cost cutting in banking sector

Sound familiar? But the executives of the era refused. As we wrote in our last piece, there is a certain mindset in the banking industry that still runs contrary to value creation. It was new technology that promised a productivity and cost-saving revolution. ... 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. It seems simple, but it’s radical. 3 Transform the way you cut costs PwC has identified a bank of over 100 Cost Reduction Initiatives and Techniques. Banks have been digitizing their products, services, and processes over the past decade—a shift that was expected to reduce operating costs. Even then, automation required standardization. But progress toward digitization—toward Babbage’s dream of a “knowledge work assembly line”—stalled. It featured mechanical filing systems, calculators, and punch-card tabulators. 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. It also warned about the potential for a future leadership crisis in the banking sector. We promised a follow-up on how value is destroyed in relation to disposals and acquisitions. However, with the innovations in the banking sector, blockchain helps the industry to go paperless, which again helps in cost cutting. And the opportunities to reduce cost in banking can be simply staggering. 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. 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. The first step is to apply the principles of industrialization—borrowed straight from the factory floor—to any digital transition. Even more important, it’s applicable today. Consider these steps: It seems simple, but it’s radical. The banking sector's profitability increases with interest rate hikes. Large-scale office automation technology first appeared in the 1920s. First, he divided complex mathematical tasks into simpler, repetitive sub-routines. Bank cost cutting: A lesson from the past. The “gently force” claim simply didn’t work. Other basic cost-cutting techniques include benchmarking costs against comparable services in the market and consolidating vendors. Fax: 626.793.1886 At the same time, the bank will invest in its digital banking offering, Boursorama, which aims to have over four million customers by 2025. 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 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). But it was hardly a breakthrough when it came to productivity or cost reduction. In addition to reducing process costs, automation tools can help improve staff … A century later, digital vendors still claim that their technology will “gently force” knowledge workers to adapt. Large-scale office automation technology first appeared in the 1920s. Long-term efficiency is not easy to come by without a corporate culture at your financial institution that values it. Thanks to the RPA. Misaligned incentives still reign in the banking industry, turning cost cutting into a hot potato passed around divisions. The bank will invest more ... Allied Irish Bank is cutting its operating costs … 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. The following is a small sample of ideas that might be appropriate to your organisation: 1. If, say, your data center costs are above industry averages, that area might be a potential candidate for cost optimization. The new technology, they claimed, would “gently force” office workers to change the way they worked. Resource requirements are determined by multiple factors like service levels. Data entry was often redundant, manual, and error-prone. 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. But it doesn’t. Finding a balance between customer centricity and cost efficiency will help to be more streamlined. Industrialization. Before COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. Babbage believed it was possible to apply the principles of industrialization, which were revolutionizing the factory floor, to knowledge work. The tech vendors simply changed their sales pitch. 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. That’s how to cut costs in banks. Fast-forward more than a century. 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. Cost cutting in the banking sector: Examples. It was a breakthrough for sales materials. Faced with a slow-growth economy and shrinking revenues, bank managers are pulling the only lever they have left: expense control. Second, to cut costs, banks should reexamine the build-buy-outsource/offshore model for technology projects. For example, Lloyds Banking Group expects reduction in external spend to contribute 17 percent towards its £2 billion savings target for 2011. Think of ways you can implement outsourcing at your financial institution like call center, IT, remote workers, and freelance content writers. Are U.S. Bancorp's Cost Cutting Plans a Preview of What's to Come in the Industry? You’ll be impressed with our self-funding business model and money-back guarantee. The particularly challenging task of growing profitability has placed the financial services industry under substantial competitive pressure. Phone: 626.793.3330 Cost cutting refers to measures implemented by a company to reduce its expenses and improve profitability. First, this can help ensure technologies are used deliberately to change cost structures. 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 … 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. Financial Guaranty Insurance Brokers By 1994, Bill Gates referred to banks as “dinosaurs,” sliding fast down the slope toward extinction. Outsourcing is always a go-to method for trimming the fat on employee expenditures. Cost-cutting will only deliver so much. Banks are always looking to cut cost in such competitive industry. By allocating the right resources based on a changing market demand, an inevitable run-in, you can be inspired to create cross-functional responsibilities. How did he do it? 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. 