Absence of growth is biggest peril for lenders

The new emphasis on the potential for risk management should not come as a surprise to bankers in China. Digital technologies, such as the cloud, lead to the rise of new competitive threats, with new digital players seeking to replace banks. We have found that customers of the traditional financial services industry, particularly younger generations, are increasingly willing to switch to new entrants if they offer the right services and provide them more quickly and inexpensively.

Consider Alibaba Group Holding Ltd's Yu'ebao, which since 2013 has been providing online investment products that often come with fewer restrictions than many competing products from traditional banks. Since Yu'ebao's debut, several other Chinese Internet giants, such as Tencent Holdings Ltd and Baidu Inc, have also jumped on the bandwagon and offered similar financial services.

The digital trends in consumer behavior and market competition are not unique to China. Our study of the North American banking market last year found that 72 percent of consumers aged 18 to 34 would probably bank with a technology, telecoms or retail company if it offered banking services. And, according to our estimates, up to one-third of global banks' revenues could be at risk by 2020 from these threats.

Chinese banks are very much aware of digital disruption. Since China's central bank issued the country's first business license for third-party payment services in 2011, the new ecosystem of payment services has been flooded with non-traditional players, including Internet companies, telecom carriers, retailers and smart device manufacturers.

Customer expectations are changing dramatically from the days of the traditional branch network, and risk management in banks cannot stand back from this transition. It needs to play a leading role in assessing the opportunities and risks of this shift.

Cementing relationships with new customers, protecting the bank from money laundering and financing terrorists are only few are as where banks need to remain diligent as they move to a more virtual customer relationship.

Chinese banks should also embrace big data platforms and fully leverage digital technologies, such as interactive services and analytics to establish better governance of customer data. Such digital capabilities can integrate all customer data from traditional and digital channels of everyday consumption, household mortgages, personal financing and payments. It can provide explicit and comprehensive customer credit profiles to facilitate default-risk prevention on the one hand, and more insights on how to improve customer service with more secure, personalized offerings on the other.

The 2015 Global Risk Management Study also highlights the importance of better relationships between risk management and other bank functions. The relationship between risk management and finance is particularly important, and both functions need better coordination and consistency in the use of data and the application of tools and processes.

There are deeper concerns. For example, in the current regulatory environment, allocating enough capital to the right mix of products and geographies, while also investing in innovation and maintaining a balance between the risk and expected return, is an ever-increasing challenge. Moving with speed and flexibility in a rapidly changing banking landscape requires risk and finance to work together dynamically.

Steve Culp is senior managing director of Accenture Finance and Risk Services. Xiao Shaolin is managing director for financial services of Accenture's greater China business. The views do not necessarily reflect those of China Daily.