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Why is UK retail banking blind to significant cost savings?

As consumers we’re more than happy to hunt out the best mortgage deal, the best utility company to sign up to (now more than ever) and the most competitive motor insurance policy.  Thanks to price comparison sites, we’re able to effortlessly benchmark prices and services and reap rewards way in excess of the time they take to execute.

So why is it then that as the financial services sector faces tough economic times as we collectively adjust post-pandemic, retail banks here in the UK are so behind their global peers in adopting the process of regularly reviewing and renegotiating the contracts that they hold with third party vendors - not least of all, those within payments and technology?  Indeed, IT costs alone across core processing, payment providers, automation, and digital platforms have increased a staggering 80% since 2015 and the rise of digital banking over the past 18 months has further exacerbated this.

With budgeting season in full flow for many UK retail banks and building societies, it’s all too easy to simply roll-over multi-year vendor costs from one year to the next where it is assumed that these costs are pre-determined and cast in stone.  It is done without a second thought and bakes in excessive costs year upon year.

Reduced headcounts and depletions in branch estates remain the go-to means of balancing the books for too many of our familiar banking names and just recently it was reported that another 267 bank branches closed permanently between April and June.  That equates to a 5% reduction of the overall branch network and leaves far too many of the UK population without a nearby branch to access, but it doesn’t have to be this way.

Elsewhere in the world, the process of contract optimisation has seen clients realise savings amounting to billions of dollars.  However, it is an immature business practice in the UK and is a missed opportunity on a huge scale that could add up to a staggering £6bn in savings for the UK retail banking sector as a whole. 

Going back to the cost of technology contracts, behavioural shifts driven by the pandemic mean that countless volume-based commercial agreements, with contract caps and performance criteria, will now be significantly misaligned against their original parameters.  This will be causing significant price hikes and contract anomalies - simply because they’ve not been expertly reviewed, benchmarked and renegotiated.

The reality is that too often procurement and business management teams simply plug historic vendor costs into their annual budgets and forecasts without market challenge or question until the contract renewal looms. This leads to a gross knowledge imbalance between providers and banks and building societies. Indeed, third-party vendors will typically have dedicated teams singularly focused on negotiating and renegotiating their contracts with banks to maximise revenue. Conversely, UK banks infrequently review their contracts and when they do they do so it’s just 6-12 months before expiry, with insufficient time to credibly make any changes, nor with comparative data from which to negotiate better deals.

Yet if retail banks and building societies here in the UK simply asked themselves five key questions during the budgetary cycle, it would set them on a path where they’d be more likely to regularly review and renegotiate these contracts and, consequently, reap the benefits.  Those five questions are:


1. Are we getting the best vendor deals in the market? A contract that was competitive when signed isn’t necessarily any more given that market pricing and conditions, as well as an institution’s own needs, will have changed.

2. Can we renegotiate existing contracts? It is often assumed that a long-term contract is set in stone until its renewal date, but this simply isn’t the case, and many vendors will renegotiate early to keep customers over the longer term.

3. What contracts are expiring in the next 12-36 months?
Switching vendors can be time-consuming, and they know it. To be in the best negotiating position, renegotiations should start two or more years in advance.

4. Do we have a reliable view of the market price?
  Do you know what price is being charged to other organisations for a comparable product or service? Banks don’t know what price has been given to their competitors and peers and often only consider long term contracts every five years or more. Both dimensions lead to a distinct lack of reference data against which to compare.


5. When was the last time our bills were audited? Complex invoices and bills are often not really understood nor challenged by the bank and coupled with errors, major savings and service optimisation remains unrealised.


These are five simple questions, but they’re ones that will serve as the first step in helping UK retail banks and building societies identify no-longer fit for purpose contracts that can be renegotiated to realise significant savings and efficiencies - that’s an opportunity not to be missed!



Comments: (1)

Melvin Haskins
Melvin Haskins - Haston International Limited - 26 November, 2021, 09:121 like 1 like

Excellent analysis. Not sure that software vendors in the UK have any more experience of renegotiating contracts than banks. They have rested on their laurels for decades.

David Royle

David Royle

Partner - Head of Retail and Commercial Banking


Member since

19 Mar 2021



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