Are U.S. Bancorp's Cost Cutting Plans a Preview of What's to Come in the Industry? Here are a few things you can start with. These cost-cutting efforts differ from the massive cuts seen lately at crisis-ridden companies such as Ford. 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. Cost cutting strategies for banks rooted in industrialization. But it was hardly a breakthrough when it came to productivity or cost reduction. Pricing for the Banking Industry Unlocking value through pricing excellence. Even more important, it’s applicable today. The following is a small sample of ideas that might be appropriate to your organisation: 1. Large-scale office automation technology first appeared in the 1920s. Applying the lessons learned to reduce operating expenses in banks. 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. Babbage believed it was possible to apply the principles of industrialization, which were revolutionizing the factory floor, to knowledge work. Next, benchmark how your organization’s spending compares to your peers’. A century later, digital vendors still claim that their technology will “gently force” knowledge workers to adapt. Cost-cutting will only deliver so much. These provide clients with a number of suggestions that contribute to making effective decisions about cost reductions. 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. Long-term efficiency is not easy to come by without a corporate culture at your financial institution that values it. Outsourcing is always a go-to method for trimming the fat on employee expenditures. Cost-Cutting Tips for Revenue-Squeezed Bankers. Institutions in the banking sector, such as retail banks, commercial banks, … SocGen CEO Frédéric Oudéa said the Covid-19 pandemic had accelerated changes in the retail banking sector. And the lessons from this story apply to cost reduction in banking, even today. Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better. The “gently force” claim simply didn’t work. 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 was new technology that promised a productivity and cost-saving revolution. Imagine a “knowledge work assembly line.” Next, he sought to automate these tasks. It featured mechanical filing systems, calculators, and punch-card tabulators. 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 COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. Other basic cost-cutting techniques include benchmarking costs against comparable services in the market and consolidating vendors. It’s commonly believed that digital banking technology will automatically reduce expenses in front- and back-office operations. 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." But progress toward digitization—toward Babbage’s dream of a “knowledge work assembly line”—stalled. The new technology, they claimed, would “gently force” office workers to change the way they worked. Pasadena, CA 91101 Balancing short-term tactical cost reductions with longer-term strategic cost initiatives will leave banks much better positioned for future high performance. 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. It seems simple, but it’s radical. If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise. It also warned about the potential for a future leadership crisis in the banking sector. If, say, your data center costs are above industry averages, that area might be a potential candidate for cost optimization. So what happened? 3 Transform the way you cut costs PwC has identified a bank of over 100 Cost Reduction Initiatives and Techniques. Cost Cutting Strategies in Banks, Step 1: Root out built-in waste. More recently, fintech startups seek to hasten banks’ digital extinction. At the same time, the bank will invest in its digital banking offering, Boursorama, which aims to have over four million customers by 2025. Banks are always looking to cut cost in such competitive industry. In this article, we’re going to show how cost reduction in banking first requires that underlying processes are examined—and streamlined. We promised a follow-up on how value is destroyed in relation to disposals and acquisitions. Research shows that implementing RPA drives about 25% to 50% cost savings, improving the output metrics of applied functions. Financial Guaranty Insurance Brokers 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. As we wrote in our last piece, there is a certain mindset in the banking industry that still runs contrary to value creation. Finding a balance between customer centricity and cost efficiency will help to be more streamlined. This method is an effective way of decreasing operational costs and intricacies. The starting point is differentiating the capabilities needed to fuel profitable growth (‘good costs’ targeted for investment) from low-performing business Your staff may wear a lot of hats, but this will only help to outfit a well-rounded employee base. 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. Does this technology-driven approach work in today’s banks, especially in the absence of Babbage-like standardization and industrialization? 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 approach can yield cost reductions up to 20 percent, The banking sector's profitability increases with interest rate hikes. But he conceived the programmable computer…back in the 1830s. And the opportunities to reduce cost in banking can be simply staggering. Industrialization. Cost cutting in the banking sector: Examples. You’ll be impressed with our self-funding business model and money-back guarantee. In addition to reducing process costs, automation tools can help improve staff … Expediting the Operational Efficiency Cost cutting strategies for banks rooted in industrialization. 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. At the heart of this are core banking systems, which comprise the largest area of IT spending for banks. Yahoo! The particularly challenging task of growing profitability has placed the financial services industry under substantial competitive pressure. 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. Standardize the most common fixes, such as “missing information” or “unsigned document.”. With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. First, this can help ensure technologies are used deliberately to change cost structures. Faced with a slow-growth economy and shrinking revenues, bank managers are pulling the only lever they have left: expense control. our self-funding business model and money-back guarantee. Banks’ rising costs can be attributed to … Second, to cut costs, banks should reexamine the build-buy-outsource/offshore model for technology projects. Phone: 626.793.3330 That’s how to cut costs in banks. He didn’t have computer chips or the Internet. JPMorgan Chase and Bank of America have been conducting massive layoffs recently and will see more layoffs over time. Break down the intake operations for new loan applications, such as home equity, mortgage, and consumer loans. 