As an industry, banking has faced big challenges over the past few years. Low interest rates have hurt lending income. And a steady stream of new products and apps in the “fintech” segment of the industry constantly seek new ways to segment customer services and provide ultra-competitive fees. As banks and credit unions look for ways to succeed in this environment, cost-cutting is an appealing strategy. Finding ways to lower spending not only improves profitability, it typically can be enacted very quickly. When businesses look to cut costs, they will either try to streamline processes or cut staff and services. Needless to say, cost-cutting in banking is no easy feat. In this blog, we will be looking at ways to gain efficiencies and improve bank operations.
Improving banking efficiency
Banks and credit unions are complex businesses that must deal with a unique mix of financial risk, security, customer service, and product promotion. Any one of these areas can hide numerous inefficiencies. The combination of all of them creates many opportunities for processes to break down.
In an article by The Lab Consulting, a six-week analysis of a bank uncovered 225 activity-level improvement opportunities. Many of these improvements were specific to the particular operations. The research created a 5-step process for implementing a strategy for cost-cutting in banking.
Of course, the first of these steps was finding and removing built-in waste. This can be difficult because “built-in” problems are not obvious. The Lab suggested banks start by studying over-servicing low-value customer needs and redundant data entry as two major issues.
In a later step, The Lab put a stronger focus on inefficient data handling. It called for the centralization of data, both by standardizing paperwork/data collection and moving the majority of backend data processing to a single location.
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Cutting site costs
Over the years, the costs of executing transactions have shifted. Today, various pieces of banking equipment (and online banking) help make these transactions cheaper and more efficient. However, during the same time, there has been an increased need for technology and equipment to maintain security and compliance.
This has made equipment—and the maintenance contracts that keep them running—a major area of opportunity for cost-cutting.
At many banks, the difficulty of maintaining old technology and equipment can be a major drag on resources and flexibility. Staff and management may desire to continue using familiar pieces of equipment, even when they do not provide enough services, go unused, and are expensive to keep running.
For bank and credit union managers, rethinking equipment needs and servicing is an important step in reducing costs. Equips has many tools and services to help with this stage of cost-cutting (more about that later).
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Improving cost output
Another method of cost-cutting for banking aims to improve the productivity of staff and services as a way to limit new costs. Mind you, these approaches can be challenging and may require an upfront investment that could take several quarters to provide an ROI.
In an article from BankDirector.com that looked at six strategies for improving banks’ operating efficiency, staff productivity is highlighted as a major benefit. The article suggests financial institutions establish and develop staff performance metrics that help guide and motivate staff—reducing staff turnover and the costs that come with it.
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Also, the article looks at changing staff workloads as a way to cut down the total cost-per-interaction. This requires a strong commitment from institutions since they must analyze their workflows and calculate ideal workloads. As staff becomes better able to handle more work, financial institutions can shift their time away from the costliest interactions (or simply reduce their total staffing).
For example, the human resources required for a standard teller transaction are quite expensive. Changes, like adding self-service machines (like ITMs) to a lobby or providing tellers with cash recyclers to increase transaction speeds allow each teller to cover more customers/members.
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Pivot your costs digitally
When Boston Consulting Group looked at four ways banks can radically reduce costs, they put their focus on simplification and digitization. Financial institutions that want to move their services to cheaper, digital interactions need to make sure they aren’t wasting time moving services that aren’t popular.
Unsurprisingly, cutting services or products comes with some risks. Many banks and credit unions (and other businesses) choose to simply accumulate new services while never removing older ones. However, during periods of transition, these old services suddenly have new costs since they must be refitted for new platforms. Simplifying a product and services list can not only help a bank cut initial costs—it can make it more flexible for changes in the future.
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Banking merger & acquisitions
A merger or acquisition of another facility is a long-term (and extreme) option for cutting total costs. Creating a bigger institution can save money in staff, process development, marketing, and even equipment costs. Since mergers are unique to each financial institution, we won’t go into any specific details here. However, Equips has recently written more in-depth about credit union mergers in our blog.
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Cost-cutting in banking
We’ve looked at just a few general strategies that banks and credit unions have for cost-cutting—some more complex than others. But, one of the simplest ways for banks and credit unions to cut costs is to spend less on their equipment management. Equips management services help financial institutions lower their maintenance costs and reduce the time they spend submitting servicing requests.
Contact Equips today to find out all the ways we can help you lower your costs and improve your efficiency.
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Equips is revolutionizing how Banks and Credit Unions manage, maintain, and protect critical branch equipment. Leveraging a network of 500+ vendors, experts at Equips help Financial Institutions respond to equipment problems quickly in one place: Equips. Active management allows Financial Institutions of all sizes to improve operational efficiency, cut costs, and streamline equipment inventory and vendor management. Our groundbreaking solution provides clients across 45 states with better insight and transparency into their critical equipment and enables employees to do their best work. To learn more book a demo below!