10 Cost Efficiency Opportunities In Banking

2020-11-19| Austen Hancock

Since the 2008 financial crisis the banking sector has been under constant pressure to work more efficiently. And that isn’t changing any time soon.

For over a decade, banks have been trying to drive down their cost-to-income ratio by minimising costs and maximising outputs; however, due to continuously low interest rates and the more recent market uncertainty surrounding Covid-19 and Brexit, this has had little effect.

To get ahead of the competition you need to think creatively about how to unlock further efficiency opportunities without compromising the service you deliver to your customers.

We know from experience this is easier said than done. To help, we have a Cost Diagnostic Framework, which gives you a quick way of targeting where and how to spend your effort and money for maximum return on investment.

How will this help you?

Most banking executives view efficiency and the ability to do more for less as a priority. But after running the traditional cost-savings playbook, they’re often unsure of which way to turn.

To give you a broader view of the efficiency opportunities available, we recommend breaking your organisation down using 10 lenses. This will help you build up a comprehensive picture and tailor the diagnostic to your cost centres and the opportunities within them, leading you to savings that may be lying undiscovered.

In this blog we walk you through the 10 lenses and discuss some of the areas we typically look at and action:

1. Business model

Does your business model align with your strategy? This is the first question we ask, because making sure these are in step with each other will bring big benefits.

• Analyse your capital expenditure plans. This includes identifying ways to build capacity for investment in strategic and growth capabilities such as digitalisation and using low cost channels for transactional processes.

• Consider building shared services to remove duplication and standardise activities such as onboarding, due diligence and quality control.

• Assess your current governance framework, ensuring you establish clear ownership and manage cross-business unit dependencies.


2. Organisation design

Closely examine the teams and departments that drive your business to make sure they’re working as efficiently as possible.

• Assess reporting lines and spans of control regularly to reduce complexity, consolidating or centralising roles where possible.

• Apply flexible ways of working to drive productivity and build capacity.

• Increase employees’ skills so they can support other areas of the business.


3. Organisational synergies

Would a restructure or the introduction of new solutions improve your business? Investing now could create long-term opportunities.

• Look for merger, acquisition and investment opportunities inside and outside your organisation.

• Invest in building fintech solutions to put you on a par with other leaders in the industry.

• Create mutually-beneficial partnerships with other banks and financial service providers to help you maximise cross selling and operational benefits.


4. Location footprint

Assess whether your premises are right for your business. The shift to remote working is a good chance to think about the floorspace you need.

• Ensure your premises, footprint and property management aligns with your strategic ambitions.

• Adopt digital tools such as video calling to remove location barriers for customers and employees.

• Look at the property costs of head office, back office and branch locations.

• Re-configure the workplace, updating collaboration systems, modernising employment processes and changing employee wellbeing techniques.


5. Employment costs

Look beyond headcount reduction and find ways to make sure all of your employees are working as productively as possible.

• Review cross-function and location employee structures, skills, roles and grades to identify alignment opportunities and potential savings.

• Take advantage of remote working by recruiting or relocating specialist skills, such as credit risk and treasury, in lower cost locations.

• Enhance approaches to talent management to reduce recruitment costs, optimise performance and improve retention


6. Business process efficiency

Reviewing your systems and processes will help you pinpoint how you can tighten them up and where automation might improve how you operate.

• Monitor the management expense ratio – the amount of assets used for administrating and operating expenses.

• Automate processes and technology for high volume transactions, making it easier for customers and staff to adopt digital.

• Deploy robotic process automation (RPA) to reduce the need for spreadsheet manipulation in finance processes so employees can focus on adding value elsewhere.


7. Technology

Improving your technology infrastructure may be complex and costly in the short term, but you’ll be building efficiency into your organisation for years to come.

• Make sure all your systems and their providers are aligned with your long-term strategy. Optimise or replace them if they aren’t.

• Introduce new approaches that provide greater flexibility, for example the use of cloud computing and the ability to scale licenses to a number of users.

• Better manage hardware and software licensing so that you have more control.


8. Outsourcing

Bringing in the skills and experience of an external provider could be more effective than keeping everything in-house.

• Use a clear outsourcing strategy to identify key internal focus areas and activities to outsource, such as automated compliance checks and non-core competencies.

• Use close management and clear processes to review and manage material outsourcing, while complying with outsourcing guidelines.

• Implement a benchmarking review or retender to indicate if there’s a saving opportunity, including Banking As A Service and Open Banking.


9. Third party supplier management

Could you be managing supplier relationships more efficiently, through consolidation or bulk discounts?

• Assess suppliers and look for opportunities to integrate, reduce and optimise.

• Focus on regional differences, economies of scale, payment structures, service level agreements and category management which could lead to supplier consolidation or bulk discounts.

• Review property third-party costs to identify savings.


10. Change and projects

Agile businesses that adapt quickly to changing demands are able to more efficiently fine tune their projects to overcome new challenges.

• Develop a change framework across the business to ensure consistent adoption and regularly review your change delivery to identify potential savings.

• Optimise business case processes, efficient project governance and oversight, resourcing of change initiatives and delivery methods.

• Improve change portfolio management, including prioritisation and benchmarking, and developing clarity around ownership and return on investment.


This is a snapshot of just some of the ways you can look to drive sustainable cost efficiencies in your bank. As you can see, there’s a lot of opportunity. The challenge is selecting the right approach for you.

That’s where we come in. We’ve used the 10 lenses to help a wide range of financial organisations drastically reduce their cost base – if there are opportunities for savings in your bank, we’ll find them.

If you’d like to discuss any of these opportunities or find out how we could help you with your unique challenges, please get in touch.