Credit and procurement teams are now facing a huge number of pressures when it comes to delivering the best customer service while cutting costs internally at the same time. The rising costs of utilities and fuel combined with low interest rates and unsustainable cost-income ratios means that organisations need to look to cut costs without compromising on digital transformation or customer experience. 

That’s why many procurement teams are seeing a greater reliance from their organisations to negotiate better rates with product/service suppliers.

📖 You can read more here: How financial services procurement can gain better leverage with credit data providers. 

But how can internal teams better collaborate with procurement to reduce supplier costs without affecting quality?

Let’s take credit data purchasing as an example. Here, we know pricing is highly inflated. In fact, we’ve seen costs vary by up to 200%. There are huge savings to be made.

Thanks to tools like data benchmarking, procurement teams can easily reevaluate the cost of existing bureau contracts and review the quality of data available across the market.

But to get these better deals, credit risk and operations teams need to work closely and align with purchasing teams for optimised negotiation. There are a few common internal challenges that actually act as major blockers and result in credit providers staying with the same bureau and paying inflated rates.

Let’s delve into the challenges procurement teams face and how to overcome them to create a collaborative purchasing engine that drives cost-efficiencies and value in supplier relationships…

Challenges procurement teams face  

Traditionally, when it has come to bureau negotiations and trying to get the best price for the data provided, procurement teams have faced the following challenges: 

#1: A lack of transparency 

The credit data industry has been a closed book for too long. There is no published pricing available, and we’ve found that most bureaux are not consistent with their pricing models.  This means it can be difficult for procurement teams to compare like-for-like to make sure they are getting the best quality data at the right price. 

This lack of transparency runs industry wide, which can make it difficult for procurement teams to know whether they’re getting a good deal. A more collaborative approach between credit risk and operations teams can help procurement teams to gather more information on data costs to aid a more successful negotiation. 

In fact, the FCA’s Woolard Review has recommended that this is a key area for change within the industry. 📖Find out more here: Improving consumer credit: A deep dive into the FCAs recommendations. 

#2: Difficulty in comparing products 

In addition to the lack of published pricing information, credit bureaux provide a huge number of options to organisations (including bespoke solutions) which can make it almost impossible for organisations to compare products like-for-like. Or, argue commodity pricing. 

For procurement teams in other industries, access to data in order to compare suppliers is not a problem. Most procurement teams are able to collect data from previous years, directly compare fees and understand how to negotiate the best deal. This is not something that has been available until recently for credit risk teams… Data benchmarking has allowed procurement teams to get a better understanding of pricing industry wide in order to negotiate better deals. 

#3: Strong internal stakeholder relationships with the bureau 

In many cases, Risk Managers have formed strong relationships with the CRA’s and do not want to disturb this relationship by switching bureaux or trying to negotiate on price. This can make it difficult for procurement teams and leaves no room for leverage on pricing. 

Better collaboration between these teams can help Risk Managers to understand the importance of price negotiations. The relationships that Risk Managers have can be leveraged by procurement teams if they can work more closely together.

#4: Lack of collaboration 

There has traditionally been a lack of collaboration between risk and procurement teams. However, it’s essential that all departments, including risk and procurement, are aligned when negotiating a renewal or a new Bureau contract. Without this collaboration, the Bureaux can take advantage of the existing relationships they have to disrupt and neutralise any leverage in terms of pricing reductions or competitive threat. 

The key advantages of a collaborative approach include: 

• A higher chance of success to gain maximum reductions 

• Builds a more robust strategy for the future with the potential for a multi-bureau and an independent decision platform approach 

• Informs the risk strategy to retain leverage 

• Provides the best sources of data in an agile environment 

• Avoids lock-in to contracts with little or no flexibility and utilitising potentially inferior data sets

👉 All of the above can only be achieved through teams collaborating with each other. 

Going beyond cost-savings: How credit providers are getting more from the credit bureaux

Bureaux that are leveraging innovations like Open Banking are able to offer more to credit providers than simply major cost-savings. Before Open Banking, it was difficult for credit providers to get a clear view of how consumers were spending due to gaps in transaction data and a lag in receiving it.

Being able to extract insights from data, and often in real-time, allows credit providers to make more accurate affordability assessments in seconds. Thus, it helps to increase acceptances, reduce defaults on payments and make faster credit decisions.

Ultimately, it allows them to offer customers the right support at the right time, as well as highly personalised products and services.

How can procurement teams build better relationships with credit risk departments

Here are the steps procurement teams can take to create a collaborative process to negotiate better pricing for credit risk teams. 

1. Agree on a decision platform strategy and how to get there 

2. Decide on whether a multi bureau approach is more effective 

3. Analyse additional data sets to ensure data quality 

4. Decide on the spend that is portable in order to increase competitor leverage

5. Align contracts and terms to avoid continual lock in 

Believing in the benchmark is key. To achieve maximum discounts the team needs to agree on what will be acceptable as the minimum new price points for each data set and search type the bureau is charging for. These cost savings allow credit providers to reduce onboarding costs and are then able to advertise in more channels and have a commercial strategic advantage over competitors. 

Wrap up

For organisations looking to improve the performance of its procurement practices,  collaboration can no longer be considered a nice to have. As internal teams work more closely with procurement, credit providers can unlock direct cost savings with the bureaux and generate additional revenue by being able to market more favourable rates and to more customers.