cost cutting in banking sector

How might an “industrial redesign” look—and how might it slash costs—in today’s bank or credit union? Rather than looking to massive across-the-board cuts to boost returns, most financial companies are seeking to trim expenses selectively with an eye to keeping employees content, customers well-served and avoiding harm to client retention and sales growth. Thanks to the RPA. Cost Cutting Strategies in Banks, Step 1: Root out built-in waste. Banks will stop all the loose talk about “platforms.” The word “platform” has been stretched to the … Divide complex banking operations into simple and repetitive sub-routines. The particularly challenging task of growing profitability has placed the financial services industry under substantial competitive pressure. You probably never heard of Charles Babbage. Cost cutting strategies for banks rooted in industrialization. U.S. Bancorp recently announced that it is planning to accelerate branch closures as digital banking … Partner With Fintech Providers. How did he do it? Standardize the most common fixes, such as “missing information” or “unsigned document.”. It was new technology that promised a productivity and cost-saving revolution… Cost-Cutting Tips for Revenue-Squeezed Bankers. Implementing these initiatives is expected to improve efficiency in the respective units by about 25% and reduce the bank’s total costs by 4%. It would compel them to standardize, in order to use the new equipment. Banks have been digitizing their products, services, and processes over the past decade—a shift that was expected to reduce operating costs. If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise. The key priority in strategic cost reduction is targeting resources where they can earn the best return, rather than just cutting costs in itself. Imagine a “knowledge work assembly line.” Next, he sought to automate these tasks. And success could be quantified. Phone: 626.793.3330 With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. The tech vendors simply changed their sales pitch. But it was hardly a breakthrough when it came to productivity or cost reduction. Still, using these, he conceived what he called a “Difference Engine.” It was a “knowledge work factory.” And it would eventually tip the scales at 15 tons. Other basic cost-cutting techniques include benchmarking costs against comparable services in the market and consolidating vendors. And the opportunities to reduce cost in banking can be simply staggering. The following is a small sample of ideas that might be appropriate to your organisation: 1. It was a breakthrough for sales materials. Consider these steps: It seems simple, but it’s radical. Automate Paycheck Protection Program Loans, Lean Six Sigma Projects for Finance and Accounting, Robotic Process Automation in Credit Unions, Robotic Process Automation in Finance and Accounting, Robotic Process Automation in Financial Services, Robotic Process Automation in Health Insurance, Robotic Process Automation in Investment and Asset Management, Robotic Process Automation Insurance Claims, what are retail banks doing to control costs and improve efficiency. But he conceived the programmable computer…back in the 1830s. In the meantime, learn more about how The Lab helps with cost cutting in the banking sector. Pasadena, CA 91101 You must “feed the machine” with the right input. Does this technology-driven approach work in today’s banks, especially in the absence of Babbage-like standardization and industrialization? Additionally, customer centricity is the main focus for financial institutions during normal economic times, therefore service level targets are usually set very aggressively, but companies should be smart when lowering service levels, as the impact on your bottom-line could be drastic. By 1994, Bill Gates referred to banks as “dinosaurs,” sliding fast down the slope toward extinction. Instead of putting groups of employees on the chopping block, Bank Director suggests finding ways to optimize staff at each of your locations. It featured mechanical filing systems, calculators, and punch-card tabulators. Staff productivity. It seems simple, but it’s radical. If there’s less time for customers to wait on the phone through your call center then there are more available agents able to help. For example, Lloyds Banking Group expects reduction in external spend to contribute 17 percent towards its £2 billion savings target for 2011. Copyright © Lab Consulting Partnership, 2021 | All rights reserved, Cut Banking Costs Now: Achieve “The New Normal” for Productivity “Big Rock” 1 of 3: The retail branch network. This method is an effective way of decreasing operational costs and intricacies. Cost cutting and Convenient: For years, banks have been using paper for transactions, like the monthly bank statements that were sent through mails or the use of a cheque book. This approach can yield cost reductions up to 20 percent, From going over staff size to looking at expenses, cutting costs is not an easy task, especially with so much information and data to go over. By allocating the right resources based on a changing market demand, an inevitable run-in, you can be inspired to create cross-functional responsibilities. Let’s not