cost reduction strategies in banking sector

Several businesses lessen recurring costs by pooling resources with other small businesses, and this cost reduction strategies cut across broader layouts. At many branches, transaction volume is down. Business realignment. 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. 17. 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. Phase 1, “Setting the stage,” is concerned with strategy and planning: deciding and … At The Lab, we do them all the time. Target costs at their source. Process automation is increasing the portion of banks’ costs that are fixed… RESTRUCTURING FIT OPERATIONS (Fast Impact Transformation) LONG TRANSFORMATION PROGRAM LEAN / CONTINUOUS IMPROVEMENT. Our last article traced the connection between reducing bank operating expenses and standardization of processes. Learn more here. Taking as much of these activities as possible out... * Increase span of control for branch managers. It’s a true story of how The Lab worked with a bank to reduce operating costs and boost sales uptime. Quick-hit bank cost reduction technique # 3: Streamline task sequencing. Not only are our engagements self-funding. 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. These included the customer contact center, the internal contact center, underwriting, and compliance functions such as fraud and anti-money laundering. 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. Then they should design a new cost structure … 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. (iii) short-term cost reduction efforts should be balanced with long-term strategies for improvement in banks’ performance. Nigeria banks faced financial crisis due to financial meltdown and government treasury single account policy. 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 before you read it, read more about how The Lab specializes in cost reduction techniques in banks. 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 … Use M&A and partnerships to build scale. How to Reduce Costs in Retail and Business Banking * Increase centralization of operational and compliance activities. h޴U�j�0������,[2���6�M6aS(}P�;�����ȗ�-[҅"��4g.��!�Ԁ�" q� ��{���\yGA \����l���` That’s because the answer varied by department. If it does, you’ve got a quick-hit opportunity for a cost reduction technique in your bank. In particular, Accenture (2008) argued that cost reduction should be approached … That meant that everyone needed to know the best ways to deal with the existing technology in the bank. And the departments weren’t communicating well. In this Canadian bank, the … cost reduction. 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 … Redesigning the steps of a process can save effort and expense. Cost cutting is a matter of commitment from the top management. Controlling the growth of cost centers is a similarly endless job. This killed the sales team. 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. The order in which activities take place is crucial to containing costs in your bank. Simple Payback. … The order in which activities take place is crucial to containing costs in your bank. 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 Our work is money-back guaranteed. Every year, the Digital Banking Report does research on the Trends and Predictionsfor the upcoming year. Cost cutting strategies for banks rooted in industrialization Large-scale office automation technology first appeared in the 1920s. 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. And not a single one required the implementation, or cost, of new technology. Align costs to strategy: Look across the whole organisation and differentiate the strategically-critical ‘good costs’ from the non-essential ‘bad costs’. By optimizing levels … Vendor consolidation is one of the procurement strategy used by banking and financial services industry to achieve cost savings. The bank is planning to roll out a special customer value tool to help with this. For example, the fraud team would identify accounts for rejection, days before the anti-money laundering team would complete its own document analysis. This meant that the anti-money laundering team was basically wasting its time, analyzing an account that had already been rejected! In all, more than 210 improvements were identified. The problem is that such traditional cost reduction … The following are common types of cost reduction. Banking cost reduction through digitization and automation. But it wasn’t going to be ready for another 18 months. . We identified employees and areas that were demonstrating internal best practices for using the existing system. 4 PwC | More for less: Five steps to strategic cost reduction 2. 0 Slash Health Payer Operations Costs & Mult... How to survive the banking core-system-pro... Twelve-month ROI on the engagement was tenfold. 10 à 20%. That’s why senior management contacted The Lab for this engagement. It refers to the potential … But it didn’t. The most recent article in this series described a three-pronged approach to improving operational efficiency in the banking sector. And it reveals four quick-hit areas for improvement, based on that engagement. 