Strategic cost-reduction is crucial to thriving in the post-pandemic world

Banks won’t come out of this pandemic unscathed – ISG analysis suggests that EMEA banking revenues could be hit by up to 40% in 2021. Interest margins are being squeezed hard, capital ratios are under attack, and the money has to be found from somewhere else. It’s time to look seriously at spending.

Even after a decade of low interest rates, there’s still a shocking amount of money wasted in day-do-day business operations in banks (not exclusively either) – and too much spent on run as opposed to change.

Four ways banks can reduce costs in the long-term

 1.       Revaluate facilities costs

Some businesses have decided to switch to virtual working – even when the pandemic is over. Even banks are considering the move. For example, ING bank is allowing its employees based in Spain to work from home permanently.

While most banks will be reluctant to give up office space entirely – given the sensitive data many employees handle, there’s still scope for significant savings.

Back in April, Barclays’ Jes Staley said that the bank was re-evaluating its use of office space. Even suggesting that retail bank branches could be host to some call centre and investment banking employees. He told the BBC: "The notion of putting 7,000 people in the building may be a thing of the past."

Many employees wouldn’t mind. Deloitte & MORI reported that 61% of desk-based workers want to work from home more often after the pandemic.

There are serious savings to be had, here. Globalworkplaceanalytics shows that the average saving for an employee working at home 50% of their time equates to approximately $11,000 per annum.  This includes a number benefits from working remotely in areas such as reduction in office space, improvement in productivity/delivered value resulting in absenteeism and turnover costs reducing. 

Organisations need to focus on building a re-investment case in order to pay for the change which comes the re-deployment of facilities costs but also from other unlikely areas.  These often-overlooked areas include things such as a reduction in power consumption of up to 80% by moving from physical to mobile technology and a corporate carbon reduction of nearly a tonne per employee per year through reduced commuting part time.  Another major area is a reduction in office furniture usage which can be repurposed to work at home, thus offsetting the legal risk of an industrial accident claim when working remotely.  One claim could pay for 350 employees worth of chairs in the home.

By understanding how your employees want to work, a business case can be made as well as a the rethink on how your new normal employees will serve your customers in new ways

 2.       Refocus on the customer

What can banks to do shore up their customers’ finances? Probably more than you think. Most of us don’t go to our banks for financial advice, and trust in the sector is low. Fairly obviously, the banks that sell products and service that customers need (and want), will do better. But they’re also sitting on huge amounts of data that, put to good use, could help them avoid risk, offering help and support to customers before they default on debts.

New, digital-native banks and fintechs are changing the relationship between bank and customer. They’re focusing on customer convenience, experience and meaning (something I wrote more about in this Finextra post: The Banking Sector Must Adapt to Thrive in a Post-Covid World). Traditional banks are still largely worried about selling.

IPSOS found that 1 in 10 new accounts opened between June and December 2019 was with a digital-only bank.

Younger generations are flocking to challenger banks because they’re easy to access, and they give them tools to help manage their money. They want to be able to freeze and unfreeze bank cards instantly. They want to see visual spending summaries and have real-time payment notifications.

Challenger banks have the flexibility and customer-centric focus to deliver these things, but their digital execution of servicing gives them an operational cost income advantage of 10-15%. As the recent coming together of Google and Cynergy bank highlights, data may also help in reducing the cost of customer acquisition and reduced churn.

Traditional banks must start offering more of these digital services and assess how their delivery architecture can benefit from digital – from a Cx AND cost-to-serve perspective.

3.       Review all your contracts

You’d be amazed how much money is lost through old contracts, duplicated services, network and other supplier bills that are never scrutinised. This is money down the back of the sofa stuff – there’s more of it than you think. We see benefits of 10-30% from systemic third-party management; in addition the tightening of EBA guidelines around TPRM mean higher risk of fines and reputational damage if you are NOT mastering this discipline.

Large banks have eco systems of 40,000 third parties; as fintech becomes more pervasive the need for data driven insights and automated controls grow and we are helping our clients find real value in new sourcing strategies which consolidate vendors around a business service catalogue to support agile and Cx.

4.       Develop a culture that knows the importance of cost-reduction

Cost reduction should be part of your culture. This requires enablers like transparency, data driven insight and the ability to leverage cost platforms so you can engage stakeholders with realistic scenarios based on their context. Every day, your team should be sharing a common dashboard which unites your internal team and your vendors on prioritised actionable programmes.

When people have done things the same way for so long, making a change can feel like telling them they’ve been doing things wrong for years. There can be a significant resistance to change.

Departments are often not set up to work collaboratively – which can lead to problems with accountability. Cost-reduction efforts work best when the bank works as one, but deep-seated cultural issues are often a barrier to making any headway.

If you give everyone a goal, they have something to work towards. What are the projects that everyone’s being doing for long that no-one can remember why? Ditch them.

It’s taken a global pandemic to show us what businesses are capable of doing, when they’re under pressure. Now we need to look towards recovery, and it’s the perfect time to review costs. That wasted money could be better spent on making the business resilient for the future.