Viewpoint: Cutting Costs Requires The Right Balance

Profitability is under attack in the banking world today. Economic realities and the regulatory environment have forced banks to change how they do business.

Since the options to increase revenue, reduce risk (both very difficult in this economy) and decrease expenses are limited, it is little surprise that many financial institutions want to cut costs. However, there will be ramifications to these decisions so they must be weighed carefully.

There are many approaches to cost cutting with different impacts on financial institutions. Customer service is a top area of focus as consumer confidence in the banking industry wanes, so care must be taken to ensure cost reductions do not negatively impact customers.

Switching to generic printer cartridges or a longer refresh cycle for PC’s will not impact customers, but to achieve major savings it is impossible to ignore the largest expense category—jobs. The elimination of jobs comes with a price for any company, but particularly for banks that are already struggling with public perceptions of their industry.

Fewer personnel to provide customer service is counterintuitive to creating a customer centric banking environment.

So where are these cost reductions going to come from? There are obvious cuts to be made in terms of non-productive workers and duplicate or inefficient positions and processes.

For some of the largest institutions there will likely be either branch closures or a decrease of staff at those locations with less foot traffic. Any area of the bank that is not profitable or no a focus for growth in the near term is going to be subject to cuts.

For some this may mean traders and investment bankers will be hit hard. Since layoffs are imminent and customer service cannot suffer as a result, efficiencies must be gained somewhere. It should be the focus of management at all times to ensure efficiency in job functions across the corporation, but it is even more critical now.

To gain efficiencies banks will need to provide better service in an automated fashion. It is important to use people where the customer will be most affected and automate as many of the manual tasks and back office functions as possible.

Also, there are tools that can improve the effectiveness of customer service representatives. For example, these tools utilize propensity scoring to determine the next most likely product a consumer will purchase and provide scripting for customer service representatives to feel comfortable presenting those offers.

Automating loan origination and credit-decisioning functionality improves back office efficiency and in turn customer service effectiveness. If the time to decision loans is dramatically reduced, productivity will increase and customers will be more satisfied. Win, win.

Yes profitability is under attack for financial institutions, but the methods to get back to profitability cannot be. The industry has taken a lot of hits and recovery is slow at best. Bank of America has announced it will be cutting 30,000 jobs over the next few years.

A host of other banks including Barclays, Bank of New York Mellon, Credit Suisse, Goldman Sachs, HSBC and Wells Fargo will account for tens of thousands more in staff reductions.

Finding the right balance between automation and a human touch is important and perhaps even more so considering the transformation banks are going through. Applying automation in thoughtful ways to increase the efficiency of customer facing functions will push profitability in the right direction.  

Eric Lindeen is director of marketing for Zoot Enterprises.

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