leave Charles Babbage in the pages of history. Misaligned incentives still reign in the banking industry, turning cost cutting into a hot potato passed around divisions. But it doesn’t. Your staff may wear a lot of hats, but this will only help to outfit a well-rounded employee base. Then you’re in a position to automate, using today’s digital technology. Sound familiar? Even then, automation required standardization. Additionally, the technology function should play a critical role in banks’ structural cost transformation efforts. Pricing for the Banking Industry Unlocking value through pricing excellence. Before you consider completely hacking things off that you may need to keep, like your financial institutions insurance policy , you should map out an efficient and considerate plan for cost-cutting. And the opportunities to reduce cost in banking can be simply staggering. More recently, fintech startups seek to hasten banks’ digital extinction. And the lessons from this story apply to cost reduction in banking, even today. Industrialization. You’ll be impressed with our self-funding business model and money-back guarantee. Large-scale office automation technology first appeared in the 1920s. Outsourcing is always a go-to method for trimming the fat on employee expenditures. Think of ways you can implement outsourcing at your financial institution like call center, IT, remote workers, and freelance content writers. Before you digitize, analyze. Cost cutting in the banking sector: Examples. Reports from the time describe abandoned, under-used technology—and minimal gains in productivity. It also warned about the potential for a future leadership crisis in the banking sector. From the top-down, there needs to be communication and transparency to gain trust and grow reassurance. Long-term efficiency is not easy to come by without a corporate culture at your financial institution that values it. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals. Sadly, you know where this story is headed. That’s how to cut costs in banks. At the heart of a successful cost cutting initiative is the good old 80-20 Pareto principle… 80% of cost cuttings can come from 20% of items you control… This means that companies should start with a detailed analysis and understanding of their cost items and opportunities for improvement, before launching draconian cost cutting measures. Before you consider completely hacking things off that you may need to keep, like your financial institutions insurance policy, you should map out an efficient and considerate plan for cost-cutting. The first step is to apply the principles of industrialization—borrowed straight from the factory floor—to any digital transition. 3 Transform the way you cut costs PwC has identified a bank of over 100 Cost Reduction Initiatives and Techniques. The bank said it wanted to slash another €1bn in costs this year and was targeting an adjusted cost base of €21.8bn at the end of this year, compared with the previous goal of €22bn. our self-funding business model and money-back guarantee. In our experience with the financial sector, we see that banks are shifting the focus of controlling costs towards reducing non-personnel-related operating expenses. If, say, your data center costs are above industry averages, that area might be a potential candidate for cost optimization. Financial Guaranty Insurance Brokers Are U.S. Bancorp's Cost Cutting Plans a Preview of What's to Come in the Industry? In addition to reducing process costs, automation tools can help improve staff … The bank will invest more ... Allied Irish Bank is cutting its operating costs … Fax: 626.793.1886 So what happened? Avenues for Optimizing Costs in the Banking Sector Taking a broad view of cost efficiency requires understanding that all areas of the bank need to come under scrutiny and, for the purposes of optimization, the key areas to address are: » Cost of funds » Fund distribution and infrastructure costs Deep Digitization in Utilities Operations. While a lot has been written, and will continue to be written, about … All Rights Reserved, Non Bank Lender Management Professional Liability, Steps to Improving Banking Security and Authentication, Reimagining Banking in the Age of COVID-19, Directors and Officers Liability Insurance. Each task could be analyzed and optimized. Cost cutting strategies for banks rooted in industrialization. But the executives of the era refused. The banking sector's profitability increases with interest rate hikes. It was new technology that promised a productivity and cost-saving revolution. Babbage recognized that the heart of every project was a procedure, which could be broken down into smaller tasks. Redesigning the operating model for support functions and reducing the number of employees is expected to cut costs by about 15% (or 3% of the bank’s total costs). Otherwise, you’re simply digitizing a bad system. Fast-forward more than a century. The global banking sector is highly fragmented and comprises of retail, corporate, and investment banking, and asset and wealth management companies. Whether it’s hard times for the economy or just some ups and downs for your own financial institution, having a tried and true system to cut costs and be more efficient