# Extended Reality Applications in Risk Management
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-06-17
Category: TECHNOLOGY
Category URL: https://financedigest.com/category/technology
Meta Title: Revolutionising Banking Risk with Virtual Reality
Meta Description: Discover how Extended Reality (VR, AR, MR) combined with AI and data science is transforming risk analysis and management in banking post-2008 financial crisis.
URL: https://financedigest.com/extended-reality-applications-in-risk-managementhtml

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# Abstract

Post the 2008 Global Financial Crisis, risk management in banking has flourished with intensive regulations, processes, innovations. Increasing complication of risk analysis, simulation and management is providing inroads to technological disruptions in this area. In this context, one powerful yet unexplored tool in many banks is likely the area of extended reality (virtual reality, mixed reality, augmented reality).

Extended reality aided with artificial intelligence and data science has the potential to act as a contactless record collection and retention reference, monitoring, modelling, complex inferential tool and may help modernize [risk management](https://www.financedigest.com/strategies-banks-use-to-manage-liquidity-risk.html "Strategies Banks Use to Manage Liquidity Risk") and financial crime analysis and overall reporting.

# Virtual Reality and Banking Risk and Fraud

Financial Institutions (FIs), like other industries, are going through technological, business, geopolitical and environmental disruptions, leading them to find out ways to [run their business](https://www.financedigest.com/4-signs-you-have-what-it-takes-to-run-a-business.html "4 Signs You Have What It Takes to Run a Business") keeping in mind interpretation efficiency, ease of interpretation, social distancing, access to remote area and design for overall cost efficiency.

Using Extended Reality is expected to provide capability uplifts related to [business benefits in the risk](https://www.financedigest.com/aon-assists-freddie-mac-to-reach-5bn-risk-transfer-milestone-for-u-s-mortgage-credit-business.html "AON ASSISTS FREDDIE MAC TO REACH BN RISK TRANSFER MILESTONE FOR U.S. MORTGAGE CREDIT BUSINESS"), fraud and compliance divisions of FIs, such as:

- **[Transform complex data](https://www.financedigest.com/how-data-governance-as-a-service-can-transform-the-financial-sector.html "How Data Governance-as-a-Service can transform the financial sector") to understandable intuition** – Complex data, either multi-dimensional or voluminous, both in breadth (categories, dimensions) and depth (volume) may be easily visualized and traversed to get an intuition of the data by drilling down from a macro to a micro level view

- **Discover complex patterns** – Multi-dimensional, immersive visualization may aid to discover patterns not easily visible in tabular information or non-immersive visualization

- **Seamless access of remote** **inputs** – Remote locations may be scanned, and information gathered and visualized to make business inference quickly due to seamless and near real-time access

- **Connect people with** [business in a completely intuitive way](https://www.financedigest.com/5-practical-ways-to-manage-your-business-expenses.html "5 Practical Ways To Manage Your Business Expenses") – Immersive experience helps to connect people with the changing risk and compliance imperatives and form quick and lasting understanding of the changes

In the below section, we discuss various potential use cases that the financial [industry can consider for application](https://www.financedigest.com/application-security-in-the-finance-industry-what-you-should-know.html "Application Security in the Finance Industry: What You Should Know") of extended reality capabilities.

## Transform complex data to understandable intuition

Dynamic Stress Testing will lead to complex multi-dimensional data landscape, which will be hard to explain to the regulator, and hard to visualize for decision makers within the organization. To improve explainability of results, it is imperative to use a better tool to visualize the complex mesh of dynamic stress testing area. Virtual Reality can be an excellent tool in this area, both for supervisors and decision makers, and for the analyst and tester, who may find it difficult and time consuming to explain the results. Use of VR may augment the application of [Artificial Intelligence](https://www.financedigest.com/types-of-artificial-intelligence.html "Types of artificial intelligence") (AI) for complex multi-dimensional risk models with better explainability.

In Market Risk, information is usually [gathered and visualized real time from an analysis of stocks](https://www.financedigest.com/stocks-buoyant-while-darker-forecasts-gather-on-the-horizon.html "Stocks buoyant while darker forecasts gather on the horizon"), currency, derivatives and macro-economic movements from several sources. Using extended reality can help analyze and explain market volatility predictions from a cause/impact/time to impact analysis in a visual, more intuitive way.

From a compliance standpoint, FIs need to submit lot of information to regulators, and the list of information keeps broadening over time. Increasing regulatory commitments make FIs sift through complex and voluminous regulatory documents and complex, wide array of data, thus incurring huge costs. Proper visualization of data, easy cross-referencing and validation with documents, and [analysis of data provided shall arm the supervisors with better control](https://www.financedigest.com/trendrating-1-3-delivers-faster-data-analysis-and-enhanced-risk-control-tools.html "Trendrating 1.3 delivers faster data analysis and enhanced risk control tools") and enable FIs to gain insights from this huge data pool, and correlate between the requirements of different regulators. The regulatory compliance landscape is bound to get more complex as more and more regulations come up to cover speedy disruptions in banking. Immersive data visualization can enable a supervisor and analyst in the compliance area to sift through and interlink the complex regulatory data-document landscape and enhance control.

