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Overcoming Compliance and Data Challenges in Financial Services with AI

Kevin Green, COO

Hapax

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Data plays a crucial role in helping businesses make better decisions, solve problems, and enhance operational efficiency. This is especially true for industries like financial services — a complex industry driven by both evolving and emerging regulations as well as numerous high-risk compliance scenarios. Yet access to clean, compliant and accurate data is not created equal.

 

While data and compliance challenges impact financial institutions of all sizes, small and mid-sized banks and credit unions face a greater burden due to limited resources. In fact, a new Hapax report found that 61% agree that compliance burdens are significantly greater for small—to mid-sized banks and credit unions than for larger institutions. This has tremendous knock on effects, increasing the weight of information overload, compliance issues, and staffing shortages.

 

What’s worse, our research indicates that bank employees spend an average of eight hours per week piecing together various resources and documents to try and get a complete picture of their regulatory compliance guidelines. Ultimately, the question that arises is: How badly are these challenges impacting our small—to mid-sized banks and credit unions? And more importantly, what is the solution?

 

The True Cost of Compliance

Compliance with regulatory requirements is a crucial yet costly aspect of operating within the financial industry. Consider this. If a bank employee earns $40 an hour and spends eight hours per week on compliance-related tasks, that incurs nearly $17,000 per year in costs.

 

For smaller financial institutions that struggle with limited resources and the expertise needed to keep up with an ever-changing regulatory environment, this cost can be crippling. Not to mention that the time and money spent on table-stakes compliance can divert crucial resources away from customer service, technology upgrades, and growth initiatives. This perfect storm makes it nearly impossible for smaller institutions to stay competitive with bigger banks.

 

Inefficiencies Hurt Customer Service and Community Relations

But it doesn’t stop there. Bankers’ inability to find necessary information at work also negatively impacts customers and communities at large. According to our survey, 78% of respondents struggle to locate the information they need, and 82% report that asking others for information slows down their work. These inefficiencies create a ripple effect, ultimately damaging customer relationships and the quality of service provided. For smaller institutions that rely heavily on local roots and direct customer relations, such issues can be especially detrimental to their reputation and core capabilities.

 

The domino effect is further highlighted by the fact that 62% of respondents report that time-consuming document tasks hinder their ability to serve the community and develop stronger customer relationships. When bankers are bogged down by inefficient processes, their capacity to engage with and support their customers diminishes, undermining the institution's role and standing within the community.

 

Administrative Burdens Erode Job Satisfaction and Work-Life Balance

Additionally, administrative tasks drain employee satisfaction, with 43% of employees stating that difficulty finding information negatively impacts their job satisfaction. This dissatisfaction impacts individual performance, team dynamics, and productivity.

 

Given this, 32% of employees also indicate that these burdens lead to a decreased work-life balance, exacerbating stress and burnout. This often results in higher turnover rates and additional costs associated with recruiting and training new staff.

 

Bridging the Gap Between Big and Small Banks

The big promise of fintech was to be the great unifier, but for years, technology has instead acted as a divider between big banks and small banks, creating a stark contrast between the haves and the have-nots. Small banks have struggled to keep up with the technological advancements and resources available to their larger counterparts. However, there is a growing belief among bank employees that AI could be the solution to this disparity. Among respondents, 53% believe AI would improve job satisfaction, 47% think it would boost their confidence in their work, 43% see it as a tool for building stronger client relationships, and 61% feel it would enhance productivity.

 

AI has the potential to bridge gaps rather than widen them. By providing equal access to information, AI can level the playing field between large and small financial institutions. Through automation and improved data management, AI can help small banks overcome resource limitations, streamline operations, and deliver better customer service.

 

AI: A Game-Changer for Facing Data and Compliance Woes

It’s clear small and mid-sized banks and credit unions are struggling to keep pace with regulatory compliance. But here's the good news: artificial intelligence could be a game-changer. AI can make information easier to access and handle admin tasks more efficiently, helping smaller institutions truly compete with the big players. Embracing AI could make the financial sector more inclusive and efficient, benefiting everyone involved.

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