With the fintech industry booming with new, innovative solutions to a variety of financial-based issues, traditional banks can be seen as being left behind. Is optimising data the key to keeping up in the race for innovation?
Toby Munyard is Vice President of Efficio Consulting, one of the worlds largest procurement consultancy companies. Toby has over 20 years of experience in operations consulting with a focus on procurement and supply chain optimisation and is responsible for leading the financial services and Infrastructure sectors at Effico.
Here he shares his view on the need for banks to utilise intelligent data in the race for innovation.
Toby Munyard, Vice President, Efficio Consulting
Like a flip-switch, the pandemic saw many industries pushed over the innovation tipping point, accelerating digital transformation efforts at a pace never seen before. After all, consumer behaviour has changed dramatically – a lack of face-to-face contact with businesses has meant that organisations are having to turn to digital methods in order to keep customers engaged. Meanwhile, the sudden shift to remote working has put immense pressure on organisations to digitise internal processes.
For the world of banking, the need to continuously drive innovation has been a key pressure point for many years. And now, that pressure is building. Challenger banks, such as Monzo, Revolut and Starling, continue to cause huge waves within the financial services industry, due to their digital-first approaches. These, often start-up brands, have the advantage of operating nearly solely online, with none of the legacy systems in place to hold them back from innovation. However, even these brands haven’t been immune to the vast impacts of COVID. 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.
That said, in such a competitive environment with rising cost pressures, innovation of this kind can feel out of reach for banks. After all, banks are often a low-growth environment, and optimising the cost of operations can typically take at least five years or more. Another key sticking point for banks when pursuing innovation is the added complexity and costs 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, with myriad challenges facing the industry, how can banks compete in the race to innovation?
To be able to invest in a digital-first future, the journey begins 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 to fund new digital initiatives. But this requires a proactive approach to supplier management. Rather than relying on supplier rebates once a deal is done, the CPO (Chief Procurement Officer) must effectively influence and ensure efficiency from the beginning of a relationship to achieve significant savings.
For existing suppliers, a step change may be required in order to steer this initiative. Getting the right supplier onboard and having forward-looking conversations about new trends in the market will be pivotal. After all, these suppliers will be key to driving digital plans forward. Suppliers providing products and services where demand is declining should not be neglected. Chances are that 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.
Data – procurement’s secret weapon
To be successful on any cost-reduction mission, however, the CPO must be aided by accurate, up-to-date, intelligent data. 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.
Harnessing the power of data
Whilst a necessary tool for procurement, being faced with a mountain of data can be overwhelming and actually hinder performance if it is not captured and interpreted correctly. Typically, within financial services, there is a huge amount of data being captured within Enterprise Resource Planning (ERP) and other finance-based systems that are not being analysed. As a result, efficiencies are missed, and the organisation remains stagnant in the digitalisation journey. To truly harness the power of data, the procurement team must ensure it has access to the right skills and have the right talent in place. This may require additional training, or consultancy to leverage data effectively and to execute successfully in today’s agile and fast-paced environment.
Ultimately, to remain competitive, banks must put the power back into the hands of procurement. By providing the CPO with the right tools and responsibility, the procurement function can align to the strategic targets set out across the business.
Good data, when teamed with effective procurement capability, will be a much-needed adrenaline shot for finance companies. Whilst challenger brands may only be running a 400-metre sprint in terms of digitalisation, in comparison, traditional banks are running a marathon. Stamina and the need for long-term efficiencies will be pivotal to win in a race of innovation.