Banking and Financial Services Transformation

Modernizing and Streamlining Sourcing and Procurement Operations

Traditional banks face a competitive landscape. Customer expectations are evolving rapidly; FinTechs and hyperscalers are pushing the boundaries of the industry with new offerings. At the same time, regulations and supervisory oversight are getting tighter and stricter.

According to ISG’s 2022 Procurement Survey data, only 37% of the procurement leaders say they have implemented an end-to-end procurement solution for the supply chain management (SCM) function and four out of 10 respondents say the same for supplier relationship management (SRM) and spend analysis functions. Meanwhile, five out 10 say they have fully implemented a procurement solution for contract management, sourcing and spot-buying functions. Over 60% indicate a mature adoption rate for direct spend management and transactional procurement functions. This indicates that procurement solution adoption rates vary across functions within an organization.

A leading global financial institution needed to gain complete visibility and control of its sourcing and procurement operations. The company’s objective was to unify all its procurement functionality into a single platform that streamlines and automates the end-to-end source-to-settle (S2S) processes, with a focus on enhancing control, visibility and efficiency. The company also needed to optimize contract and third-party management, simplify spend processes and improve reporting capabilities, while mitigating risks and ensuring compliance with global regulations.

At the outset of the project, the company was managing a robust third-party ecosystem made up of a wide range of cloud service providers, payment processors, AI and data analytics firms and RPA software providers in a manual approach using spreadsheets. While these partnerships enabled the firm to leverage innovative technologies, its growing reliance on third parties presented new risks and vulnerabilities that could potentially impact the firm’s operational and financial resilience.

The challenging macroeconomic environment, stringent regulatory landscape and continued calls for cost reduction led to increasing pressure on the firm’s sourcing and procurement leaders to deliver value in new ways. This new value – whether it involved the adoption of AI, greater operational resiliency or modern technologies – required tight integration between sourcing and procurement leaders and risk teams.

Manual Procurement Practices Pose Challenges for Sourcing, Third-party Risk and Procurement Teams at the Financial Institution

Volatile market conditions and a fragmented third-party provider landscape were causing challenges in the company’s S2S lifecycle, which includes evaluation, selection and onboarding third parties, creation of formal contractual agreements and management of ongoing third-party relationships, purchase order management, contract compliance management and accounts payable automation.

With siloed tools and manual systems, the company lacked an integrated S2S process and solution, resulting in disparate purchasing processes and lost opportunities on mature third-party programs. This led to low visibility and transparency in the organization’s procurement processes and increased cycle time. Lack of visibility, automation and simplified processes made bottlenecks hard to spot, thereby increasing risk and leading to poor vendor performance, value leakage and complex compliance and reporting requirements.

Some of the key challenges faced by the firm were as follows:

• Disparate tools and manual processes: Many S2S activities required data from multiple sources but were done in silos, leading to a lack of visibility of information. Failure to unify the tools, systems and processes used by different departments resulted in inefficiencies. This also left blind spots in risk visibility, slowing onboarding and increased noncompliance. Lack of automation of workflows across the S2S lifecycle led to cost overruns, financial penalties and reactionary – rather than proactive – measures when a disruption occurred.
• Limited visibility and transparency: Though the financial institution has mature processes, it lacked a single source of truth and a centralized, 360-degree view of its third-party risk and performance, contractual and ESG compliance and spend analysis. Without this, it lacked what it needed to facilitate data-driven risk monitoring, sourcing decisions and timely corrective actions.
• Increasing number of risks: As the financial services company grows and scales its third-party relationships, the number of risks associated with third, fourth and nth parties, including cybersecurity, concentration, financial, legal and ESG risks, is growing, too. According to a recent report, 78% of Europe’s financial institutions experienced a third-party data breach in the past year and 84% have been exposed to a fourth-party breach. For example, in October 2020, a global investment bank and financial services firm paid a $60 million civil fine for failure to properly oversee the decommissioning of its data centers and failure to exercise adequate due diligence in selecting third parties and monitoring vendor performance. With increasing regulatory oversight, it has become mission-critical for financial institutions to run vendor due diligence, including measuring financial and reputational health, CSR and ESG, litigations and legal risks, compliance violations, cyber exposures of vendors before onboarding.
• Technical debt: Financial institutions that outsource their IT operations to a SaaS provider often lack transparency into their technical debt, which can have a significant impact on a firm’s agility and innovation. When credit bureau Equifax suffered a data breach in 2017, for example, it was due to criminals who exploited a vulnerability in the open-source software Apache Struts, which had been used to create Equifax’s online dispute portal.
• Poor vendor performance: Limited capabilities of the client’s vendor performance management tools, legacy systems and archaic processes for collecting real-time supplier data, meant that the team was spending too much time on transactional activities. This often led to sub-optimal third-party relationship management, ineffective cyber, ESG and SLA controls, inadequate metrics and KPIs and poor vendor performance.
• Value leakage: Manual invoice reviews, anomalies in the contract or overly complex contracts and unearned or missed discounts are some common causes of value leakage. The antidote is audit trails, real-time data visibility, alerts, automated workflows and system controls that ensure proactive management.
• Complex regulatory compliance and reporting requirements: Banking regulators across the UK, Europe, North America and Asia Pacific have issued guidelines and frameworks to help enterprises improve their governance over third-party relationships, enhance operational resilience and comply with the applicable laws and regulations. EU’s GDPR, UK’s National Cyber Security Center and India’s Digital Personal Data Protection Act provide guidance on regional-level third-party requirements. Regulations such as the UK Modern Slavery Act and Germany’s Supply Chain Due Diligence Act aims to protect human rights and environmental sustainability within the supply chain ecosystem. Navigating these complex regulations and reporting requirements is an increasingly challenging task.

