Each task could be analyzed and optimized. Does this technology-driven approach work in today’s banks, especially in the absence of Babbage-like standardization and industrialization? Faced with a slow-growth economy and shrinking revenues, bank managers are pulling the only lever they have left: expense control. More recently, fintech startups seek to hasten banks’ digital extinction. And the opportunities to reduce cost in banking can be simply staggering. Banks are always looking to cut cost in such competitive industry. 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. How did he do it? 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. 3 Transform the way you cut costs PwC has identified a bank of over 100 Cost Reduction Initiatives and Techniques. Before COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. The banking sector is currently dominated by Europe, which accounts for approximately 43% of the market share across the globe. 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. Sound familiar? 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. It was new technology that promised a productivity and cost-saving revolution… You must “feed the machine” with the right input. Here are a few things you can start with. Research shows that implementing RPA drives about 25% to 50% cost savings, improving the output metrics of applied functions. It would compel them to standardize, in order to use the new equipment. Fax: 626.793.1886 Instead of putting groups of employees on the chopping block, Bank Director suggests finding ways to optimize staff at each of your locations. For example, Lloyds Banking Group expects reduction in external spend to contribute 17 percent towards its £2 billion savings target for 2011. By the late 1960s, early efforts at cost cutting in the banking sector—ATMs—were taking shape. Industrialization. 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. 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. It also warned about the potential for a future leadership crisis in the banking sector. 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 … Then you’re in a position to automate, using today’s digital technology. 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. Finding a balance between customer centricity and cost efficiency will help to be more streamlined. 301 East Colorado Blvd, Suite 205 Staff productivity. The particularly challenging task of growing profitability has placed the financial services industry under substantial competitive pressure. But it was hardly a breakthrough when it came to productivity or cost reduction. 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). Large-scale office automation technology first appeared in the 1920s. Partner With Fintech Providers. Second, to cut costs, banks should reexamine the build-buy-outsource/offshore model for technology projects. 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. That’s how to cut costs in banks. This approach can yield cost reductions up to 20 percent, Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better. The global banking sector is highly fragmented and comprises of retail, corporate, and investment banking, and asset and wealth management companies. But progress toward digitization—toward Babbage’s dream of a “knowledge work assembly line”—stalled. 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. SocGen CEO Frédéric Oudéa said the Covid-19 pandemic had accelerated changes in the retail banking sector. Email: [email protected], Copyright ©2021 Before you digitize, analyze. 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. our self-funding business model and money-back guarantee. However, with the innovations in the banking sector, blockchain helps the industry to go paperless, which again helps in cost cutting. Divide complex banking operations into simple and repetitive sub-routines. Deep Digitization in Utilities Operations. Cost cutting strategies for banks rooted in industrialization. It’s commonly believed that digital banking technology will automatically reduce expenses in front- and back-office operations. Banks will stop all the loose talk about “platforms.” The word “platform” has been stretched to the … If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise. Are U.S. Bancorp's Cost Cutting Plans a Preview of What's to Come in the Industry? As we wrote in our last piece, there is a certain mindset in the banking industry that still runs contrary to value creation. JPMorgan Chase and Bank of America have been conducting massive layoffs recently and will see more layoffs over time. The tech vendors simply changed their sales pitch. And the lessons from this story apply to cost reduction in banking, even today. 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. Consider these steps: It seems simple, but it’s radical. Babbage believed it was possible to apply the principles of industrialization, which were revolutionizing the factory floor, to knowledge work. But he conceived the programmable computer…back in the 1830s. He didn’t have computer chips or the Internet. He had the clockwork technologies available at the time. Imagine a “knowledge work assembly line.” Next, he sought to automate these tasks. 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. 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. ... while cost-cutting has eliminated hundreds of thousands of jobs. U.S. Bancorp recently announced that it is planning to accelerate branch closures as digital banking … 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. It featured mechanical filing systems, calculators, and punch-card tabulators. Bank cost cutting: A lesson from the past. a more strategic approach by viewing cost-cutting as part of a broader efficiency effort. It was new technology that promised a productivity and cost-saving revolution. Institutions in the banking sector, such as retail banks, commercial banks, … His work was brilliant. With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Long-term efficiency is not easy to come by without a corporate culture at your financial institution that values it. Financial Guaranty Insurance Brokers 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. How might an “industrial redesign” look—and how might it slash costs—in today’s bank or credit union? Break down the intake operations for new loan applications, such as home equity, mortgage, and consumer loans. You probably never heard of Charles Babbage. The following is a small sample of ideas that might be appropriate to your organisation: 1. Outsourcing is always a go-to method for trimming the fat on employee expenditures. It was a breakthrough for sales materials. Let’s not leave Charles Babbage in the pages of history. The first step is to apply the principles of industrialization—borrowed straight from the factory floor—to any digital transition. 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." These provide clients with a number of suggestions that contribute to making effective decisions about cost reductions. Reduce the root cause of problems upstream: Create clearer instructions and simpler forms. If, say, your data center costs are above industry averages, that area might be a potential candidate for cost optimization. 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. The new technology, they claimed, would “gently force” office workers to change the way they worked. Expediting the Operational Efficiency Create a transparent view of costs. It seems simple, but it’s radical. First, he divided complex mathematical tasks into simpler, repetitive sub-routines. Your staff may wear a lot of hats, but this will only help to outfit a well-rounded employee base. It featured mechanical filing systems, calculators, and punch-card tabulators. Cost Cutting Strategies in Banks, Step 1: Root out built-in waste. Next, benchmark how your organization’s spending compares to your peers’. From the top-down, there needs to be communication and transparency to gain trust and grow reassurance. Fast-forward more than a century. Misaligned incentives still reign in the banking industry, turning cost cutting into a hot potato passed around divisions. Babbage recognized that the heart of every project was a procedure, which could be broken down into smaller tasks. We promised a follow-up on how value is destroyed in relation to disposals and acquisitions. 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. Banks have been digitizing their products, services, and processes over the past decade—a shift that was expected to reduce operating costs. A century later, digital vendors still claim that their technology will “gently force” knowledge workers to adapt. Banks’ rising costs can be attributed to … Cost cutting refers to measures implemented by a company to reduce its expenses and improve profitability. So what happened? Balancing short-term tactical cost reductions with longer-term strategic cost initiatives will leave banks much better positioned for future high performance. Cost-Cutting Tips for Revenue-Squeezed Bankers. 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