One of the key challenges that banks continue to face is the continued failure to operate as one unit, due to multiple divisions operating as separate silos. Divisions in some situations can even appear to run as a separate bank. Although mergers and acquisitions are the reality of banks, this situation represents the duplications of both efforts and resources and missed revenue opportunities. These bank silos do not create growth but rather the opposite; the results are usually more costs and ultimately reduced revenues. In the current financial services environment, where alternative payment services companies continue to erode bank revenue opportunities, the migrating to a “one bank” concept can strengthen how the bank conducts business by reducing expenses and strengthening vendor relationships.
For example, in my travels working with banks, I recall one bank was considering outsourcing their Electronic Bill Presentment and Payment (EBPP) solution to a leading vendor in this space, because their Cash Management/Treasury Department wanted to expand collection channels for their customers. In short, as check remittances decreased, consumers were seeking new digital channels to remit payments. The vendor contract took months to close and the product managers did everything in the power to have this product sold within their division through the bank’s sales executives in an outsourced model.
However, there was another division, namely, the Retail Division of the bank that also wanted to provide this product and worked with another vendor to provide a competing product. Although the target market were consumers seeking to make electronic payments for their credit cards, the product capability and functionality was the same as that offered to the clients in the bank’s Cash Management/Treasury Division. In addition, the bank had mortgages and loans and contracted with a third vendor to provide this capability to their respective customers.
In this situation, multiple vendors were used to provide the same product to several divisions of the bank. While acting as separate divisions promoted good internal competition, it failed to leverage the “power of negotiation”. High transaction volumes can dictate lower pricing in some situations. In addition, managing separate vendors requires the bank’s vendor management and procurement department to monitor and evaluate the vendor on a periodic basis to ensure they meet the banks standards and criteria.
How can banks move to a “one bank” model and provide greater value to their customers and shareholders? In my opinion, the procurement and vendor management areas must play a stronger role. This division has a view of the vendors used across the organization. Even if the individual departments are unaware of the vendors used in other divisions, procurement departments have access to this information and for most banks this information is stored in either a central database. Even if vendor information is in separate databases owned by different business units, procurement departments can begin the conversations around vendor consolidation.
I have also seen situations where the same product is offered by separate vendors and the pricing schedules vary by divisions. Who ultimately pays the cost? The answer is the end customer but ultimately the bank’s revenue margins are impacted. Although there is no easy answer to completely eliminate a bank’s silos, providing clear evidence that can drive margins down and revenues up creates the business case for vendor consolidation. In my travels, I have seen situations in which bank product managers have reached out to their colleagues in different divisions to initiate conversations around vendor consolidation, thereby providing higher potential volumes with the goal to drive costs down. This can result in savings to their clients and greater profitability to the bank.
For many banks, moving to the “one bank” model is not just about vendor consolidation or procurement having a more active role, but instead, it is about bank culture. Whether mergers and consolidations have left duplicate systems running within the bank or multiple divisions operating as separate business units, this will need to change soon. Disruptive technology and alternative financial payments companies are motivating consumers to seek other areas to conduct their business. Therefore, banks need to continue to build products that will create sustainable growth and revenue.
What worked for banks decades ago may not work going forward. The “one bank” model is key to the survival and growth of the banking sector. It not only will be the foundation of creating strong products but better negotiation comes when volumes are at stake. Keeping a watch on how banks shift to the “one bank” model will provide better margins and new opportunities.
Wayne Brown focuses as the bridge between FinTech and financial institutions, working with FinTech companies and banks to find and create mutually profitable opportunities. Our varied market segments enable us to identify synergies and opportunities to stimulate growth as we partner with our clients to build their business. For more information please contact me at firstname.lastname@example.org.