GEP Insights continues the"Covid Response Series" in discussion with Tunir Chatterjee, VP and Ian Cotter, Senior Director at GEP, to discuss understanding best practices in the BFSI sector, amidst the "scramble" this pandemic has caused.


Tunir Chatterjee

Vice President

Ian Cotter

Senior Director

Paul Blake



Paul: Hello everyone and welcome to GEP Insights. My name is Paul Blake and I'll be your host for this session – the next in the series of how companies in different sectors can and should respond to the current corona virus pandemic and what their position should be moving forward. With me today to discuss these matters is Tunir Chatterjee and Ian Cotter, respectively, Vice President and Senior Director of consulting at GEP. Welcome, gentlemen.

Tunir: Thank you, Paul.

Ian: Thank you, Paul.

Paul: Let's start by getting you to tell us a little bit about your experience in your sector of specialization, namely banking financial services and insurance. Tunir, let's start with you.

Tunir: Thank you, Paul. I have been a Vice President for GEP in the area of consulting services and banking financial services and insurance sector. Doing this for 10-plus years now. Before that, I was with another global consulting company working on strategy and transformation, in and out of supply chain…a total experience of 17-plus years. I suppose that has been a career in consulting for that long.

Paul: I appreciate that. Thank you. Welcome Ian.

Ian: Hi Paul. My name is Ian Cotter. I'm a Senior Director in GEP’s consulting practice and I primarily work with a lot of our banking and financial services and insurance clients with a heavier focus on insurance. I have about 12 years of consulting experience, nine years with GEP across Europe and North America. I primarily support our insurance clients to help them improve their expense ratios, true strategic cost reduction, strategic sourcing, and also helping them improve their overall third-party risk management.

Paul: Perfect. Thank you both very much and welcome both of you to GEP Insights. Now, let's start if we can by taking a look at what the general trends of the banking financial services and insurance sector was like prior to this crisis. Can you characterize for me a little bit about what the sector was focusing on? Whether there were any specific trends that were general across the whole of the sector? What were the things that were being really touted as the important in procurement and supply in this area before this crisis kicked to the sector?

Tunir: If you have to look at the BFSI sector before the COVID-19 crisis, we should look at it from three different dimensions. One dimension would be the financial performance; the second dimension I would call would be operational priorities and customer service; and the third would be procurement. From the financial performance, a decade had passed by, the banks had grown in profitability as well as return on assets. The stock market was reflective of the banks’ performance. It had grown probably 3x during the last decade in terms of return on equity. From an operational prerogative, the banks were focusing on three areas. We call them broadly under the area of digitization; there was cloud, there was artificial intelligence (AI), and insights on customers. There was another area other than digitization that was becoming very important for banks in the area of operational prerogatives risk management, primarily to be able to proactively manage risks, build dynamic models that can change as situations change and to be able to forecast and react to risks in the early stages than make intervention plans. The customer insights were all based on data because customers represent assets for banks and as we all know banks can face a great amount of asset risks. So, what do they mean for procurement? I personally have seen banking procurement organizations at the two ends of the spectrum — one end of the spectrum would be the more mature ones further along the curve with a seat in the table with the business. And you know they are parkouring with business, making sure the right filter provider and the right third-party providers were being selected such that the banks can leverage their capabilities that are out there and not have to build these futuristic capabilities all organically. The other end of the organization would be those procurement organizations that were not further along the curve and they were still being relegated to just being paper pushers doing conflict management type of activities and pretty delayed not using the right system, processes and templates. So that’s on the procurement side. So I would leave it at that and let Ian talk more on the insurance side.   

Paul: Ian, what can you add?

Ian: Yeah Paul, I can maybe focus a little bit more on the insurance industry. So, prior to this COVID-19 crisis, the insurance industry was facing a rapid transformation. Historically, the insurance industry has been a very, you know, old and staid type of industry without much innovation, and that has all really changed within the last five years or so. And there is a big impetus on a lot of these legacy insurance companies to really transform their operations. Going ahead as they're facing a lot of competition from new startups and insurer tech, as well as that from the overall macro perspective, declining interest rates, changing customer expectations and shifting demographics were also affecting the industry. Some of their key priorities prior to this COVID-19 crisis would have been about achieving operational excellence and improving their cost efficiencies, managing the overall regulatory pressures, digitizing their distribution channels and then also having to embrace the new disruptive technology in the industry.

Paul: So, this may be kind of a loaded question then. What are we seeing that has changed as an immediate result of the Coronavirus outbreak? Has everything simply been put on hold or are we seeing some more dramatic, some more significant changes in the behavior of your customer companies?