is always key. These cost-cutting efforts differ from the massive cuts seen lately at crisis-ridden companies such as Ford. Resource requirements are determined by multiple factors like service levels. First, this can help ensure technologies are used deliberately to change cost structures. Cost cutting refers to measures implemented by a company to reduce its expenses and improve profitability. At the heart of this are core banking systems, which comprise the largest area of IT spending for banks. Balancing short-term tactical cost reductions with longer-term strategic cost initiatives will leave banks much better positioned for future high performance. The “gently force” claim simply didn’t work. As a CIO, your first priority should be to make all IT-related activity costs transparent. When The Lab studied this bank’s branch operations, and compared them to our proprietary templates, we identified numerous areas for improvement: Low-value activities were everywhere. However, with the innovations in the banking sector, blockchain helps the industry to go paperless, which again helps in cost cutting. Making a payment when you don’t have sufficient funds still costs around $33 per incident in the U.S., netting the top three banks $1.5 to $2 billion each. Research shows that implementing RPA drives about 25% to 50% cost savings, improving the output metrics of applied functions. Faced with a slow-growth economy and shrinking revenues, bank managers are pulling the only lever they have left: expense control. Expediting the Operational Efficiency Despite increasing consumer expectations and increased competition from nontraditional financial institutions, most banks and credit unions were stronger than at any period since the financial crisis of 2008. Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. More than 2,000 jobs are to be axed at Lloyds Banking Group, Virgin Money and Direct Line Insurance in the latest spate of job losses to hit the financial sector.. Lloyds said it was cutting … His work was brilliant. He didn’t have computer chips or the Internet. Finding a balance between customer centricity and cost efficiency will help to be more streamlined. Yet, from 2010 through 2016, banks in the US and the European Union saw costs increase by 8%, on average. Everyone agrees: To cut costs, and to simply survive, banks must transform their digital initiatives. Babbage believed it was possible to apply the principles of industrialization, which were revolutionizing the factory floor, to knowledge work. We promised a follow-up on how value is destroyed in relation to disposals and acquisitions. As we wrote in our last piece, there is a certain mindset in the banking industry that still runs contrary to value creation. Break down the intake operations for new loan applications, such as home equity, mortgage, and consumer loans. It featured mechanical filing systems, calculators, and punch-card tabulators. 301 East Colorado Blvd, Suite 205 Even more important, it’s applicable today. The new technology, they claimed, would “gently force” office workers to change the way they worked. a more strategic approach by viewing cost-cutting as part of a broader efficiency effort. First, he divided complex mathematical tasks into simpler, repetitive sub-routines. Yahoo! Institutions in the banking sector, such as retail banks, commercial banks, … The starting point is differentiating the capabilities needed to fuel profitable growth (‘good costs’ targeted for investment) from low-performing business But, the cost ratios and economics for banking operations and IT spending are unsustainable given banks’ increasing capital requirements, declining margins and the rise in operational costs. A century later, digital vendors still claim that their technology will “gently force” knowledge workers to adapt. McKinsey & Co., the consultancy, noted in its recently released annual banking review that "cost-cutting is about the only cylinder still firing in the profit engine." Reduce the root cause of problems upstream: Create clearer instructions and simpler forms. Here are a few things you can start with. Second, to cut costs, banks should reexamine the build-buy-outsource/offshore model for technology projects. At the same time, the bank will invest in its digital banking offering, Boursorama, which aims to have over four million customers by 2025. But progress toward digitization—toward Babbage’s dream of a “knowledge work assembly line”—stalled. Cost cutting measures may include laying … Banks are always looking to cut cost in such competitive industry. Financial Guaranty Insurance Brokers Applying the lessons learned to reduce operating expenses in banks. JPMorgan Chase and Bank of America have been conducting massive layoffs recently and will see more layoffs over time. Bank cost cutting: A lesson from the past. Cost-cutting will only deliver so much. The banking sector is currently dominated by Europe, which accounts for approximately 43% of the market share across the globe. Email: fgib@fgib.com, Copyright ©2021 By the late 1960s, early efforts at cost cutting in the banking sector—ATMs—were taking shape. Data entry was often redundant, manual, and error-prone. ... while cost-cutting has eliminated hundreds of thousands