EXUS Collections & Recovery Blog

Digital transformation in banks: Why procurement is key

Posted by Dimitris Vassiliadis on Tue, Sep 11, 2018 @ 09:50 AM


In the mid-nineties, Bill Gates said that ‘banking is necessary, banks are not’. Back then, Gates’ pithy comment was merely a bit of throwaway futurism. The supremacy of the big banks seemed insurmountable. But as the years passed, his words have become increasingly prophetic.

Gates’ utterance isn’t completely correct, of course. Perhaps Microsoft’s founder sacrificed a little truth to create a snappy sentence.The reality is that banks, as Chris Skinner correctly argues, remain a ‘trusted store of value’.

But there is a kernel of truth, too: in 2018, banking services are now unbundled. We don’t need banks to make payments, we don’t need banks to get a loan and we don’t need banks to invest with.

Banks are now challenged by digital native upstarts from all sides, and initiatives like the EU’s PSD2 and Open Banking in the UK are flattening the banking landscape further.

As David Gledhill, CIO of DBS Bank put it, “In order to stay relevant, we need to innovate, harness the digital revolution and completely reimagine the role of banks and the customer experience.”

Gledhill is correct: digital transformation and customer experience are key. And procurement teams have the power to make sure they’re enacted.

The changing role of procurement

Many in the banking sector have an outdated view of procurement. They see procurement as a blockade to making great ideas happen. Procurement teams are labelled as bean counters, but this does them a disservice.

The last decade has seen procurement evolve from a transactional function to a more strategic one. Banks, now under more competitive pressure than ever before, rely on procurement teams to support their rapidly changing operations.

The challenges facing procurement in banking

The challenge of banking is the challenge of procurement, too. They are intertwined and the era of procurement teams being isolated from the bank’s broader strategic aims are over.

“Whoever has control of vendor management should be sitting together with suppliers to talk about strategic and tactical issues,” according to John Goyanes, the former head of procurement at Deutsche Bank.“That should cover everything – commercial appropriateness, service-level attainment and candid discussions about the roadmap for that supplier in that organisation.”

The challenges are enormous. Technologically, many big banks have started to creak. The patchwork of systems, platforms, software, and tools – much of it legacy infrastructure – is increasingly affecting banks’ ability to compete in a changed, more crowded market.  

Modernising core operating infrastructure now ranks as the most important IT trend for nearly a quarter of global banks. And tech budgets at banks continue to expand; with Gartner predicting that the global banking industry will spend $519 billion on IT in 2018, up 4.1% year-on-year from $499 billion in 2017.

For procurement teams, it means bigger budgets and more pressure than ever. Not just to pinch pennies, but to ensure that this once-in-a-generation tech migration is a success.

This procurement operation is different, however. The emphasis is more than technical, it’s about how technology feeds into a larger, customer-focused business model.

As Jan Carlzon, the legendary former head of SAS Airlines, said, the airline’s assets aren’t the aeroplanes, but the people flying in those aeroplanes. Similarly, for procurement teams in the banking sector, it’s important to remember the bank’s assets aren’t the tech, but the end user.

Modern procurement has to consider a customer’s intent, not just the the service requirement that the technology would satisfy. A customer’s intent isn’t simply to pay their debts, but to improve or recover their financial situation. The tech in which banks invest should reflect that intent.  

The strategic role of procurement in digital transformation

The new reality is that procurement is not just the end part of a process, it’s a department that needs to sit around the table at initial discussions.

Banks are faced with the challenge of accelerating business performance while optimising costs at the same time. And collaboration - internally among teams and externally with vendors - has become key to meeting this challenge.

Continuous engagement is critical not only to satisfy the familiar priorities of risk management and cost, but also to ensure the acquisition of critical external capabilities required to drive successful business initiatives.

11FS, a prominent banking consultancy, recently summarised the banks’ customer service challenge as “issues of provision”. Banks rarely offer products and services that are truly tailored to the needs of specific consumer segments.

Not out of malice, necessarily, but through relying on products that are powerful, but inflexible by their very nature. Operating at the tip of the spear, procurement teams are tasked with finding the tools that can match heightened customer service ambitions.

At the digital frontier

So if we need banking and not banks, to repurpose Bill Gates’ oft misinterpreted quip, what does this mean for procurement teams?

As banks seek to become more than just places to store value, procurement will be vital in securing the assets necessary for modern banking.

Considerations like cost and risk management will always be there, but those two classic procurement challenges have been joined by a third priority: Operating as technical vanguard, working with other stakeholders to secure the best results for everyone.


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Topics: debt collection, procurement