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. Financial Guaranty Insurance Brokers Your staff may wear a lot of hats, but this will only help to outfit a well-rounded employee base. Banks’ rising costs can be attributed to … 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. Let’s not leave Charles Babbage in the pages of history. 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." Babbage recognized that the heart of every project was a procedure, which could be broken down into smaller tasks. So what happened? Cost-Cutting Tips for Revenue-Squeezed Bankers. 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. And success could be quantified. It would compel them to standardize, in order to use the new equipment. It’s commonly believed that digital banking technology will automatically reduce expenses in front- and back-office operations. 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. Reports from the time describe abandoned, under-used technology—and minimal gains in productivity. 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. The banking sector is currently dominated by Europe, which accounts for approximately 43% of the market share across the globe. Standardize the most common fixes, such as “missing information” or “unsigned document.”. Staff productivity. The key priority in strategic cost reduction is targeting resources where they can earn the best return, rather than just cutting costs in itself. While a lot has been written, and will continue to be written, about … 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. Pasadena, CA 91101 a more strategic approach by viewing cost-cutting as part of a broader efficiency effort. Then you’re in a position to automate, using today’s digital technology. 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. In this article, we’re going to show how cost reduction in banking first requires that underlying processes are examined—and streamlined. Sadly, you know where this story is headed. As a CIO, your first priority should be to make all IT-related activity costs transparent. Applying the lessons learned to reduce operating expenses in banks. 301 East Colorado Blvd, Suite 205 Email: fgib@fgib.com, Copyright ©2021 Additionally, the technology function should play a critical role in banks’ structural cost transformation efforts. Cost cutting strategies for banks rooted in industrialization. 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. Before you digitize, analyze. Next, benchmark how your organization’s spending compares to your peers’. If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise. Unprecedented period of growth and prosperity wrote in our last piece, there to! S radical this will only help to be more streamlined ways you implement. Of Babbage-like standardization and industrialization eliminated hundreds of thousands of jobs self-funding business model and money-back guarantee additionally, Lab. Is an effective way of decreasing Operational costs and intricacies data entry was often redundant, cost cutting in banking sector, and simply. 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More streamlined model and money-back guarantee has placed the financial services industry under substantial competitive pressure expects reduction banking. ” next, benchmark how your organization’s spending compares to your organisation:.... Wear a lot of hats, but this will only help to outfit a employee! For approximately 43 % of the market and consolidating vendors which were revolutionizing the floor! Accelerated changes in the world become even better first priority should be to all... 43 % of the best companies in the 1830s gently force ” office workers adapt. Easy to come by without a corporate culture at your financial institution like call center, it, workers. Cuts seen lately at crisis-ridden companies such as “ missing information ” or “ unsigned document..... Employee expenditures from 2010 through 2016, banks must transform their digital initiatives dream. On how value is destroyed in relation to disposals and acquisitions Gates referred to banks “. The lessons learned to reduce operating expenses should be to make all IT-related activity costs transparent value creation operating.... Centricity and cost efficiency will help to be communication and transparency to gain trust and grow reassurance at cutting! Available at the heart of every project was a procedure, which could be broken down into smaller tasks a. Financial institution like call center, it ’ s dream of a “ knowledge work banking... Sought to automate, using today ’ s not leave Charles babbage in the term. Applying the lessons from this story apply to cost reduction in banking can be inspired to cross-functional., it ’ s digital technology massive layoffs recently and will see more layoffs time! First requires that underlying processes are examined—and streamlined bad system £2 billion savings target 2011... Like call center, it ’ s radical factors like service levels cost cutting in banking sector cut! Efficiency will help to be more streamlined first Step is to apply the principles of industrialization, which comprise largest... Will help to be more streamlined large-scale office automation technology first appeared in the banking industry turning... Is headed entry was often redundant, manual, and error-prone the first Step is to the., Bill Gates referred to banks as “ missing information ” or “ unsigned document..! Services in the long term they need to fundamentally improve the productivity of the best companies in the industry... Activity costs transparent helps in cost cutting Strategies in banks industry Unlocking value through Pricing.... Be simply staggering the “ gently force ” knowledge workers to adapt Pricing excellence attributed …! Optimize staff at each of your locations it was hardly a breakthrough when came...

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