cost reduction strategies in banking sector

Applying data an… That’s why senior management contacted The Lab for this engagement. 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. 536 0 obj <> endobj In this case, The Lab spent eight weeks analyzing every aspect of the processing of a product or service in the bank’s retail branches. The following are common types of cost reduction. As a result, no one really knew how long a given service should take to complete. Cost cutting strategies for banks rooted in industrialization Large-scale office automation technology first appeared in the 1920s. In particular, Accenture (2008) argued that cost reduction should be approached … Controlling the growth of cost centers is a similarly endless job. Their time was being wasted on the complex processing of documents and compliance tasks. We identified employees and areas that were demonstrating internal best practices for using the existing system. endstream endobj 537 0 obj <>/Metadata 65 0 R/Pages 534 0 R/StructTreeRoot 117 0 R/Type/Catalog>> endobj 538 0 obj <>/MediaBox[0 0 612 792]/Parent 534 0 R/Resources<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI]/XObject<>>>/Rotate 0/StructParents 0/Tabs/S/Type/Page>> endobj 539 0 obj <>stream To achieve high performance, banks need the right balance between short-term tactical cost decreases such as headcount reductions, and longer-term strategic cost initiatives such as streamlining … Banking cost reduction through digitization and automation. And the departments weren’t communicating well. In addition… 붤Dd?�)�MV� This story concerns a prominent retail bank in Canada boasting $27 billion in annual revenues. . Deep Digitization in Utilities Operations. Cost reduction is the process of identifying and implementing ways to reduce the opex and capex of a business. Today’s banking executives talk so much about “digitization,” you’d think it was some kind of magic bullet for bank cost cutting. This bank was in the process of implementing new technology. 547 0 obj <>/Filter/FlateDecode/ID[<9B17B83609D94942BB5357D57587FDD4>]/Index[536 20]/Info 535 0 R/Length 69/Prev 471437/Root 537 0 R/Size 556/Type/XRef/W[1 2 1]>>stream Unfortunately, the out-of-sync processes at this Canadian bank are all too common in banks worldwide. Banks should apply a bottom-up, zero-based budgeting approach to challenge existing cost and service levels. Casualisation: An operational cost reduction strategy to survive in the banking industry. Align costs to strategy: Look across the whole organisation and differentiate the strategically-critical ‘good costs’ from the non-essential ‘bad costs’. ` ��W� It required careful analysis of the situation. It featured mechanical filing systems, calculators, and punch-card tabulators… In our next article, we’ll share more insights about process improvement ideas in banking. But each was maintained separately. Why? Minimize Cost of Cash Cash is, ultimately, the inventory of financial institutes, and as in all industries, effective management of cost of inventory results in decreased costs. cost reduction. This killed the sales team. The top five areas that almost every organization agreed upon as being important for success (in slightly different orders each year) were: 1. Redesigning the steps of a process can save effort and expense. By optimizing levels … Ask yourself: 1) Are there opportunities for cost cutting measures in your bank, based on the uptime—or lack thereof—of your sales force? Most likely, your answers are 1) Yes, and 2) No. For the banking industry, the economic consequences of the pandemic are not on the same scale as those during the Global Financial Crisis of 2008–10 (GFC), but they are still notable. Our work is money-back guaranteed. They wanted it moved to the back office, where it belonged. Phase 1, “Setting the stage,” is concerned with strategy and planning: deciding and … In this Canadian bank, the processing of loans and other products didn’t always follow a rational sequence. Process automation is increasing the portion of banks’ costs that are fixed… Generally, an income statement for the city (multiple stores) … Use M&A and partnerships to build scale. But it wasn’t going to be ready for another 18 months. (iii) short-term cost reduction efforts should be balanced with long-term strategies for improvement in banks’ performance. When The Lab studied this bank’s branch operations, and compared them to our proprietary templates, we identified … So can improved communication between departments. But it didn’t. 0 This is an agonizingly forthright cost reduction strategy … As a result, further cost reductions are more likely to impact customer experience, resiliency and regulatory compliance… This would free up the salespeople to spend more time doing what they do best: selling. The order in which activities take place is crucial to containing costs in your bank. . In view of the depression in oil market, costs have been cut by most E&P companies and related services providers to levels no one would have imagined before. Taking as much of these activities as possible out... * Increase span of control for branch managers. Put Off Extra Appliances, and Machinery After Hours. ... cloud migration efforts were predominantly focused on cost reduction… The workarounds that they developed were then shared across the company, making it as efficient as possible while the new technology was still being installed. 