Resource constraints: Implementing a robust S2S lifecycle program that includes sourcing, due diligence, risk assessment, contracting, purchase order management, invoicing, supplier lifecycle management (SLM), SPM and spend performance, requires significant resources, including skilled personnel, operational and financial investments, which may be a challenge for small to mid-tier financial institutions. Right technology with augmented AI and automation can enable banks to overcome resource constraints.

Lack of collaboration and innovation: Financial institutions that do not establish and maintain collaborative supplier relationships or negotiate with select suppliers through tailored strategies and targeted negotiations, driven by benchmarking, supplier performance and capabilities tracking, category management, tail spend management or spend analytics, may find it challenging to drive supply-side innovation. With an integrated S2S solution, banks can improve supplier relationships, diversity and sustainability to accelerate innovation. 

How ISG’s Integrated GovernX® Solution Enabled Effective and Efficient Source-to-Settle (S2S) Process for the Financial Services Company

The client sought to implement ISG’s new Integrated GovernX® solution, a unified and cloud-based S2S platform, built on ISG’s three decades of sourcing experience and market-leading data to address its end-to-end S2S lifecycle. Built on a foundation of closed-source artificial intelligence (AI), patented algorithms and as a “Platform of Platforms,” the solution helps connect sourcing, procurement, third-party risk, supplier management, legal, sales, service delivery and supply chain teams to collaborate on a single view of supplier data across the lifecycle from sourcing to renewal/termination.

Powered by intelligent automation, the solution offers the client a bundle of integrated functions and comprehensive features in a single user-friendly platform that includes sourcing, SLM, CLM, spend analysis, procure-to-pay, TPRM and other functionalities. The client partnered with ISG to evolve and transform their sourcing, third-party risk and procurement operations by deploying ISG’s integrated S2S suite.

Key Features and Capabilities:

Benefits of Using a Single, Unified Platform to Manage the Full Source-to-Settle Lifecycle

With ISG’s new Integrated GovernX® Source-to-Settle platform, the financial services client can achieve savings, drive efficiencies through greater centralization and automation and accelerate returns on investments. Feature-rich capabilities, real-time intelligence feeds, easy-to-use tools, comprehensive workflows and native integrations allow the organization to provide real-time visibility across the entire S2S chain to a wider group of stakeholders, mitigate risks through intelligent clauses and risk controls, drive pipeline management and standardization, improve contractual and regulatory compliances, enhance control and reporting and drive speed-to-market.

As per ISG’s 2023 Banking study, more than one-third of the respondents said that are their organization is currently using AI and intelligent automation in sourcing and procurement operations and 34% are planning to implement in the next two years. While the S2S solution brings many benefits, it adds more long-term value when leveraged with ISG GovernX® Intelligent Contracting Lifecycle Framework and experienced professionals, who can help in closing the gap in value creation across the full S2S lifecycle.

ISG’s collaboration with the client was driven by long-standing relationships with key stakeholders and a solid reputation for transformation of S2S operations. The flexibility and scalability of ISG’s integrated S2S solution helped the client develop an agile, resilient and digital S2S strategy with distributed procurement for multiple business units and functions. The client will now manage all their spend, perform direct and indirect buying and automate end-to-end S2S lifecycle enabled by ISG’s integrated solution. Advanced analytical tools, dashboards, pre-packaged templates, in-built compliance, automated reporting and seamless integration capabilities of ISG’s solution helped address the client’s auditing and compliance requirements.  

ISG’s dedicated subject matter experts and experienced account managers enabled the client to implement effective processes and best practices, identify savings opportunities, mitigate third party and regulatory risks and achieve better business outcomes through ISG’s integrated S2S solution. ISG’s adaptable framework, simplified approach and expertise in executing S2S transformation will help the financial institution quickly realize the tangible benefits of their investments in an intelligent S2S platform and deliver value across the end-to-end lifecycle.

To learn more about how ISG can help transform your processes into an integrated function that streamlines and delivers a seamless S2S operation, contact us.