The Generational Curse of Risk Management: How Challenger Banks Are Repeating the Mistakes of Traditional Banks

You would think that with all their innovation, challenger banks would be reimagining risk too. But research suggests otherwise. This evidence points to a troubling pattern, one that mirrors the same risk failures that have plagued traditional banks for decades. And by traditional banks, I mean any institution over a century old. The likes of Barclays, NatWest, Lloyds, HSBC, Santander, UBS and so on. They ruled the banking world, until now.

In the United Kingdom, challenger banks like Metro Bank, Monzo, Revolut, and 10x Banking have been emerging as dynamic players in the financial services landscape, challenging the status quo of traditional banks. These organisations are not only reshaping the customer experiences we have long been used to from traditional banks with agile services and advanced technology, offering more options but also redefining the financial services landscape. However, they have failed in one major area, Risk. They are adopting the same risk practices that have contributed to many losses seen in traditional banks. Why are modern challenger banks repeating the risk management mistakes of traditional banks? Let’s consider five facts.

5 Outstanding Risk Facts that Will Eventually Fracture Challenger Banks

Here are five critical risk factors that may eventually fracture these institutions:

1. Adhering to Outdated Risk Management Standards

   Many challenger banks continue to rely on traditional risk frameworks such as COSO ERM and ISO 31000. These standards largely prioritise what they call risk avoidance (incorrectly stated) and mitigation, potentially stifling innovation and agility. This rigid approach can limit an organisation’s ability to pursue growth opportunities and respond dynamically to emerging threats, thereby hindering its overarching purpose. In today’s rapidly evolving financial landscape, a more dynamic and flexible risk approach is essential to navigate uncertainties which present both opportunities and threats.

2. Seeking Risk Advice from Conventional Consulting Firms

   Challenger banks often turn to large consulting firms for risk guidance. However, these firms frequently advocate traditional practices that may not align with the disruptive ethos of challenger banks. This misalignment can lead to the implementation of risk strategies that are ill-suited to the innovative and agile nature of these institutions, potentially impeding their competitive edge. Embracing more progressive risk methodologies outlined in the book, ‘Get Risky or Get Lost: The Psychology, Science and Art of Precision Risk-Taking,’ can better support the unique needs of challenger banks.

3. Jargonised Risk Management Language

   Nothing has changed in the way challenger banks understand risk. Exactly the same as traditional banks. So what really makes ‘them’ a challenger bank? The current risk management standards they use are often written in jargon that is primarily known by risk professionals, resulting in cognitive dissonance in people because of the conflicting nature of traditional risk knowledge. This language can create significant barriers to broader organisational understanding and engagement, leading to misalignment, slow growth, increased timeline to realise rewards, and exposure to increased threats from within and external.

4. Unaware of Dynamic Risk Strategies

   The sole focus on ‘risk avoidance’ (accurately known as threat management) can cause challenger banks to overlook the symbiotic relationship between risk and opportunity. Dynamic risk management involves continuously assessing components of risk exploitation and risk management to drive growth. By sidelining this approach, challenger banks face becoming the status quo they are trying to challenge, especially as these traditional banks are upping their business game and trying to adapt to a more modern way of banking with so many undertakings in digital transformation initiatives. Another crucial aspect of dynamic risk-taking is understanding how to operate all elements of risk symbiotically while focusing on the risk multiplier factor—opportunity and opportunity conversion, which are key to an organisation’s existence.

5. Fear of Embracing The Ideas Of Risk Disruptors

   Risk disruptors are a rare breed. As many risk practitioners, whether consultants or individuals are afraid to embrace change for fear of promoting a different idea and losing job opportunities, risk disruptors like myself are unafraid to show how risk can help you achieve your purpose successfully. As risk disruptor, a challenger of the status quo, I am on a mission to reveal the secrets of risk and unveil the true benefits of risk for businesses and individuals. Using my twenty years of experience in risk and thirty years of business experience, I put my risk discoveries, revelations, truths, and strategies in my book, Get Risky or Get Lost: The Psychology, Science and Art of Precision Risk-Taking, which serves as the new global framework for risk. One thing you will not find in the book is a risk matrix. I urge all executives of challenger banks to get a copy of this book, read it, and implement it. Or better yet, get in touch with me to inculcate the accurate risk knowledge in your workforce and business strategies.

The Path Forward

Being a challenger or disruptor of an established system means questioning the status quo, identifying inefficiencies, and introducing new ways of thinking, operating, or delivering value that significantly alter the landscape. It often involves pushing boundaries, breaking conventions, and embracing risk to drive change.

Imagine if the geniuses of the past had given up after facing rejection. Nikola Tesla (Electricity), Galileo Galilei (Astronomy), Alan Turing (Artificial Intelligence), Vincent van Gogh (Art), and Friedrich Nietzsche (Philosophy) were all ridiculed for their disruptive ideas because new concepts often threaten fundamental aspects of human psychology. Today, these men are revered because the new worldview they held, that was once rejected, has helped shape the world we live in today. They embraced their core values as risk takers, never taking a passive approach. They knew the opportunities and their rewards and dynamically managed the threats to their ideas and created the society that we live in.

I for one have remained a risk disruptor, openly presenting my philosophical ideas, the truths and rewards that risk really offers, challenging the norm that is devoid of true value finding myself alone on this mission whilst other risk practitioners carry on in the comfort of what they have been taught, without questioning it.

In true disruptor fashion, challenger banks have the opportunity to redefine financial services. They can set themselves apart not just through technology but also through intelligent and precision-driven approaches to risk. To do so, they must reject confirmation bias and not be afraid to incorporate groundbreaking risk philosophies. If they fail to do so, they may end up becoming just another chapter in the long history of banking failures.

The future of banking is not just about digital transformation. It is about mastering risk. Those who get it right will thrive. Those who do not will find out the hard way.

The solution?

GET RISKY OR GET LOST: THE PSYCHOLOGY, SCIENCE AND ART OF PRECISION RISK-TAKING. IT IS THE NEW GLOBAL FRAMEWORK FOR RISK. To order bulk copies for your organisation or receive support implementing dynamic risk strategies that actually works, contact me at chizubel@chizubelbeluchi.com. Check out the services section for more.

Take Risk. Achieve Purpose!

Your Risk Champ,

Chizubel Beluchi