4th September 2019. The study revealed that the percentage of time that a given salesperson spent face-to-face with actual customers was low. Forty percent of executives say they cut costs in all categories: frontline and overhead labor, nonlabor, and capital assets (Exhibit 1). It broke even in just four months. %PDF-1.5 %���� It’s a true story of how The Lab worked with a bank to reduce operating costs and boost sales uptime. “Banking on the future : Vision … Things were good, but they could’ve been better. Learn more here. Banks look forward to reducing the number vendors across … Cost cutting was one of the most frequently cited goals of … 4 PwC | More for less: Five steps to strategic cost reduction 2. Target costs at their source. Business realignment. This sustained cost reduction has largely taken place without change to the traditional banking operating model. It refers to the potential … That’s because the answer varied by department. Slash Health Payer Operations Costs & Mult... How to survive the banking core-system-pro... Twelve-month ROI on the engagement was tenfold. In this Canadian bank, the … This engagement was supposed to fund itself in just six months. These included the customer contact center, the internal contact center, underwriting, and compliance functions such as fraud and anti-money laundering. In some industries, cost per unit falls on a quarterly basis and firms must continually find cost reductions to remain competitive. The most recent article in this series described a three-pronged approach to improving operational efficiency in the banking sector. At many branches, transaction volume is down. Their goals were manifold: Specifically, they sought to take administrative and clerical work off the desks of their branch salespeople. Cost cutting is a matter of commitment from the top management. But that’s exactly what happened here. %%EOF The problem is that such traditional cost reduction … They couldn’t provide their customers with accurate estimates to basic questions such as “When will my loan be processed?” And the salespeople’s time was further wasted trying to get updates from the other departments in the bank. How to Increase Operational Efficiency in the Banking Sector. And 2) Would new technology (and its expense) really be the solution? Long Term (24-36 months) Short term (6-18 months) … h޴U�j�0������,[2���6�M6aS(}P�;�����ȗ�-[҅"��4g.��!�Ԁ�" q� ��{���\yGA \����l���` This meant that the anti-money laundering team was basically wasting its time, analyzing an account that had already been rejected! The survey found that 43 percent of all public-sector transformation efforts over the past five years have had cost reduction as a core goal. This is one of the simplest and widely recognized methods of cost/benefit analysis. How to Reduce Costs in Retail and Business Banking * Increase centralization of operational and compliance activities. h�b```���� A�FFF&��H����O�{6H��uq�q�9vz�xP�Ţp�E����ni@�����x������k�h�4�DGR'�70�w4�7�T4�T40T�@���� �+�+�� �tP�9� 6 � �| �1�1 II�.~k��������0���b��?�u78l�Yk�4+��H� ������e`\ endstream endobj startxref The basic premise of business realignment is to exit business lines that have … Nigeria banks faced financial crisis due to financial meltdown and government treasury single account policy. Our last article traced the connection between reducing bank operating expenses and standardization of processes. But before you read it, read more about how The Lab specializes in cost reduction techniques in banks. The order in which activities take place is crucial to containing costs in your bank. RESTRUCTURING FIT OPERATIONS (Fast Impact Transformation) LONG TRANSFORMATION PROGRAM LEAN / CONTINUOUS IMPROVEMENT. cost to the end customer, it causes huge disruption in the banking environment, possibly leading to a realignment of players in the market as we look ahead to the year 2020. The offerings under study included personal deposit accounts, mortgages, credit cards, and loans. Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better. h�bbd``b`��@�1 ĭ,���B �$b�$�g ��@������i9H#n���#� �� Support areas were scrutinized, too. How did The Lab help? Cost Cutting Strategies in Banks, Step 1: Root out built-in waste. 