HFS has previously discussed how creaking IT systems and ongoing pressure from emerging mid-tier providers intensify competition for banking and financial services (BFS) deals. Exhibit 1 shows how BFS executives’ priorities differ from other industries when choosing an external service provider. Only 16.2% of BFS leaders consider an existing relationship with their service provider a leading selection criterion, whereas it’s the second highest for other sectors. BFS executives are more willing to look beyond their existing service providers in the pursuit of quality. This willingness to create new relationships is a sign that times are changing; incumbents are no longer guaranteed work, allowing mid-tiers to impact the market.
It’s more important than ever for service providers to align their offerings with the needs of BFS clients, or they risk losing their authoritative grasp on the market.
Exhibit 1: BFS firms choose their service providers based on quality not incumbency
Sample: BFS = 37; Other industries = 331
Source: HFS Research, 2020
BFS executives aren’t as concerned as leaders from other industries about price, but they expect quality service in return
As Exhibit 1 outlines, only 18.9% of BFS executives rank price as a top three criteria when selecting an external service provider—much lower than all other industries. However, while BFS executives are willing to stretch their budgets, they expect higher quality service in return; just over 50% of BFS executives ranked the quality of service delivery as a top-three selection criterion as opposed to 45.6% of executives in other industries.
It’s easy to see why this is the case in BFS; the world’s largest banks are under such scrutiny, and any IT blunders can see them face public outcry, lost earnings, and regulatory backlash. Service providers must ensure when trying to win or maintain BFS clients that their offerings aren’t cost-conscious but quality-driven instead.
BFS executives rank the financial stability and future security of their service provider as a leading provider selection criterion, which may prove challenging given current uncertainties
There’s an ever-increasing spotlight on BFS providers to transform clients’ creaking IT systems, and this, combined with the high-stakes industry in which they operate, means they cannot afford any IT blunders. They cannot afford to go all-in on a service provider that may not be around a year from now, which has colored many firms’ approaches to leveraging fintechs, often opting to let service provider partners curate the use of start-ups (and assume the risk). But as COVID-19 plunges us into a new abnormal, the knock-on effect on the global economy will affect the financial stability of many businesses—and that includes leading service providers.
With over a third of BFS executives viewing a provider’s financial stability a priority, it is crucial that providers are completely transparent, clearly demonstrating how they pivot to address changing client needs. For the BFS industry, a potential recession means reduced spending on consulting-led transformation initiatives, but a higher need for digital optimization and support for probable spikes in defaults and loan applications. By shifting their needle to address this, providers will ensure their financial stability while meeting client demands.
The talent crisis is the conversation topic of choice for many enterprise leaders, but even more so in the BFS industry as 32.4% view it as a priority when selecting a provider
The need for high-quality service delivery in the BFS industry means they need to have the most talented individuals working on their digital transformation projects, which is why almost one-third of the industry executives ranked it as a top priority when selecting their service provider. This demand can put even the largest providers in a difficult spot; global talent shortages and the emergence of new talent models have transformed how they source talent. Service providers looking to continue competing with their peers in the BFS industry must look beyond traditional methods of sourcing talent, as attracting and retaining talent has become more difficult. They should begin by exploring methods such as crowdsourcing and researching the collection of platforms that already exist to support them, such as Concentrix’ Solv and Wipro’s Topcoder.
A service provider’s partner ecosystem is one of their most valuable assets as we hurtle into the hyperconnected economy, and it is key to BFS executives.
It’s easy to see with a quick look at HFS’ 2019 BFS Top 10 that virtually every service provider has a catalog of partners, ranging from the biggest household names to an assortment of smaller and more interesting companies. In fact, partnerships are so essential to BFS firms that 29.7% of executives advised that their provider’s partnership ecosystem was a leading factor in selection, as opposed to only 17.8% of executives from all other industries.
The last couple of years have seen an abundance of digital disruptors entering the BFS market, and many of them are making a significant dent in the market. For example, previous research from HFS analysts has already discussed how challenger banks can boast of client numbers in the millions. However, not every BFS disruptor is looking to challenge incumbents; several are augmenting their offerings, such as Moneybox and Meet Cleo. Its disruptive companies like these that BFS executives hope their service provider will leverage when driving their digital transformation efforts, helping them to fend off the constant threat from emerging disruptors.
The Bottom Line: Service providers looking to compete in the BFS market must ensure their offerings align with their clients’ needs; partnerships, talent, and financial stability all trump the cost.
Ultimately, understanding what your clients want is crucial in any business, but it is critical when dealing with BFS firms. The complex and harshly regulated industry in which they operate requires extreme caution when committing to any significant long-term investment, such as a multi-year digital transformation. Service providers must understand that investing in a workforce with the right skillset, nurturing a healthy partnership ecosystem, and ensuring financial stability is often more important than offering a budget-friendly service.