Sourcing Will Strengthen Banks’ Market Positions

The financial market is subject to considerable and structural changes. The current economic climate, technological developments, market trends and increasing competition will require banks to adapt to the changing environment. Banks will also need to seriously reconsider their operational models concerning payments. What are the barriers in this respect, and which considerations should be taken into account?

Why Should Banks Consider Sourcing?

In reassessing and optimising their operational models, banks have several options. First of all they can take efficiency measures and work on optimisation of their internal processes. Another option is to join forces with other banks. And last but not least, they can look at sourcing options offered by external service providers. Since the crisis, banks are more than ever considering the sourcing of activities that can be performed cheaper and more efficiently by third parties.

Is Payment Processing a Logical ‘Candidate’ for Sourcing?

Payment processing is one of the most likely areas to consider as clear benefits can be obtained here. After all, what is the point of building and maintaining systems and maintain procedures when these have to comply with the same single euro payments area (SEPA) standards that apply to all European banks?

By sourcing all this to a reliable partner, banks can reduce operating costs. It creates flexibility and it will free scarce resources for core business activities. However, this is not an easy decision to make since payments processing is strongly embedded in the internal organisation.

What Factors Should be Considered?

While investigating their sourcing options, banks need to take into account which activities they want to outsource. Are these purely payments related, or are also cards activities involved? Are only standard functionalities required, or should your sourcing partner also be able to handle specific market or client needs?

From efficiency perspective, and in terms of a future-oriented solution, it is strongly advisable to choose a partner who can cater for all the required services and processes.

What are Important Factors for Banks in the Decision-making?

Sourcing processes – whether they involve a standardised service or full outsourcing – require building a relationship of mutual trust. Banks have to select extremely solid sourcing partners who can guarantee long-term continuity. This is only possible when a sourcing partner has reached sufficient scale to facilitate a low cost price, but at the same time has an earnings model that leaves room for investment in innovation and keeping systems and processes compliant with regulations.

In today’s market price is highly decisive, but banks really should carefully consider the aspects of continuity and capabilities for continued state-of-the art services. Offering excellent payment services is vital for banks. Doing this together with a future-proof sourcing partner banks can raise their commercial profile, while at the same ensuring a flawless operation.

What are the Differentiating Factors?

In former times, a sourcing partner was merely a supplier. Today, the role of a sourcing partner has changed more and more into a consultancy partner. To fulfil this role, you need certain skills. For instance, you need to know exactly how a bank operates. This is of crucial importance, as in considering the sourcing of payments you need to look at the entire infrastructure of the bank.

Furthermore, besides offering scale, scope and a full range of basic and client-specific services, you need to do more. As a future-oriented sourcing partner you should also need to provide an HR model, which helps banks to deal with the social burden that is often related with sourcing decisions.

19 views

Related reading