Leveraging Technology for Process Improvement and Cost Savings in the Financial Industry
With over ten years since the 2008 financial crisis, banks and credit unions continue to look for ways to reduce their expenses. EY’s analysis of the world’s largest 200 banks shows that while aggregate costs have fallen by more than 10% in the last five years, there are still more opportunities. With a gap of 25% over the 2008 cost base and revenue stagnant, continuing to drive costs downward remains a key priority.
While investments in digitization have enabled some cost savings, the overall level of investment in technology and IT has not seen the offsetting growth in revenues. To improve profit margins, banks and credit unions need to find opportunities to be more effective and efficient with the technology solutions they are currently invested in and plan to invest in.
Improve Process Technology
Banking processes in many areas have been significantly changed and improved through technology. Digitization and paperless solutions have removed costs while also enabling new options for customers to improve the customer experience. However, more can be done.
Some may wince at the idea of seeking additional cost efficiency. Rather than cutting budgets and asking teams to do more with less, financial institutions can encourage initiatives that focus on both revenue growth and spending effectiveness.
In many areas, there is implemented technology that could be more fully utilized. One example is in the Marketing department. Most financial institutions have technology supported campaigns and reporting that could be better leveraged to evaluate and manage campaign effectiveness and pricing strategies while improving growth results.
One of the best ways to constantly improve effectiveness is to encourage and enable innovation across the organization. Nine out of ten bankers agree that their organization must innovate at an increasingly rapid pace just to remain competitive. While some financial institutions are building their own innovation labs, where they can collaborate with start-ups and to foster an environment and culture of innovation, it is possible to do this on a smaller scale as well.
According to the Financial Brand, being successful at innovation relies on two fundamental things: a great idea followed by the ability to execute it. We would add one additional item: the culture to support innovation. This may mean starting in a single department as a proof of concept and expanding innovation programs as you build the expertise to manage them.
Start small and invite ideas from teams to be evaluated through the program. Set in place the processes to quickly evaluate, test, and implement. Be transparent and share guidelines and idea evaluation to maintain team member engagement. While transformative innovation is often targeted, it is the day to day innovations that are sought through these ground-up programs. Their impact adds-up quickly to prove a positive ROI.
Know what you do now
Before banks and credit unions can improve anything, they need to understand how it works. Just as key financials need to be measured to provide insights into status, so do processes. We are no way advocating micro-management or a laundry list of new KPIs, but a program has to be able to check in. It is very likely that your financial institution already has the technology in place to monitor key processes. Data can be re-organized to provide quick insights that can provide status reports after targets are set into place.
It is important to benchmark processes against their targeted optimization, but also against your competitors. You may find areas where you have a competitive advantage that you can exploit or uncover a previously unknown weakness. It is important to note that while at times people may be the cause of a bottlenecked process, these evaluations are focused on the overarching process, seeking improvement across all and any touchpoints and ensuring all available technology is being leveraged to support the organization. As Peter Drucker said, “what gets measured gets improved.”
Banks and credit unions have shared that they have big plans for the future of technology in banking. 40% plan to embed AI solutions and computer vision, and over 30% machine learning, natural language processing and robotic process automation. With such large technology investments expected to continue to evolve the way financial institutions do business, it is imperative to seek and act on opportunities that will improve process effectiveness to enable the investment. What do you think? Share your thoughts with us at firstname.lastname@example.org.