Credit [Risk Assessment of a borrower involves multiple](https://www.financedigest.com/wto-sees-subpar-2023-trade-growth-with-multiple-risks.html "WTO sees “subpar” 2023 trade growth with multiple risks") documents to be traversed, including several inter-linked documents. Maintaining these documents for a portfolio and gaining proper insights form the literature is itself a daunting task for an FI. Intelligent use of NLP, NLG and audio/video summarization paired with virtual reality to intelligently visualize and sift through a portfolio’s document stack can enable analysts with better insights and better control. They can be equipped to only see relevant contextual information and be better equipped to control a larger portfolio.

Possibility of [risk modelling](https://www.financedigest.com/jaywing-releases-horizon-a-new-ifrs-9-modelling-solution-that-encapsulates-its-extensive-credit-risk-expertise.html "Jaywing releases Horizon, a new IFRS 9 modelling solution that encapsulates its extensive credit risk expertise") is getting complicated, with a wide range of information captured and correlated to risk of a bank/institute/individual or macro-economic risk. These data may come from diverse places like bureaus, research bodies, news agencies, other agencies, social media, IoT, government, police, postal department, utility firms, climate bodies, geological research, industry bodies, etc. As [banks & insurance agencies try to increase](https://www.financedigest.com/banking-and-fintech-convergence-will-increase-reliance-on-it.html "Banking and Fintech Convergence will Increase Reliance on IT") outreach and be more accurate in their speculations, this plethora of information will complicate the risk modelling environment and, in turn, be less explainable and visualizable. Lack of explainability will be a deterrent in developing and interpreting complicated models. Virtual Reality aided simplified visualization, in conjunction with explainability (XAI), can be an aid for FIs to calibrate more accurate, complex models which source diverse information.

## Discover complex patterns

Anti-Money Laundering (AML) analysis involves analyzing millions of transactions around certain data dimensions involving customer information, account information and transaction details. As each of these dimensions have several attributes to analyze, it becomes a (No. of Transactions multiplied by No. of attributes in transaction, account, customer dimension) problem. Visualizing the transactions together while flipping dimensions may provide macro level money movement information and would aid in anomaly detection and new pattern discovery in this field. This can be facilitated by Topological Data Analysis (TDA), where the topology is colored and viewed to discover patterns.

## Seamless access of remote inputs

Lenders have reported gaps in collateral valuation by independent valuers, mostly due to influence of borrowers, and, in some markets, due to non-regulated valuers. Augmented Reality may be an excellent second eye to the valuer. The lender may require valuers to create VR videos of site visits, which can then be seen centrally by the FI. Video analytics can pull up relevant data of objects seen in the VR video and provide better valuation analysis and any possible notes on risks associated, depreciation rate deviations, etc. This can enable lenders to cross-check with valuers when required and reduce the valuation gaps. Image analysis may also aid FIs to send drones armed with cameras in disaster zones and check up their collaterals. Similar use cases are also present in the [insurance industry](https://www.financedigest.com/how-can-the-insurance-industry-avoid-having-a-kodak-moment.html "How can the insurance industry avoid having a ‘Kodak Moment?’") particularly in the context of their Property & Casualty (P&C) lines of businesses.

## Connect people with business in a completely intuitive way

As the regulatory compliance and [banking risk](https://www.financedigest.com/governments-and-central-banks-risk-inflation-bank-of-england-has-done-its-bit-now-the-politicians-turn.html "Governments and central banks risk inflation, Bank of England has done its bit, now the politicians’ turn") landscape evolves and gets complicated, along with emerging risk conundrums, training personnel will continue as a challenge. Virtual Reality, with its immersive visualization, can be an excellent aid to contextualize and memorize this complex landscape.

Virtual Reality can also aid to include and provide understanding of banking procedures and encourage financial [literacy and help improve](https://www.financedigest.com/5-ways-to-improve-your-financial-literacy.html "5 Ways to Improve Your Financial Literacy") financial inclusion. There are huge and vulnerable populations, yet untapped by the [financial sector](https://www.financedigest.com/how-can-the-financial-sector-safely-use-the-iot.html "How can the financial sector safely use the IoT?"), and they have low risk profiles and thus would be of interest to the FIs. By giving them a knowledge of the process, the FI can enable them to deal with the [financial system efficiently and independently and help them to tap the financial ecosystem](https://www.financedigest.com/the-future-of-payments-biometrics-within-the-financial-ecosystem.html "The Future of Payments: Biometrics Within the Financial Ecosystem") for themselves. This awareness will help curb the middlemen/brokers, who may be motivated by commissions to miss-sell, thus [reducing conduct risk](https://www.financedigest.com/how-can-you-reduce-the-risk-of-fraud-in-b2b-payments.html "How can you reduce the risk of fraud in B2B payments?") and associated credit risk, fines, litigation costs, further.