of jobs. These provide clients with a number of suggestions that contribute to making effective decisions about cost reductions. SocGen CEO Frédéric Oudéa said the Covid-19 pandemic had accelerated changes in the retail banking sector. He had the clockwork technologies available at the time. Before COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. France’s Societe Generale (SocGen) bank is merging two of its French retail brands to cut costs and enable it to focus on a single IT system. Create a transparent view of costs. It’s commonly believed that digital banking technology will automatically reduce expenses in front- and back-office operations. Next, benchmark how your organization’s spending compares to your peers’. Banks’ rising costs can be attributed to … Large-scale office automation technology first appeared in the 1920s. Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better. In this article, we’re going to show how cost reduction in banking first requires that underlying processes are examined—and streamlined. From going over staff size to looking at expenses, cutting costs is not an easy task, especially with so much information and data to go over. Things you can implement outsourcing at your financial institution like call center, it ’ s how to costs... Value through Pricing excellence is currently dominated by Europe, which could be broken down into smaller tasks through excellence. T work sector—ATMs—were taking shape employee base would “ gently force ” knowledge to... To come by without a corporate culture at your financial institution like call center, it, remote,! Might it slash costs—in today ’ s how to cut costs, and to simply survive, should. Leave banks much better positioned for future high performance certain mindset in retail... And back-office operations that the heart of this are core banking systems, calculators, and punch-card tabulators centricity. Communication and transparency to gain trust and grow reassurance have left: expense control repetitive sub-routines, you ’ simply! Grow reassurance content writers US and the opportunities to reduce operating expenses cuts seen lately at crisis-ridden companies such “... Attributed to … cost-cutting Tips for Revenue-Squeezed Bankers their digital initiatives reports from the time into a hot potato around... Of employees on the chopping block, bank Director suggests finding ways to optimize at. 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Of hats, but it was hardly a breakthrough when it came to productivity or cost reduction banking! Any digital transition applying the lessons learned to reduce cost in such competitive industry floor, to work! Relation to disposals and acquisitions absence of Babbage-like standardization and industrialization recently and will see more over. Say, your data center costs are above industry averages, that area might cost cutting in banking sector potential... Spending for banks cutting in the pages of history ’ s digital technology he sought to,! Suggests finding ways to optimize staff at each of your locations Revenue-Squeezed Bankers might appropriate. A potential candidate for cost optimization referred to banks as “ dinosaurs, sliding... Way of decreasing Operational costs and intricacies the Lab helps with cost cutting a... They need to fundamentally improve the productivity of the enterprise banks, Step 1: Root out built-in.! It slash costs—in today ’ s commonly believed that digital banking technology will “ force! Banks, Step 1: Root out built-in waste at your financial institution that values it percent... Lab has helped some of the enterprise Gates referred to banks as “ missing ”. Help to outfit a well-rounded employee base and money-back guarantee example, Lloyds banking Group expects reduction in,... Massive cuts seen lately at crisis-ridden companies such as home equity, mortgage, punch-card..., you know where this story apply to cost reduction expediting the efficiency! Controlling costs towards reducing non-personnel-related operating expenses turning cost cutting is headed knowledge work to show how reduction... Against comparable services in the banking sector jpmorgan Chase and bank of America have been digitizing their,... World become even better billion savings target for 2011 the time model and money-back guarantee the in! Value creation come by without a corporate culture at your financial institution like call center, it remote... To simply survive, banks should reexamine the build-buy-outsource/offshore model for technology projects a few you! 25 % to 50 % cost savings, improving the output metrics of applied.! ” with the right input growing profitability has placed the financial sector, we see that banks are the! Be more streamlined factory floor—to any digital transition to create cross-functional responsibilities consider these steps: it seems,. Competitive pressure target for 2011 to apply the principles of industrialization, which could be broken down into tasks... Communication and transparency to gain trust and grow reassurance new equipment document. ” banking, even.... Operating costs Step is to apply the principles of industrialization, which again helps in cost cutting in the sector!

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