The Bank Procurement Manager Dilemma

Question – Are due diligence processes, legal contracting, and aversion to vendor risk limiting your bank’s options to innovate?

Talking to top North American banks, a common refrain from procurement and vendor management teams has been that the process for screening and onboarding a new vendor is lengthy, arduous, and complicated. One top bank told us that the minimum time for due diligence would be at least six months! Another said they simply cannot consider vendors not already on the approved list without throwing off the entire project timeline.

As a former product development team manager at Citizens Bank, responsible for large IT projects and new technology implementation, I know from experience these extended processes limit business choices when it comes to technology partners. Moreover, approved and incumbent vendors take advantage of these barriers to entry in order to command premium pricing with limited reinvestment to improve their solution offerings.

While it is undoubtedly necessary to protect the bank and manage risks, these processes can limit the partners and solutions that banks consider, slowing innovation and potentially contributing to the fintech explosion. Even a persistent procurement or vendor management team can only speed up the process to bring in an innovative, new vendor at the cost of significant effort and political capital.

Opening Vendor Selection to Innovation

So how does a bank vendor team ensure their business partners have access to the latest technology while managing risk for the bank?  There is no silver bullet, but there are options and strategies—seek innovators, verify scalability, and evaluate cross-industry benefits.

Seek Innovators – RFI questions that ask about previous work in the banking industry can lead to the elimination of new technologies without meaningful evaluation. By prioritizing vendors offering innovative or disruptive technology for review, in addition to the established banking vendors, you open your options to include solutions with functionality not offered by existing banking vendors, like artificial intelligence for labor forecasting or native mobile apps for employee scheduling.

Verify Scale – Instead of asking only about banking industry experience, RFI question can qualify a wider range of customers and implementations. This enables you to further assess whether innovative vendors have proven their tech at scale and whether they are capable of working with global firms on large-scale projects.

Evaluate Cross-Industry Benefits – Additionally, identifying where vendors have had success in other industries allows you to borrow benefits from industries facing challenges and opportunities similar to those in banking. For example, retailers pushed vendors to create advanced solutions in order to adjust to the rise of online shopping, adding functionality like market-level scheduling and omnichannel execution. similar to the one bank branches a facing as transactions shift to online and mobile channels.

Streamlining Procurement

Of course, once you’ve selected who to include in in the RFI or RFP evaluation, how do you get a new vendor through the process without putting projects on hold for six months or more for due diligence? Again, there’s no simple fix, but there are ways to increase procurement efficiency.

For example, some banks won’t discuss the Statement of Work (SOW) until every detail on the Master Services Agreement (MSA) is resolved, regardless of how minor the remaining concerns are. If there are no major issues with the MSA, why not have legal and project teams start work on the SOW? Similarly, vendors could be given the option to fund the security reviews and scans—in many cases completed by third parties—in advance or receive the process, questions, and details as soon as any major MSA issues are cleared.

How many other processes could be run in parallel or with staggered start times? It’s possible to review for key milestone elements or gates that, when passed, would allow other key processes to start. You can also check your regression analysis on each key process or step to assess whether the most time-intensive steps correspond to the highest risk issues. As a trained Six Sigma adherent, there are always opportunities to shave time off lengthy bureaucratic processes.

Bank procurement professionals are well aware of the challenges and risks associated with new vendors, but it is possible to ensure the process is open, transparent, efficient, and helps banks onboard more innovative technology sooner. The banks that those that are able to speed innovation can add value to their business, over those that are stuck in the mud of lengthy, restrictive vendor due diligence processes.