# Conclusion

Extended Reality provides the possibility of creating an immersive experience, which can help in detailing remote inspections or complex visualizations involving multiple dimensions. Extended Reality can also a great aid for [online training](https://www.financedigest.com/prince2-and-msp-training-the-rise-of-online-project-management-courses.html "Prince2 and MSP Training: The Rise of Online Project Management Courses"). Immersive visualization helps to quicken human decision making, understanding and inference as it sends a clear depiction of the information at hand, with the provision of including multiple dimensions efficiently. This helps the brain to get an intuitive understanding of the visual environment.

At present, the coronavirus pandemic has added a whole set of new challenges on top of the disruptions stemming from business model changes, shifting customer preferences, and technological capabilities. With this high rate of change, we feel Extended Reality can be leveraged as the [next big](https://www.financedigest.com/finance-is-the-next-big-sector-to-be-ubered.html "Finance is the next big sector to be Uber’ed") aid to run the risk and compliance functions more effectively. In our opinion, the FIs that will move sooner to incorporate such capabilities to augment their business processes, employee tools and experience for their customers will establish the new normal [level playing fields](https://www.financedigest.com/using-agility-to-resist-economic-instability-and-level-the-playing-field.html "Using agility to resist economic instability and level the playing field").

# Authors

![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/picture1-1-1736838276614-compressed.jpg)

Partha Pratim Ghosh

Partha is a Domain consultant with BFSI Chief Risk [Office Strategic Initiatives at Tata Consultancy Services](https://www.financedigest.com/managing-the-hidden-security-gap-in-financial-services-the-office-printer.html "MANAGING THE HIDDEN SECURITY GAP IN FINANCIAL SERVICES: THE OFFICE PRINTER") **(TCS)**. His primary expertise is in Commercial Credit [Risk and AML Data Management](https://www.financedigest.com/early-detection-of-mismatched-trades-is-key-to-managing-risk-and-maximizing-profits-on-the-pl-desk.html "EARLY DETECTION OF MISMATCHED TRADES IS KEY TO MANAGING RISK AND MAXIMIZING PROFITS ON THE P&L DESK"). Partha is a Bachelor of Metallurgical Engineering and has domain consultancy, technical architecture, and solution architecture experiences. With more than 15 years of experience in BFS industry, Partha focuses on providing innovative [solutions to re-imagine risk](https://www.financedigest.com/retreating-up-the-risk-curve-is-no-solution-to-the-growth-challenge.html "Retreating up the risk curve is no solution to the growth challenge") transformation and risk quantification.

![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/picture2-1736838276517-compressed.jpg)

Kallol Bhaumik

Kallol Bhaumik is a Domain consultant with the CRO Strategic Initiatives team of Banking [Financial Services](https://www.financedigest.com/wrapping-financial-services-in-a-security-blanket.html "Wrapping Financial Services in a Security Blanket") and Insurance (BFSI) unit at **Tata Consultancy Services (TCS).** Kallol’s expertise primarily lies in Credit risk, Counterparty Credit Risk and CCAR area. In his academic, he has done extensive study on the history of risk measurement methods and how they evolved to reach to [modern day](https://www.financedigest.com/who-is-the-modern-day-cfo.html "WHO IS THE MODERN DAY CFO?") risk measurement methods. With over 12 years of experience in BFS [industry and in the risk management](https://www.financedigest.com/improving-risk-management-in-the-insurance-industry.html "Improving risk management in the insurance industry") area, he focuses on research and analysis of upcoming regulations of various regulatory bodies and works risk transformation themes and solutions.

![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/picture3-1736838276560-compressed.jpg)

Pradipta Niyogi (Prad)

**Prad** is a Consulting Partner at TCS and part of BFSI [Chief Risk Office](https://www.financedigest.com/deutsche-bank-names-eigendorf-new-chief-sustainability-officer.html "Deutsche Bank names Eigendorf new chief sustainability officer") Strategic Initiatives at **Tata Consultancy Services (TCS)**. He specializes in Consumer Banking domain and focuses on Customer Experience & Conduct [Risk Mitigation](https://www.financedigest.com/mitigating-operational-risk-through-centralising-reconciliation.html "MITIGATING OPERATIONAL RISK THROUGH CENTRALISING RECONCILIATION") portfolios. He has about 22 years of experience & [combines subject matter expertise](https://www.financedigest.com/emvco-and-pci-ssc-combine-expertise-on-3-d-secure-2-0.html "EMVCo and PCI SSC Combine Expertise on 3-D Secure 2.0"), analytical thinking and design thinking principles in engagements with customers and analysts. Prad is based in India and is a Master of Science in Quantitative Economics from the Indian Statistical Institute.


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