Tunir: So the question is — have all initiatives been put on hold due to COVID-19? I would say no, but for the majority part, the answer is yes. And the answer is yes because banks are facing very heavy pressures on their top line. It is easily reflected again in the stock market, which in in the last month, the banking stocks are down probably 30 percent from what they were. And, you know, banking sector is releasing the earnings and you can most of the banks taking a hit. They have taken a hit because the two channels through which they generate most of their income, one is the net interest income which gets generated through the net interest margin — that has taken a huge pressure because Fed has slashed interests rate to zero; their (banks) fee income has also come down because people have fled to safety, transaction volumes are down, all of those that have built the top line. So, what can they do? They still have to generate profit, so they have to look into costs. Now, banks have an overhead ratio of about 55 percent, which means their gross margin is probably in the range of about 35 to 40 percent. So, 55 percent is a very good overhead ratio, it’s more in the range of 60 percent to 65 percent. So they have to improve their overhead ratio, which means they have to improve their overhead costs. And for them to improve their costs, procurement is actually a very good area for them to look into because procurement typically generates 30 percent to 50 percent of operating expenses. So that’s an area they have to look into, not that they need to make investments but they need to look at how can generate cost savings, either by improving productivity as now most people are working from home, call center would be a very good area for them to look in. The other area they need to look into is default management as more cases of fraud are being reported and they just cannot expect to be losing money on fraudulent transactions. The income pressure is not going to go away, corporate drawdowns are going to continue to increase and they are going to feel pressure in the public drawdowns. The other area I think where banks should continue investments is making investments in the payment side. I think fintech companies are encroaching that space in a very large way and there are also external investors available to be willing to invest in that particular area. It’s a long story. I think opportunistic investments should continue, but most of the focus should really be on cost savings in procurement and it’s a huge area to consider to provide a rapid cost saving opportunity, so that should become a high priority.            

Paul: Yes. Ian, let me ask you a similar question in regard with insurance. Earlier, you characterized that this is a sector that hadn’t traditionally invested in a lot of innovation, hadn’t really taken advantage perhaps of some of the technological advancements that other industries had. What should companies do if there is both a need to innovate to get those organizations on the right footing for the future, but also a pressure to not invest or not over-invest in order to preserve cash to mitigate the immediate circumstances? What is it that insurance companies should do to benefit from the digital transformation projects to move forward but isn’t going to be too much of a risk at this stage? What do you think?    

Ian: Yes, that's a great question, Paul. I think for a lot of insurance carriers, this will actually be an impetus for them to accelerate their digital transformation journeys. You know if we look at it from a few different angles, a lot of these insurance companies now will want to digitize their interactions between the policy holders and agents having more self-service platforms, mobile apps for policy service and change reporting call center technologies, doing virtual inspections of accidents instead of having to send out adjusters or appraisers. I think, you know, this has really put an onus on them to start accelerating that journey. Secondly, to this as well, especially for the BFSI, there were very little work-from-home capabilities for a lot of these insurance and banking clients as they wanted all employees really onsite working within the firewalls. And obviously with this corner of COVID 19 crisis, the majority of all of these employees are now having to work remote. So, a lot of these insurance carriers are trying to supplement their internal operations with digital tools to allow their employees to work remote as much as possible. And then finally just this increased reliance on digital interactions and a remote working environment obviously increases cyber risks. So this calls for a lot more stringent data management with advanced security technologies and backup solutions to mitigate a lot of potential phishing scams or cybersecurity risks.

Paul: Right. So if we look to hopefully the near future of a post-COVID-19 world, what are the key lessons that companies should be learning and should carry forward to mitigate the future impact, not necessarily disease risks of the future but other unforeseen risks? You know there's been a lot of talk over the past couple of years about environmental impacts and about political changes and tariffs and all of that kind of stuff that might not necessarily affect your sector, but certainly they affect consumer behavior and they can have a huge impact on the global overall financial situation as well. So, what is it that companies need to take forward to mitigate future impacts?

Tunir: So let me just focus on banking and on insurance. On the banking side, I again will go to my broad framework, and as I answered your first question on three different angles. So, number one would be digitization, which is cloud. Banks should move, whoever have not embarked on the cloud initiative, they should embark on the cloud initiative just because of the huge amount of elasticity that it provides both in computing power and data. The second would be the innovation which would be related to artificial intelligence (AI) and any productivity measures that they can take. AI would provide them insights on customers as well as productivity measures, again you know AI-related platforms such as…you know, there is one major bank that works in a platform called Deep X which is able to execute over a thousand transactions globally on securities and they use it in their commercial and investment banking. Now as they do these two and the move to cloud, the third area which becomes and automatic one would be to prevent and manage the threat of cybersecurity. They have to do that because cybersecurity is clearly the biggest threat to the financial sector, at least the United States has highlighted as such over the next several years. So those would be the three primary priorities from a banking standpoint, AI innovation and operational improvements/productivity improvements.         

Ian: Yes. We've been supporting a lot of our clients lately since this COVID-19 crisis and trying to help them build the comprehensive third-party risk management framework. Once this all happened and operations were hit, there was a big scramble internally to try to understand which vendors were affected. Did they have business continuity plans? Were there force majeure clauses in all of the contracts and people scrambling across the board to try and get a grip and tried to really understand what was going on. I think this has been a wake-up call to a lot of the insurance carriers out there that they need to do a better job overall in managing their vendor base and understanding exactly who are their strategic and critical vendors versus maybe the non-strategic and critical vendors and having contingency and backup plans in place. So I think you know this is definitely going to kickstart a lot of procurement functions and finance functions trying to take a better look at managing their vendors holistically across the board.

Paul: Well, that was terrific. Positive things that can come out of this horrible situation are always extremely welcome. So let's hope that these organizations are able to do that, deliver greater value to their customers and to their shareholders. So Tunir and Ian, thank you both very much for your time today. It's been really interesting to listen to you. Thank you.

Tunir: Thank you, Paul.

Ian: Thank you, Paul.