Evolving profiles of financial risk management in the era of digitization: The tomorrow that began in the past

The initial phases of digitization have automatized the front‐end of banks and financial institutions (FIs). This paper documents the automation of the back‐end in the current wave of digitization. In particular, it highlights the use of technology in streamlining risk management and its potential to provide competitive advantage to the FIs embracing digitization. For instance, automated “big data” credit scoring tools built on predictive analytics and machine learning algorithms are employed to examine several credit propositions. This can accurately construct the credit worthiness and risk profile of public, even without any credit history. These developments can widen the access of credit and other financial services to the society. However, on a cautionary note, this study emphasizes that although digitization of back‐end financial transactions carries substantive advantages, the FIs must be guarded against cyber, outsourcing, financial exclusion, and macrofinance risks that can manifest with this automation. In this backdrop, the need for robust yet agile regulations and supervisory counsel to control and exploit the digitization towards optimal benefits for banks and FIs and society at large, acquires salience. Furthermore, regulators and supervisory authorities can mitigate the digitization risks and prevent any public fallout by leveraging the use of digitization itself.