AI in processes, but also take into account workforce planning for the future. Lastly, risks related to AI, such as regulatory and compliance implications need to be mitigated.

AI unlocking business potential  

Within Societe Generale Global Solution Centre we are using AI/ML solutions for a few years already, in order automate processes. We obtained very good results and reduced significantly processing times in back-office activities, where we automated document recognition, data extraction, validation, and input in the core systems. Now, with the GenAI technology revolution we will see a democratization of the AI usage. As per Oliver Wyman – 2030 Banking trends study, many banks are deploying Generative AI solutions, but primarily in a proof of concept stage. Most of the use cases are observed in process automation, marketing, and customer service. In addition to use cases within growth and efficiency, AI also plays a big role within risk management(e.g. for fraud detection), AML (Anti-money laundering work and for risk modelling.

On our side, we started to use GenAI to improve developer’s experience. Leveraging on tools such as GitHub Copilot, we are looking to ease the daily tasks of a software developers. We already received very strong positive feedback from our colleagues who are part of this pilot.

Expectations of retail banking customers

During the last years, enabled by the pandemic context, but also thanks to digital evolution, behavior of retail clients evolved significantly. Nowadays, high digital experience standards are a norm. When it comes to the banking sector, the digital interaction channels make branches less relevant, hence the need of a bank to adapt to new client behaviors and servicing models. Beside that, the classic advisory model is challenged by AI and 3^rd party players. Banks would need to adapt their current operating models, partnerships with NBFIs (Nonbanking Financial Institutions), embrace the open banking ecosystem and develop a platform strategy.

When it comes to  internal clients, which are the ones interacting with  offshore centers, their expectation is to be supported & guided throughout the implementation of the business strategy. Considering the global trends, the main focus is currently on digital transformation and efficiency of processes, with the final aim to improve the cost/income ratio.

GenAI is a major disruptor in all industries, including banking and financial institutions

The adoption of this technology will have an impact on the workforce in terms of job content and skills required within the teams. Work outcome of the teams will be augmented by AI and we will all need to engage in a continuous learning process, as the technology evolves, and we will also need to adapt and be open to change. Humans and AI are complementary and the main challenge will be to enable every team member to understand the basics of AI, leverage it in their daily work,  as AI is expected to replace progressively some recurrent tasks., so the main challenge will be to support the job types that will need to evolve. In the future, creative and soft skills, such as empathy for example, will be in high demand and might become a standard for a job description, as these ones cannot be replaced by artificial intelligence.