Risk consideration during digital innovation at a commercial bank

Abstract

Banks must continually adjust their business models to include new digital technologies in response to rapidly changing customer needs, Fintech entrants, and competitors’ innovative offerings. Implementation of innovative responses to these three challenges carries significant risks. While literature on digital innovation in banks and emerging risks from such innovation exists, there is very little written about the focus of this study, namely risk consideration during the innovation lifecycle. The topic is therefore relevant in the light of the changing market conditions. An adverse internal audit report of the studied bank suggested that risk-taking during digital innovation was not given adequate consideration. This report did not address the contribution of behavioural factors causing non-compliance to policy and framework requirements. To address this gap, in this study, senior managers involved in decision-making of innovation projects (innovators) were interviewed to investigate their perception of how risk management was included during the digital innovation processes. The semi-structured interview data were analysed using a risk culture indicator model to guide the coding. When prompted about challenges posed to innovation, participants raised concerns regarding the risk management framework, which was not keeping pace with industry changes. Innovators’ accountability for the risk management process also emerged as an issue, because of their lack of understanding of this process. Participants seemed to choose speedy project delivery and avoidance of missed opportunities over comprehensive risk consideration, for the sake of expediency in meeting changing customer demands. Participants’ recommendations for improving risk management during digital innovation included increased awareness of the risk management process. They also suggested more risk resources be assigned to address challenges identified during the study. Based on this study’s results, more in-depth studies on risk management practices during digital innovation are recommended.