Why data and strategic procurement are key for digital banking
As the UK emerges from the latest lockdown, what does reality look like for today’s banks? In short, the answer is – a challenging one, writes Toby Munyard, Vice President at Efficio Consulting. He puts forward why good data and strategic procurement are key for success.
2020 was a difficult year for the banking industry as a whole. Neobanks – also known as online, virtual, or digital banks – saw usage drop by 30% more than traditional banks at the beginning of lockdown. But, by the end of the year, things were looking up for challenger banks. Both Starling and Revolut reported turning a profit and breaking even respectively.
Meanwhile, traditional banks are trying to keep pace and navigate their own digital transformation journeys. Dealing with the pressure of ever-changing consumer behaviour, whilst juggling the mix of remote and on-site workers, the need to innovate is nothing new for traditional banks – but it’s more important than ever.
Digital transformation efforts from traditional banks were accelerated by the rise of challenger banks long before the pandemic. Due to a digital-first approach, these new banks have none of the legacy systems in place like traditional banks to hold them back from innovation. But, as we’ve seen, even these brands haven’t been immune to the vast impacts of Covid-19.
Consumers are getting increasingly tech-savvy and operating on a digital-first model is no longer enough in its entirety. In today’s increasingly competitive environment, banks must modernise their entire technology functions to support both the front and back ends of their businesses.
In such a competitive environment with rising cost pressures, innovation of this kind can often feel out of reach for banks. After all, banks are often a low-growth environment, and optimising the cost of operations can typically take five years or more. Another key sticking point for banks when pursuing innovation is the added complexity and cost surrounding regulation.
Unfortunately, regulation is part and parcel for any financial service. And new innovations and product offerings will only increase the need for compliance. So, as the industry continues to evolve and face the challenges that come with digital transformation, what do banks need to do to win the innovation race?
Optimising costs to fund a digital-first approach
Investing in a digital-first future starts with the procurement function. Whilst it is impossible to have complete control over revenue, one thing a business can control is cost.
Effectively optimising operational and business costs will be key to freeing up valuable liquidity in order to fund new digital initiatives. But this requires a proactive approach to supplier management. Rather than relying on supplier rebates once a deal is finalised, the Chief Procurement Officer (CPO) must be able to influence and ensure efficiency from the beginning of a relationship to achieve significant savings.
For existing suppliers, a step change may be required to steer this initiative. Getting the right supplier onboard and having forward-looking conversations about new trends in the market will be crucial. After all, these suppliers will be key to driving digital plans forward. Suppliers providing products and services for which demand is declining should not be neglected. Chances are, because of the trends in the market, they are keen to maintain and gain as much business as possible, meaning preferable deals may be available.
In addition to effective supplier management, a review of internal systems is urgently needed to aid cost-reduction on a long-term basis. Traditional banks are often made up of a range of complex legacy systems that allow for very little flexibility in a new digital age. The key here will be to simplify these systems, whilst integrating solutions such as robotics, AI, and SaaS to ensure they are running as efficiently as possible.
Intelligent data remains king
A CPO must have access to accurate, up-to-date and intelligent data if the cost-reduction mission is to be successful. Without it, the long-term, sustained change needed to outmanoeuvre new market entrants, simply cannot be achieved.
After all, the intelligence derived from good, high-quality data provides the CPO with much-needed visibility in which informed decisions over cost-reduction can be made. It is only with this visibility that organisations can identify opportunities and deliver efficiencies that lead to sustained cost savings.
Architecture that can effectively connect to anything, anywhere, will be an essential tool to ensure the CPO is presented with all the relevant data – for example, linking enterprise databases, data warehouses, applications, legacy systems, and cloud services to comparable systems at partners and suppliers. Integrating with apps, wearables, and mobile devices at an individual user level, and using an enterprise mobility strategy to link to employees and contractors and third party ‘big data’ sources, will also help to provide a complete view.
The power of data in digitisation
Data is a necessary tool for procurement, but it can be overwhelming. If it is not captured and interpreted properly, it can hinder performance. The financial services industry captures a huge amount of data within enterprise resource planning (ERP) and other finance-based systems that is not being analysed. This causes efficiencies to be missed and results in the organisation remaining stagnant in the digitalisation journey.
By ensuring the procurement team has access to the right skills and talent, they can harness the power of that data. This may require additional training or consultancy to leverage data effectively and to execute successfully in today’s agile and fast-paced environment.
By putting the power back into the hands of procurement, banks can remain competitive. And with the right tools and responsibility, the CPO and the procurement function can align to the strategic targets set out across the whole banking business.
The road to digital transformation may be a long one for traditional banks, making the need for long-term efficiencies even more important as they face the stiff competition set out by the challenger brands. Banks have survived a myriad of challenges in the past but good data, teamed with an effective procurement capability, will put them on a winning path to long-term success in the race of innovation.