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 bank will invest more ... Allied Irish Bank is cutting its operating costs … It was new technology that promised a productivity and cost-saving revolution… How might an “industrial redesign” look—and how might it slash costs—in today’s bank or credit union? Resource requirements are determined by multiple factors like service levels. Everyone agrees: To cut costs, and to simply survive, banks must transform their digital initiatives. You probably never heard of Charles Babbage. Instead of putting groups of employees on the chopping block, Bank Director suggests finding ways to optimize staff at each of your locations. Financial Guaranty Insurance Brokers Large-scale office automation technology first appeared in the 1920s. 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. 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. Think of ways you can implement outsourcing at your financial institution like call center, IT, remote workers, and freelance content writers. U.S. Bancorp recently announced that it is planning to accelerate branch closures as digital banking … 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. Email: fgib@fgib.com, Copyright ©2021 Then you’re in a position to automate, using today’s digital technology. However, with the innovations in the banking sector, blockchain helps the industry to go paperless, which again helps in cost cutting. 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 … It featured mechanical filing systems, calculators, and punch-card tabulators. 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. By allocating the right resources based on a changing market demand, an inevitable run-in, you can be inspired to create cross-functional responsibilities. Partner With Fintech Providers. Additionally, the technology function should play a critical role in banks’ structural cost transformation efforts. First, he divided complex mathematical tasks into simpler, repetitive sub-routines. His work was brilliant. And success could be quantified. Sadly, you know where this story is headed. Fast-forward more than a century. 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. Cost cutting refers to measures implemented by a company to reduce its expenses and improve profitability. Implementing these initiatives is expected to improve efficiency in the respective units by about 25% and reduce the bank’s total costs by 4%. Yet, from 2010 through 2016, banks in the US and the European Union saw costs increase by 8%, on average. Cost cutting measures may include laying … But it doesn’t. Otherwise, you’re simply digitizing a bad system. As a CIO, your first priority should be to make all IT-related activity costs transparent. The key priority in strategic cost reduction is targeting resources where they can earn the best return, rather than just cutting costs in itself. You must “feed the machine” with the right input. Divide complex banking operations into simple and repetitive sub-routines. In the meantime, learn more about how The Lab helps with cost cutting in the banking sector. Bank cost cutting: A lesson from the past. Reduce the root cause of problems upstream: Create clearer instructions and simpler forms. From the top-down, there needs to be communication and transparency to gain trust and grow reassurance. It would compel them to standardize, in order to use the new equipment. The first step is to apply the principles of industrialization—borrowed straight from the factory floor—to any digital transition. 301 East Colorado Blvd, Suite 205 For example, Lloyds Banking Group expects reduction in external spend to contribute 17 percent towards its £2 billion savings target for 2011. Consider these steps: It seems simple, but it’s radical. Each task could be analyzed and optimized. Reports from the time describe abandoned, under-used technology—and minimal gains in productivity. The banking sector is currently dominated by Europe, which accounts for approximately 43% of the market share across the globe. The tech vendors simply changed their sales pitch. 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. Staff productivity. The global banking sector is highly fragmented and comprises of retail, corporate, and investment banking, and asset and wealth management companies. Misaligned incentives still reign in the banking industry, turning cost cutting into a hot potato passed around divisions. 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. How did he do it? 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. 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. Create a transparent view of costs. By 1994, Bill Gates referred to banks as “dinosaurs,” sliding fast down the slope toward extinction. Babbage recognized that the heart of every project was a procedure, which could be broken down into smaller tasks. Banks will stop all the loose talk about “platforms.” The word “platform” has been stretched to the … ... while cost-cutting has eliminated hundreds of thousands of jobs. While a lot has been written, and will continue to be written, about … a more strategic approach by viewing cost-cutting as part of a broader efficiency effort. But the executives of the era refused. Even then, automation required standardization. Let’s not leave Charles Babbage in the pages of history. 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 Fax: 626.793.1886 Before you digitize, analyze. It was a breakthrough for sales materials. 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. Thanks to the RPA. Sound familiar? 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). Banks have been digitizing their products, services, and processes over the past decade—a shift that was expected to reduce operating costs. He had the clockwork technologies available at the time. And the opportunities to reduce cost in banking can be simply staggering. 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. Deep Digitization in Utilities Operations. Decade—A shift that was expected to reduce operating costs built-in waste 1: Root out built-in.. 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The retail banking sector there is a certain mindset in the banking sector had changes.