Investing in compliance is an investment in innovation

The Westpac crisis - and echoes of non-compliance in financial institutions prior - is rooted in a legacy problem.

Historically, innovation in the banking and finance sector has come about through new products, services, production processes or organisational structures - yet as technological advances drive innovations, big banks get stuck in building a ‘better mousetrap’. Meaning, they’re able to do what they do in slightly better ways, but rarely - if ever - do they consider the underlying fundamentals of how they do business.

When change is the only certainty, this mindset that past success can be translated to future prosperity undermines the very nature of innovation. When the moving parts of an organisation become unsynchronised, gaping blindspots appear and breed - in Westpac’s case, 23 million times.

A significant shift in the banking and financial sector is the realisation that customers, rather than product, are the priority. This healthy disruption came about through the rise of fintechs, as payment innovators gave underrepresented groups like small business owners and minorities access to capital. Fintechs put customers at the centre of experience and have since become real threats for financial establishments who are ill-equipped to compete.

Not understanding how customers interact with a business is not a customer-centric mindset. It allows for misuse and non-compliance to occur, which through manual detection is like trying to find a needle in a haystack. If a bank doesn’t understand their own business processes, how can they expect to build on them? This makes large financial institutions more risk averse, and thus less innovative.

This cautious nature presents in a desire to avoid disrupting revenue streams by introducing new products, as well as an aversion to investing in technology that is not understood, meaning financial institutions fall increasingly further behind the regulators' expectations.

In order to avoid repeating past sins and survive in the fast-evolving banking and financial sector, banks need to wake up to the technology that makes them compliant.

Process mining is a way of automating compliance - it essentially penetrates data in specific processes or workflows to reveal inefficiencies.

In fact, process mining thrives in identifying non-compliant behaviour, and can be applied across an organisation’s entire process landscape, by comparing the way a process actually runs to the way external regulators, as well as internal policies, say it should run. When regulation changes, process mining seamlessly adapts, turning modernisation and transformation initiatives from a one-off project into a new way of doing things.

The raised risk profile that comes from big banks competing with agile fintechs is eliminated, as process-driven compliance takes the risk out of innovation. It helps banks pivot to a more customer-centric and responsive business model, which removes fintechs’ edge and brings it back to the large organisations’, as they can leverage their existing infrastructure, market penetration and brand recognition to retain customers and clients.

Regulators will not stop policing, and fintechs will not stop innovating. The future of big banks and financial institutions depends on how they not only embrace innovation, but remain compliant while doing so - not just now, but as the sector naturally evolves. The future is in process mining, and the issues which have come to light should be a lesson to all that investing in compliance is investing in innovation - the cost of not doing so is colossal.

Dr Gero Decker is the co-founder and CEO of business transformation solutions provider, Signavio