Vendor Management. Two words that many in the banking industry are losing sleep over.
For years, lenders have had agreements that allowed them to outsource liability, but things are changing. Regulators have tasked banks with mitigating and categorizing the risk their third party partnerships pose. Consequences of not doing so may result in steep fines and reputational damage.
Mitigating Vendor Risk
Limiting Service Providers
One way that banks can mitigate risk is to limit the number of vendors they work with, especially those that don’t show appropriate consideration for the liability they pose to their lenders. Many vendors are unaware that they even pose a risk to their lenders. Such a solution is not always ideal, to be sure, however many banks may see it as their only option.
Modernizing Core Banking Processes
What many financial institutions may have trouble seeing is that the size or complexity of their third party relationships may not be the root of the risk problem. The main problem often comes from inside the bank’s core processes and procedures.
The current systems that banks have in place to manage their vendors are sadly lacking. The core processes are still mired in twentieth century technology, which is characterized by slow loading, double entry, errors and a general lack of collaboration, to name a few outstanding issues.
Because of these problems, a great deal of manual input and employee oversight is needed to ensure compliance with vendor management regulations. The question isn’t whether these systems can be compatible with regulations, because they can. The question is; does it have to be so difficult?
A Better Vendor Management System
There is a better way to mitigate risk, improve customer satisfaction and even increase profitability.
Collaborative Vendor Management Network
The answer is to implement a better vendor management system—one that is based on collaboration. This network would enable vendors and financial institutions to work together seamlessly, reducing duplication of efforts.
In today’s environment one vendor works with ten banks, which means that ten different files exist for that one vendor. Each financial institution absorbs the cost of vendor management, which they bear every time the file needs to be updated.
Ideally, financial institutions would have access to vendor information as part of a network. Some vendor management systems currently exist that allow vendors to fill out some of the information in a two-way communication system. This means that vendors are forced to manage multiple requirements for each financial institution.
The ability to network the industry allows for dramatic increases in efficiencies, profitability for all participants and greater risk mitigation.
We provide a global network where vendors control their data/documents and share their information with participating FIs.
Likely Benefits for FIs
- Greater efficiency in managing vendors, maintaining customizable vendor requirements per institution
- Eases the cost burden – correct manual processes into automated solutions
- Risk is mitigated across the network with improved efficiencies
Likely Benefits for Vendors
- Greater efficiency – update information to all appropriate parties simultaneously, reduce duplication of effort
- Eases the cost burden – Greater efficiency saves time, which in turn saves expenditure
- Reputational Enhancement – a vendor earns trust in the network as they gain partnerships.
This is my vision of how banks will manage vendor risk in the future. Instead of banks taking an antagonistic approach to their third party partnerships, they create benefits and efficiencies for all parties.
Vendor management doesn’t have to be a burden. It can be a stepping-stone.
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