Migrating to the One Bank Model: Key Challenges Large Banks Face
By Wayne Brown, Managing Partner, The Walker Group
One of the key challenges that large banks face is the failure to operate as “one bank”. The multiple divisions, and subsidiaries contributes to the bank managing through separate silos contribute to running separate “banks” within a larger bank. Although mergers and acquisitions are the reality, this situation represents the duplication of both efforts and resources along with missed revenue opportunities and increased operating expense. Bank silos do not create growth but just the opposite; it restricts growth. Additional expenses and reduced margins for the bank hit the bottom line. In the current banking environment, FinTech companies continue to erode bank revenue opportunities; migrating to a “one bank” concept can strengthen how the bank conducts business by reducing operating expenses, strengthening vendor relationships and maximizing value for the customer.
For example, one bank was considering outsourcing an electronic collection solution to a leading vendor in the payment sector. The Cash Management/Treasury Department wanted to provide the ability for their clients to offer this product to their end customer resulting in more electronic or digital payments. The vendor involved took months to close the contract with this one division. However, there was another division, namely, the Retail Division of the bank, that also wanted to provide this same solution in house but identified another vendor to provide a competing product. The product capability and functionality were the same for both divisions. In addition, the bank had mortgages and loans and contracted with a third vendor to provide this capability to this customer segment.
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” and benefit of aggregating volume minimums. This was just not good business. High transaction volumes can dictate lower pricing tiers along and can result in having a better vendor relationship. 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. This is an added bank expense.
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 price? The answer is the end customer, but ultimately the bank’s revenue margins are impacted. Although there is no easy answer to completely eliminate bank silos, providing clear evidence that can drive margins down and revenues up creates the business case for vendor consolidation. 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.
What worked for banks decades ago may not work going forward. The “one bank” model is key to the survival and growth of banks, while managing expenses and creating opportunities for growth. 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 [email protected]