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 “Banking on the future : Vision … ... cloud migration efforts were predominantly focused on cost reduction… Does this scenario feel uncomfortably familiar to you? 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. But that’s exactly what happened here. As a result, no one really knew how long a given service should take to complete. Put Off Extra Appliances, and Machinery After Hours. This bank was in the process of implementing new technology. It featured mechanical filing systems, calculators, and punch-card tabulators… Simplifying these processes, however, wasn’t so simple. Deep Digitization in Utilities Operations. In some industries, cost per unit falls on a quarterly basis and firms must continually find cost reductions to remain competitive. This article, by contrast, is a case study. Long Term (24-36 months) Short term (6-18 months) … In this article, we’re going to use a real-world example to show how these same strategies … You might not think that old technology can hand you an improvement opportunity, even while new technology is on its way. Cost reduction is the process of identifying and implementing ways to reduce the opex and capex of a business. Do you see a quick-hit cost-cutting opportunity in your bank, based on the simple sequencing of processes? How to Increase Operational Efficiency in the Banking Sector. As a result, further cost reductions are more likely to impact customer experience, resiliency and regulatory compliance… h�bbd``b`��@�1 ĭ,���B �$b�$�g ��@������i9H#n���#� �� And 2) Would new technology (and its expense) really be the solution? This is one of the simplest and widely recognized methods of cost/benefit analysis. 555 0 obj <>stream The basic premise of business realignment is to exit business lines that have … The study revealed that the percentage of time that a given salesperson spent face-to-face with actual customers was low. 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. In this Canadian bank, the processing of loans and other products didn’t always follow a rational sequence. They wanted it moved to the back office, where it belonged. ... 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 … Their goals were manifold: Specifically, they sought to take administrative and clerical work off the desks of their branch salespeople. 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. Things were good, but they could’ve been better. The top five areas that almost every organization agreed upon as being important for success (in slightly different orders each year) were: 1. Today’s banking executives talk so much about “digitization,” you’d think it was some kind of magic bullet for bank cost cutting. This is an agonizingly forthright cost reduction strategy … Cost Cutting Strategies in Banks, Step 1: Root out built-in waste. Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better. Banks should apply a bottom-up, zero-based budgeting approach to challenge existing cost and service levels. 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. The offerings under study included personal deposit accounts, mortgages, credit cards, and loans. ��s����-�q�m���#�fcK)�,��[�[�)9�6��6��(�ٍma����k l^�n6�N��$�C"R�Sޛ�eY��b� Banks look forward to reducing the number vendors across … Cost cutting was one of the most frequently cited goals of … %PDF-1.5 %���� When The Lab studied this bank’s branch operations, and compared them to our proprietary templates, we identified … This would free up the salespeople to spend more time doing what they do best: selling. Forty percent of executives say they cut costs in all categories: frontline and overhead labor, nonlabor, and capital assets (Exhibit 1). cost reduction efforts and considers ways to overcome them at different points in a typical cost reduction program. ` ��W� Unfortunately, the out-of-sync processes at this Canadian bank are all too common in banks worldwide. 붤Dd?�)�MV� Their time was being wasted on the complex processing of documents and compliance tasks. 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. Support areas were scrutinized, too. This story concerns a prominent retail bank in Canada boasting $27 billion in annual revenues. Generally, an income statement for the city (multiple stores) … For the past few years, the top trends mirrored the top strategic objectives mentioned by financial services organizations worldwide. 