Supplier Risk, Spend Management Prove Critical For Banks’ Procurement Needs

Not all verticals are created equal when it comes to the procurement process. Priorities in managing procurement will range from cost of the software to the ability to handle industry-specific needs.

For financial institutions, procurement means working with external suppliers that could potentially introduce the bank to risks that permeate far beyond the FI’s internal walls.

Ian Cotter, a director at procurement firm GEP, told PYMNTS that supplier management is critical for banks today. A breach in a supplier’s database, he said, could threaten the financial institution, too.

“What we’re seeing is that [FIs] are putting in place a more rigorous process to make sure suppliers that are onboarded also have very strict and rigorous risk management protocols in place,” Cotter said. Otherwise, a hack into a supplier’s system could lead to a breach of privacy of the financial institution’s systems.

While cybersecurity is paramount for any corporation, banks face significant compliance issues when their data (and their clients’ data) isn’t secure.

This heightened demand for security is what Cotter said sets financial institutions apart from other verticals when it comes to procurement and supplier management.

“The primary difference with FIs is a lot of them want to mitigate and reduce risk with their external supply base,” the executive noted. “A lot of companies that we work with in other industries may be primarily focused on achieving savings or getting the best product and services for the lowest cost. Whereas, for a lot of FIs, risk management has definitely become a board-level issue.”

That concern is ever-increasing, especially with the rise of international operations and the globalization of payments and other transactions, Cotter agreed.

Supplier risk management may be particularly important to financial institutions, but there are other areas of the procurement process that banks are challenged with in the same way other companies are — even if it may not seem obvious.

For example, a bank is considered by its customers as the expert in cash management.

“You’d be surprised that a number of large Fortune 100 companies need a better understanding of how they’re spending money with external suppliers,” Cotter explained, adding that the same goes for banks and financial institutions.

“They may be very good at managing their customers’ cash because their core competency is investments, but when it comes to managing their own cash, that’s not what they’re trained for,” he continued. “Something like negotiating with an IT supplier, that’s where procurement experts at GEP come in.”

For banks, providing a spend management and analytics solutions, in conjunction with cloud eProcurement capabilities, can help the FIs identify cash savings. Cotter pointed to one common situation in which banks have their various units across the globe operating with the same supplier. But without visibility across the enterprise, identifying cash savings opportunities can be a challenge.

“Maybe separate contracts that business units have with the same supplier mean they’re not leveraging their collective purchasing power,” he said.

According to Cotter, banks’ top procurement demands often involve technology — procuring IT solutions, software, hardware and the like. With a newfound notoriety for being outdated and slow to innovate, FIs’ increasing appetite for high-tech services may come as a surprise.

But Cotter explained that banks understand, at least on the back end, that they need to integrate solutions that are agile, sophisticated and top-tier. Otherwise, he said, they risk getting left in the dust.

“We’ve definitely seen tremendous change,” the executive said of the way FIs are seeking out cloud-based procurement solutions. These players are upgrading their software portals and turning from low-tech solutions to state-of-the art offerings.

Combining a cloud-based procurement system with spend analytics means banks and financial institutions can get ahead of the game with their competitors — even if they’re lagging behind offering the same level of technical innovation to their own customers.

“It’s getting to that point where the competition is embracing technology,” Cotter said, “that using the old method is no longer going to allow them to compete with their industry peers.”