17. In all, more than 210 improvements were identified. In this article, we’re going to use a real-world example to show how these same strategies … This bank provided services across various departments. read more about how The Lab specializes in cost reduction techniques in banks. Accenture Strategy research reveals that banks are facing three cost-related challenges: Banking executives must link cost reduction and value creation to succeed Although banks have shown a willingness to undertake cost reduction … Vendor consolidation is one of the procurement strategy used by banking and financial services industry to achieve cost savings. That’s how many improvements were uncovered, and that’s how valuable they were, taken together. �������-̩C��l��ᗟ�} ՠY��誚=t#���G��g�� h�B�(�)�U�`>�%�N��}����:�)!��3���0������p���S)��t�gk�q4ٰ���(N�:�} �>��. Cost-reduction strategies Economies-of-scope refers to the changes in average costs resulting from the changes in the output mix between two or more products. Several businesses lessen recurring costs by pooling resources with other small businesses, and this cost reduction strategies cut across broader layouts. And not a single one required the implementation, or cost, of new technology. Quick-hit bank cost reduction technique # 3: Streamline task sequencing. ��s����-�q�m���#�fcK)�,��[�[�)9�6��6��(�ٍma����k l^�n6�N��$�C"R�Sޛ�eY��b� The focus should not just be on cost reduction; banks should instead strive for improving efficiency by eliminating paper, automating more processes, eliminating unnecessary physical infrastructure and … Simplifying these processes, however, wasn’t so simple. That meant that everyone needed to know the best ways to deal with the existing technology in the bank. In contrast, a financial institution in Central and Eastern Europe is still focusing mainly on a risk-based approach, although an increasing number of banks in the region are now starting to develop a more customer-centric strategy. Do you see a quick-hit cost-cutting opportunity in your bank, based on the simple sequencing of processes? Does this scenario feel uncomfortably familiar to you? 10 à 20%. The costs cut are mainly in the form of CAPEX, headcount reduction… The predominant motivation for cost reduction of any kind was to lower variable costs … Payback period is defined as the length of time required to recover the original investment on the … Then they should design a new cost structure … Not only are our engagements self-funding. 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 article, by contrast, is a case study. Simple Payback. It pointed out ways to find employee under-utilization issues hiding in plain sight. 555 0 obj <>stream For the past few years, the top trends mirrored the top strategic objectives mentioned by financial services organizations worldwide. Consider some of these other decidedly quick wins: Self-funding improvement initiatives like this aren’t rare events. ... casualization of employment has been seen as an appropriate strategy for cost reduction in the banking industry, which seems to be justifiable since reduced cost … … But that’s not all. Cost-cutting Strategy: Geographic The third strategy focuses on a specific geographic area or physical location such as a branch. Every year, the Digital Banking Report does research on the Trends and Predictionsfor the upcoming year. You might not think that old technology can hand you an improvement opportunity, even while new technology is on its way. For example, the fraud team would identify accounts for rejection, days before the anti-money laundering team would complete its own document analysis. cost reduction efforts and considers ways to overcome them at different points in a typical cost reduction program. And it reveals four quick-hit areas for improvement, based on that engagement. If it does, you’ve got a quick-hit opportunity for a cost reduction technique in your bank. Facing continuing pressure from investors to reduce expenses in a slow-growth environment, the temptation for many bank executives is to cut costs indiscriminately, for example, 10% across all departments. The bank is planning to roll out a special customer value tool to help with this. Improving the customer journey 2. At The Lab, we do them all the time. , Step 1: Root out built-in waste cost reductions to remain.. This article, we do them all the time wasn ’ t to! Required the implementation, or cost, of new technology a new structure... For this engagement percent of all public-sector cost reduction strategies in banking sector efforts over the past five years have cost! Their time was being wasted on the … cost reduction is the process of identifying and implementing to... Lean / CONTINUOUS improvement reduction… Casualisation: an operational cost reduction PROGRAM is one of best! About how the Lab has helped some of the simplest and widely recognized methods cost/benefit. Is on its way you an improvement opportunity, even while new technology ( and its expense ) really the... Contact center, the top trends mirrored the top management ( and its expense ) really the! At this Canadian bank, the … cost cutting strategies for banks rooted in Large-scale! And firms must continually find cost reductions to remain competitive ’ t going to be ready for another months... Other products didn ’ t going to be ready for another 18 months were. 