Can Fintechs find cost savings hidden in plain sight? (Nick Green)

Cost savings for fintechs have always been important but in the current economic climate and in the wake of the COVID-19 pandemic, it has become increasingly important to save costs where possible. Fintechs who can effectively save costs without impacting
customer experience will have the ability to compete on price and value with competitors while those who don’t will be left behind.

Let’s have a look at why cost savings have become important and where they can be found.

Why are cost savings more important than ever for fintechs?

The COVID-19 pandemic, rises in utility costs and the cost of living for consumers have caused instability and high volatility in global markets and the economy as a whole. We may have left the worst of the pandemic behind us but the adverse effects caused
within the credit risk industry are likely to continue.

With no end to the current instability in sight, many fintechs are now looking at new ways to cut costs and improve the bottom line of the business in order to remain competitive and to serve customers in the best way. In fact, in a survey conducted by

KPMG, 61% of executives at the world’s largest banks said cost reduction has increased as a strategic priority.

With a risk of global and national recessions, depressions and an ultra-low interest rate environment, lender’s margins are extremely thin and top line revenue is under threat. This means it’s more important than ever for fintechs to keep costs down internally.

Where can fintechs make cost savings?

For many lenders, the first port of call is closing high street branches (if they have any!) and making staff redundant. While this can provide savings across the board, it can be a disruptive process that is not always beneficial over the long term.

During the 2008 financial crisis, many used these methods and, although they improved the bottom line, they were damaging to customer sentiment and employee morale. 

However, optimising the procurement process, specifically when entering into contracts with the credit Bureaux, is one of the least disruptive and fastest ways for fintechs to achieve significant savings.

The last few years have underlined how critical the procurement function within credit risk is for both efficiency and effectiveness. Procurement teams are now looking to switch from crisis management to help organisations recover and cut costs effectively.
This starts with reviewing the overall value of vendor relationships and how the relationship can be maximised to bring innovation and change. This will replace the traditional method of using the same supplier year after year whilst improving the efficiency
and reliability of the supply chain.

One of the key functions of credit risk and procurement teams is negotiating the right price and the right contracts for data from credit bureaux. Credit providers now need contracts with more flexibility to allow them to fill gaps in credit data to ensure
they’re not paying more than their competitors for the same products. To become more innovative, credit risk teams are looking to partner with credit bureaus that offer transparency and the best available data at the best price for credit risk and affordability
assessments, ensuring they are competitive in the market.

For more information on how procurement teams can drive innovation, take a look at our previous blog:

How procurement can drive innovation and efficiencies in financial service.

Data benchmarking is a key way organisations can look to save costs but what are the benefits of doing this?

The 6 key benefits of data benchmarking

Benchmarking is the process of evaluating something in comparison with a standard measure (a benchmark). It’s made up of three elements: the metric, the benchmark value and the comparison group.

This provides a way for credit risk and procurement teams to find the best terms for their organisation, measured against industry peers. This process can save hundreds of thousands of pounds, typically 25-50% of spend compared to a renewal negotiation or
RFP that would deliver much less. 

Further reading:
The Beginners Guide to Data Benchmarking

Here are the benefits of data benchmarking for fintechs:

1.   See how you measure up against others

Performing a data benchmarking exercise allows organisations to see a benchmark of industry norms and how your organisation measures up. Traditionally, this information has not been available when negotiating with credit bureaux, which has allowed them to
hold on to higher pricing and charge different organisations the varying prices for the same data.

This will allow credit risk teams to get the most from data with complete visibility of the market and the best prices available. Having visibility and transparency allows organisations to provide customers with the best deals and remain competitive.

2.   Achieve fair and transparent pricing

Benchmarking allows lenders to see the differences between what they’re paying and what competitors are paying for the same products. This allows teams to understand how their pricing, quality, and accuracy differ across industries, sectors and competitors.

The complex data contracts currently provided by the bureaux prevent credit providers from taking advantage of the wider market and having transparency around data quality and pricing. However, having this knowledge allows credit providers to switch providers
where necessary or enter into multi-bureau contracts.

3.   Improve data quality and reduce costs

Benchmarking and understanding what others are paying allows credit risk teams to access products and services in the same way as competitors. This improves data access, quality and pricing, all of which are crucial when it comes to making cost savings and
still delivering the same high quality service to customers.

It helps to increase the efficiency of the business and lower costs which has an impact on the bottom line of the business and making it more profitable.

4.   Access to information to aid negotiations

The information gathered during a benchmarking exercise gives credit risk and procurement teams the opportunity to negotiate on data contracts. The data provided allows teams to understand what competitors are paying so changes can be implemented and negotiations
made when it comes to signing a new contract.

5.   Make informed credit risk assessments

Having access to the best data at the best price allows credit risk teams to make more informed credit risk assessments that consider all of the data available.

It also means that lenders can provide customers with a wider range of options to suit their needs without impacting on the business’ bottom line.

6.   Gain contract flexibility

Many bureaux contracts are not flexible enough to accommodate for usage variances and preferential unit costs at the same time. During the pandemic, search volumes were lower and underutilised which made contracts more costly. Credit providers are now looking
for better flexibility to be embedded within contracts to allow them to adapt in the future.

The true impact of cost savings

As the credit market develops and changes, fintechs need to find new ways of working to remain competitive. This means transforming operating models and continuing the agility and digital transformations that were accelerated during lender’s initial pandemic
responses to optimise costs where possible.

Those fintechs who are successful in cost saving exercises will be positioned for success in the future. On the other hand, those who do not have a strategy in place will be unable to compete on price, value or delivery with their competitors and will lose
significant market share.