Cost management in the banking industry

Using cost reduction as a catalyst for transformation

Banks today face significant challenges from every direction. The ongoing environment of low, or even negative, interest rates continues to create intense margin pressure and barriers to growth. At the same time, increased competition from neobanks and fintechs continue to nibble away at the edges of the traditional banking business, posing a constant threat of disruption. Meanwhile, consumer preferences and expectations are endlessly shifting and rising as new and incumbent digital innovators redefine how services are presented and delivered.

In this challenging environment, cost management remains a strong imperative for the entire global banking industry. However, the prevailing mind-set seems to be expanding from save-to-grow to save-to-transform. Most banks continue to have very positive expectations for revenue growth, and many are using cost reduction as a tool to help fund their required growth investments. However, in today’s increasingly digital world, more and more banks also recognize the need to transform their operations and capabilities with infrastructure investments in key digital innovations.

These digital technologies can deliver dramatic improvements in competitiveness, performance, operating efficiency, and cost savings. Equally important, they can also strengthen a bank’s positioning for adverse future events, including economic downturns and digital disruption.

This report, based on the findings from our 2019 Global Cost Survey, provides an up-to-date view of the cost management practices and trends shaping the future of banking and global business. It also explores how the latest digital technologies and cost management strategies are acting as a catalyst for transformation in a world being actively redefined by digital disruption.

How is banking different?

Most findings from our 2019 Global Cost Survey are directionally consistent across all industries and major geographic regions. But there are a handful of key differences:

Cost reduction is slightly more prevalent in banking than across industries: In the banking sector, 72 percent of the surveyed companies plan to undertake cost reduction initiatives over the next 24 months, slightly higher than the global average (71 percent).

Banks are more positive than average about growth: Over the past 24 months, 89 percent of banking respondents had a positive revenue outlook—higher than the global average across all industries (86 percent). Similarly, for the next 24 months, the banking sector’s revenue outlook is even more positive (90 percent) than the global average (86 percent).

The save-to-transform mind-set is even more prevalent in banking than globally: The save-to-transform mind-set is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement. Compared to the global respondent pool across industries, banking respondents report higher priority levels in all those areas.

Expected implementation rates are higher than average for automation and cloud technologies: In the banking sector, implementation rates for digital technology over the next 24 months are expected to be slightly higher than the global averages across industries for automation (+3 percent) and cloud solutions (+4 percent), but lower for cognitive technologies (-5 percent) and business intelligence (-12 percent).

Digital leaders have a bigger impact in banking than globally across industries: On average, banks with a designated digital leader have a much higher level of technology implementation (+275 percent), even higher than the implementation impact of a digital leader globally across industries (+118 percent).

The next level of cost management in banking

Banks around the world continue to view cost management as a high priority. And most have achieved admirable levels of operating efficiency. But despite their ongoing efforts, too many still only achieve middle-of-the-pack performance. Reaching the next level will require greater focus on strategic cost actions, as well as increased adoption of breakthrough technologies such as automation, cognitive/AI, and business intelligence.

These digital innovations have the potential to generate substantial cost savings necessary to fund and implement business improvement that are not only for growth but transformational for the existing business model.