It’s no secret that the big financial services firms have their work cut out. Leaving regulation to one side, banks are facing up to the prospect of stiff new competition. Challenger banks, as they are called, retailers and technology companies are beginning to define the future of financial services technology and at the same time are mounting a serious challenge to incumbent banks.
While it is a challenge that is in its infancy, procurement in established financial institutions must recognise and respond to it. Attracting and nurturing technology experts and leveraging that knowledge throughout the sourcing and procurement process, from strategy through to day-to-day execution, is essential. The need to protect the organisation against growing cyberthreats compounds this need, but it also represents an opportunity for the function.
A study by Edbury Daley found that knowledge in the technology sector dominates demand for category expertise in all areas of spend, across the industry spectrum; 45% of respondents said this was where the biggest expertise gap was to be found.
Procurement teams in the financial services sector have spent the past few years focused on IT issues, namely ATM machines, card payments, batch processing systems – all of which have required a level of specialist technology know-how to both on-board and ensure effective integration with the rest of the business.
This means that there is already a high level of readily available knowledge in the function that can be tapped into by the business, but the function has to make sure the business knows that it exists.
However, the added challenge for the function is that the future of technology in the banking sector is digital. Online and mobile transactions are both cheaper and more popular among customers than in-branch equivalents. The problem for banks is that these technologies are constantly changing and become irrelevant much more rapidly than, for instance, ATMs.
Customers, particularly the younger generation, are now used to instantaneous transactions, thanks in large part to their interactions through social media, and the banking sector has to catch up and cater for this.
Challenger banks and other new payment players are typically more agile, have much smaller cost bases and are not held back by burdensome compliance processes to the same extent as their bigger rivals.
On mobile payments and back-office systems, for example, challenger banks have been leapfrogging their incumbent counterparts, proving that banks can be run using something else rather than a traditional IBM mainframe.
These are not insurmountable problems – at the moment. Ignore it though and it could easily become an issue that snowballs. Having already built up a bank of knowledge, the function stands in a good position to be able to help the business meet this challenge head-on. But – and it is a big but – they need to ensure that the business knows the knowledge exists and continues to build on the foundations of this knowledge to meet the challenge.