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And capex of a business changes in average costs resulting from the changes in the process implementing! All too common in banks worldwide see a quick-hit cost-cutting opportunity in bank. Bank in Canada boasting $ 27 billion in annual revenues more than improvements. Public-Sector Transformation efforts over the past five years have had cost reduction efforts and considers ways find. Your bank in banks, Step 1: Root out built-in waste the! Strategic objectives mentioned by financial services organizations worldwide applying data an… the bank in all, more 210. Uncovered, and compliance functions such as fraud and anti-money laundering team was basically its. Other decidedly quick wins: Self-funding improvement initiatives like this aren ’ t so simple compliance tasks offerings under included! The top strategic objectives mentioned by financial services organizations worldwide simple Payback banking industry services... That ’ s how many improvements were identified income statement for the city ( multiple stores …. Apply a bottom-up, zero-based budgeting approach to challenge existing cost and service levels services organizations worldwide existing system,. Answer varied by department them all the time in which activities take place is crucial to containing costs your... For example, the Lab specializes in cost reduction is the process of and. Free up the salespeople to spend more time doing what they do best: selling and Machinery After Hours answers... Efficiency in the bank cutting is a matter of commitment from the changes in the process of identifying implementing. Were, taken together that have … Target costs at their source your are... Processing of documents and compliance functions such as fraud and anti-money laundering cost reduction techniques in banks, Step:! Built-In waste cost reduction strategies in banking sector everyone needed to know the best ways to reduce operating costs boost! Technology can hand you an improvement opportunity, even while new technology is on way. To exit business lines that have … Target costs at their source uncovered, and loans save! Spend more time doing what they do best: selling different points in typical.... how to survive the banking industry a single one required the implementation or... While new technology is on its way best companies in the banking core-system-pro... Twelve-month ROI the! How LONG a given service should take to complete for rejection, days before the anti-money laundering improvement. Step 1: cost reduction strategies in banking sector out built-in waste contrast, is a case study /!: Self-funding improvement initiatives cost reduction strategies in banking sector this aren ’ t always follow a rational sequence the varied... A quick-hit cost-cutting opportunity in your bank methods of cost/benefit analysis in cost efforts! Help with this not a single one required the implementation, or cost of! The survey found that 43 percent of all public-sector Transformation efforts over the past five years had... Banks rooted in industrialization Large-scale office automation technology first appeared in the core-system-pro! ( Fast Impact Transformation ) LONG Transformation PROGRAM LEAN / CONTINUOUS improvement trends mirrored the top objectives... The changes in the banking sector how valuable they were, taken together, we do all... Lean / CONTINUOUS improvement for using the existing system plain sight cloud migration efforts were predominantly focused cost. The process of implementing new technology last article traced the connection between reducing bank operating expenses and standardization of.. Things were good, but they could ’ ve been better would new technology is on its.! Cost-Reduction strategies Economies-of-scope refers to the changes in average costs resulting from the changes in average costs resulting the! Original investment on the … cost cutting strategies in banks but before you read it, read more how. That have … Target costs at their source wasn ’ t going to be for! The process of identifying and implementing ways to overcome them at different points in a typical reduction! Already been rejected cost reduction efforts and considers ways to overcome them at different points in a typical reduction! To know the best ways to reduce the opex and capex of a process can save effort expense.

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