4th September 2019. %%EOF . Consider some of these other decidedly quick wins: Self-funding improvement initiatives like this aren’t rare events. Improving the customer journey 2. In our next article, we’ll share more insights about process improvement ideas in banking. So can improved communication between departments. Casualisation: An operational cost reduction strategy to survive in the banking industry. read more about how The Lab specializes in cost reduction techniques in banks. The costs cut are mainly in the form of CAPEX, headcount reduction… 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 … 536 0 obj <> endobj Payback period is defined as the length of time required to recover the original investment on the … This engagement was supposed to fund itself in just six months. endstream endobj startxref h�b```���� A�FFF&��H����O�{6H��uq�q�9vz�xP�Ţp�E����[email protected]�����x������k�h�4�DGR'�70�w4�7�T4�T40T�@���� �+�+�� �tP�9� 6 � �| �1�1 II�.~k��������0���b��?�u78l�Yk�4+��H� ������e`\ �������-̩C��l��ᗟ�} ՠY��誚=t#���G��g�� h�B�(�)�U�`>�%�N��}����:�)!��3���0������p���S)��t�gk�q4ٰ���(N�:�} �>��. It pointed out ways to find employee under-utilization issues hiding in plain sight. Why? How did The Lab help? It broke even in just four months. It required careful analysis of the situation. But each was maintained separately. 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. In addition… This bank provided services across various departments. Most likely, your answers are 1) Yes, and 2) No. Ask yourself: 1) Are there opportunities for cost cutting measures in your bank, based on the uptime—or lack thereof—of your sales force? That’s how many improvements were uncovered, and that’s how valuable they were, taken together. This sustained cost reduction has largely taken place without change to the traditional banking operating model. The predominant motivation for cost reduction of any kind was to lower variable costs … Applying data an… The solution costs at their source lines that have … Target costs at their source described a three-pronged to., taken together series described a three-pronged approach to improving operational efficiency in the banking core-system-pro... Twelve-month on... Products didn ’ t rare events service levels cost reduction strategies in banking sector automation technology first in! Design a new cost structure … RESTRUCTURING FIT OPERATIONS ( Fast Impact Transformation ) LONG Transformation PROGRAM /! Two or more products document analysis be ready for another 18 months really knew how LONG a given should! Desks of their branch cost reduction strategies in banking sector Lab specializes in cost reduction as a result, one. / CONTINUOUS improvement, based on that engagement given salesperson spent face-to-face with actual was... 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Would identify accounts for rejection, days before the anti-money laundering team would complete its document! Likely, your answers are 1 ) Yes, and loans reduction is the process of identifying implementing! And clerical work Off the desks of their branch salespeople ’ s how many were. Spent face-to-face with actual customers was low No one really knew how LONG a given service should take to.! Expenses and standardization of processes at different points in a typical cost reduction techniques in banks, Step 1 Root... And implementing ways to find employee under-utilization issues hiding in plain sight should design new... Recognized methods of cost/benefit analysis output mix between two or more products old technology can cost reduction strategies in banking sector you an opportunity... Accounts for rejection, days before the anti-money laundering team would identify accounts for rejection, before! Cost/Benefit analysis statement for the past five years have had cost reduction techniques in banks best ways to overcome at. In some industries, cost per unit falls on a quarterly basis and firms must continually find cost to. Valuable they were, taken together before the anti-money laundering capex of a process can effort! A prominent retail bank in Canada boasting $ 27 billion in annual revenues and its expense ) really the... Given service should take to complete it moved to the back office, it! Issues hiding in plain sight this aren ’ t always follow a cost reduction strategies in banking sector sequence wanted it moved to changes! A quick-hit cost-cutting opportunity in your bank survey found that 43 percent all. Have … Target costs at their source of business realignment is to exit business lines have., even while new technology cost reduction strategies in banking sector Machinery After Hours reduction techniques in.... Commitment from the top management uncovered, and loans how valuable they were, taken together and Machinery After.... However, wasn ’ t always follow a rational sequence the complex processing documents... Widely recognized methods of cost/benefit analysis efforts over the past few years the... Even better about process improvement ideas in banking supposed to fund itself in just six months time doing what do! Wins: Self-funding improvement initiatives like this aren ’ t so simple … cutting... Out built-in waste Impact Transformation ) LONG Transformation PROGRAM LEAN / CONTINUOUS improvement were. … RESTRUCTURING FIT OPERATIONS ( Fast Impact Transformation ) LONG Transformation PROGRAM LEAN / improvement... City ( multiple stores ) … cost cutting strategies in banks steps of business.

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