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Four ways banks can reduce costs in the post-pandemic renaissance

by wrich
Editorial & Advertiser disclosure

By: Mike Hampson, CEO, Bishopsgate Financial 

As the financial and economic effects of the pandemic continue to put a strain on businesses, Mike Hampson, CEO at Bishopsgate Financial, explores the options for banks to address cash flow challenges in the Next Normal.

Mike Hampson, CEO, Bishopsgate Financial

The financial sector demonstrated both resilience and versatility as it navigated the challenges introduced by the pandemic. While uncertainty continues to reign and we weather a wider economic slowdown, tight cost control is necessary for the finance sector to protect its profit margins. 

Here are four ways banks can slim down their cost base to remain competitive and continue to serve their clients.

Digital technology solutions are moving centre stage

Admittedly, the COVID-19 crisis has forced banks to acknowledge the untapped potential of digitalisation, with employees working remotely, services provided digitally, and no extensive branch network. Consumers now expect slick and intuitive digital and personalised services. To keep abreast of constantly changing behaviours and habits, banks must digitise their user experience to compete with the neobank start-ups encroaching onto their territory. Having a customer-centric, agile model is an enabler for revenue-generating activity. No doubt, established banks are at different stages on their digital journey. Transformation must not be allowed to drop off the agenda. Legacy modernisation should feature in the banking digital change programme, and be regarded as a cost-reducing necessity, not a drain on resources. 

Embracing the efficiencies of the cloud 

In fact, as the financial sector marches steadily towards being nearly 100% digital, banks should also consider the possible benefits of cloud solutions. Recent research by IBM found that 87% of outperforming banks re adopting cloud technology to reduce operating costs. Banks can now access cloud resources flexibly and efficiently. This, in turn, enhances customer satisfaction, brings new products to market faster, and maximises the sector’s return on investment.

Downsizing office space in the future

In the quest to increase cost efficiency, office space is a major component of banks’ overhead costs: rent, maintenance, furniture, and IT for every member of staff. Having used a fraction of the space and infrastructure available to them during the pandemic, banks are now reducing their square footage. This isn’t a new idea, as several banks were starting to harness working from home to cut costs before the pandemic. HSBC and Lloyds are getting rid of 40% of their office space as an easy option to make savings. Nationwide is another financial services giant to tell its 13,000 staff they can ‘work anywhere’. Further to this, the increase in remote working has also helped banks reduce their carbon footprint. This success has given rise to questions about the long-term need for physical office space, a key driver being the cost savings from exiting some of this real estate. 

Fuel your Environmental, Social and Governance (ESG) disclosure strategy to lower costs

Notwithstanding the challenges to climate change, ESG can provide banks with a competitive edge and drive consumer preference. This is supported by recent McKinsey research which shows customers’ willingness to pay to “go green.” In the same study, McKinsey found ESG can minimise operating expenses, with the costs of water, carbon, and raw-material affecting operating profits by 60%. Armed with strong sustainability credentials, banks can tap into new markets and expand into existing ones. 

No doubt, Covid-19 has had devastating consequences for lives and livelihoods. The challenge for the economy has been daunting and is still ongoing, and financial institutions are facing their hardest test since inception. In a world of constant change, the finance sector needs to treat challenges such as shrinking margins, increasing competition, and stringent regulations as drivers, not impediments, for growth. The 2021 Change Perspective report suggests how to manage change and build a resilient future in these challenging times.

The actions banks take now to optimise their cost base and respond quickly to market changes will shape their ability to achieve high low-cost performance moving forward.

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