Part One: Financial Services
The banking and finance industry has not been immune to the macro-economic factors of late. The good news is that they can still turn the tide against this storm and find their silver lining.
It would be natural to feel somewhat pessimistic about the world and its economy right now, with many negative factors being reported – from the looming threat of a global recession, Russia’s invasion of Ukraine, to more local issues of extreme weather events, rising interest rates, and the volatile property and stock markets. All of which have created a fragile global economy, and one which is expected to remain shaky well into 2023. And it has already been a tough couple of years for people and businesses alike, with the pandemic being at the forefront of that sentiment. As the world starts to live with COVID-19 and adjusts to a “new normal”, every business is trying to determine how best to move forward. But the answer isn’t an easy one, being compounded by the fact that the economy continues to be in a state of flux. Many companies are still dealing with lingering supply chain issues and labour shortages, now there’s stagflation, along with interest rate hikes and a falling Australian dollar. Plus Governments continue to intervene in the economy, through incentives, interventions, and industry controls - we all recall the Banking and Aged Care Royal Commissions. Irrespective of which industry you’re in, these economic and political factors have created a perfect storm of uncertainty and risk for many businesses. Every industry and even individual business will be impacted differently, and there is no crystal ball to tell us what to expect from the grey clouds that seem to be circling. But with every cloud, there is also a silver lining.
When it rains, it pours
Let’s discuss the situation specifically within the context of financial institutions. The finance sector is an especially complex one, needing to deal with the delicate balance between investment, lending, and strategy decisions, against ever-changing and uncertain economic conditions and political interventions. When the outbreak of COVID-19 raged across the globe, it had a significant impact on the industry, and the resilience of the finance sector was tested. More than two and a half years on, the residual effects of this storm are still being felt within the finance industry. The impact of COVID-19 in Australia (along with low interest rates) reduced core banking profitability. One of the key effects of the pandemic was the increased credit risk of corporate and retail clients. Australian banks responded by using their balance sheets to provide deferrals to household and business lenders that were caught up in the whirlwind. Corrective actions of the government also tried to mitigate the risk profile through the provision of support payments, with the Australian Government spending over 25% of GDP in response to COVID-19. But these core impacts combined with the significant instability and high volatility in global capital markets, led to bank valuations dropping in all countries around the world. The pandemic created a deluge of disruption to the banks that was akin to the great flood.
However, there has been a bright side, and Australia’s finance industry is starting to experience a turnaround as the economy enters a new phase. Financial institutions are turning their attention to transformation as they look at the future of their operations. To successfully transition to post-pandemic performance, the finance sector will need to lower their operating costs while continuing to invest in growth. All was not lost in the torrent that was COVID-19, while the stormy weather lasted for a few years, it has triggered some rays of sunshine for the finance sector. The positive effect of the pandemic has been the shift towards more digital services, which was initially driven by the isolation of customers and the absenteeism of staff. The acceleration of digital transformation has been a necessity borne out of the pandemic, to enable business continuity, and improved the servicing of customers.
As a result, there has been a notable shift by customers towards digital banking, with more than 17% of customers increasing their use of mobile banking apps during the pandemic. Combining the effects of the pandemic with the Royal Commission (into Misconduct in the Banking, Superannuation and Financial Services Industry), the major banks have shifted their focus to improving their operations and customer sentiment, trying to regain some of the trust that has been lost in their industry.
As the financial services industry continues to look at new ways to create value, it will be a delicate balancing act, one that will require the banks to re-think and transform their operations while innovating around their business models. Australia’s oldest bank is leading the way with its transformation initiatives, with Banking as a Service being a key part of their strategy, such as plans to shift towards a wholly digital mortgage application process. Many banks are also exploring the benefits of a digital currency – a topic that continues to have divided opinions. With the pandemic and other factors pushing technology to the forefront, this has placed the financial services industry on a hastened path to all things digital and automated.
Dancing in the rain: Why Profectus? Why now?
Our research has shown that organisations like banks are missing out on millions of dollars in lost revenue, simply due to a lack of automation – another good reason to transform and optimise the business. And this is where a silver lining comes in – Profectus provides world leading technologies and services to help solve problems within procurement processes, an area within the finance industry that involves significant spend. With this natural shift towards using technology enabled solutions, Profectus help customers automate compliance and payment processes, as well as providing solutions that help mitigate financial risks.
Our research has shown that organisations like banks are missing out on millions of dollars in lost revenue, simply due to a lack of automation.
Australia’s oldest bank, like any large-scale organisation, particularly one with as many complex arrangements as those in the finance sector, there are always challenges in liaising with and tracking contracts and invoices, which can lead to slow payments and financial erosion.
The Bank has a huge reliance on logistics providers to deliver between branches and to customers. It also employs cleaning services for every branch, requires maintenance for ATMs, and does most of everything else that a typical business requires, just on a massive scale.
Often small errors in supplier invoices would not be picked up given the sheer number of invoices that needed to be checked on a daily basis, which is incredibly common among large organisations and understandable given the time it takes to cross reference invoiced charges versus agreed-to payment terms.
A single invoice with an error of a few dollars may not make a material difference to a bank. But add up minor overcharges across thousands of invoices a month, among hundreds of Suppliers, and small oversights can snowball into something that can have a larger impact. An additional level of checking could prove valuable to not only reduce the burden of manually checking all invoices, but to also act as an additional compliance backstop.
This particular bank engaged Profectus in a compliance project, where the initial focus of 70 suppliers resulted in the recovery of over $5M in accounts payable errors. The Bank continues to rely on Profectus to oversee the transactions and deals of 200 suppliers, delivering an ROI of about 300 per cent every year.
Profectus has created a holistic compliance framework for this financial institution across their procure-to-pay process, from invoice header level checks (such as duplicate and incorrect payments) to line-item validation across its major Suppliers. Profectus validates approximately $125m of spend data every month at a granular level, ensuring rate card and service level compliance. Profectus also recovers any financial leakage and payment errors by liaising directly with Suppliers, which adds revenue to the Bank’s bottom line.
This case study highlights a key way that financial institutions can streamline their operations and increase the profitability of their business – essential components of creating a more resilient business. Profectus is the leading technology-driven services provider of these compliance and recovery solutions. The effects of a fragile and fractious global economy will continue to be felt across the global finance industry, so by improving compliance and streamlining operations, they will be more likely to weather future storms. Now is the right time to review your business, automate processes, improve compliance, and ensure that your business is in good stead for whatever comes next.
Where to get started?
To learn more about how we helped Australia's oldest bank get their compliance on-track, along with other clients from host of different industries including retail, freight and manufacturing, take a look at our client case studies.
You can also learn more about our expert audit services, contract compliance technologies and rebate deal management services via our website.