Profit improvement and operational efficiency for financial institutions

Financial services organisations are searching for ways regain stable growth. However, there are many obstacles along the way. Trust among customers has yet to be fully reestablished, as they remain sceptical about their formerly trusted advisors. There are numerous challenges: the bleak economic outlook and changing regulatory structures are exerting more stresses on margins, amidst surging competition, disruptive technologies such as social media and smartphones, and evolving consumer expectations are compelling these organisations to reconsider their strategic objectives. Revenues, and therefore profits, are still down as customers themselves have yet to fully recover. How then can financial institutions enhance their client offerings and, eventually, increase their margins? The answer: – Financial services executives should now focus on reassessing business models and plans that increase operational efficiency and reduce costs. 

One key area that financial institutions should focus their attention on is: cost reductions through increased operational efficiency. In this economic environment the objective to constantly increase efficiency has become an important priority. Therefore, it is imperative that financial institutions adjust to the aforementioned evolutions and change their operations to become more supple and effective, as well as enhance the customer experience to stay competitive in an unpredictable marketplace. 

Key to overall profitability is the need for FIs to beef up internal operations to ensure that the entire organization is achieving optimal operational efficiency. Every branch, department, employee, and every function directly touch your margins. However, ascertaining where the most crucial areas are to increase the operational efficiency of FIs has frequently been illusory.  

Making this discovery involves a thorough appreciation of how well the company is functioning compared to its historical trends, its equals and the global market. To discern this, FIs need the capability to relate operational details to strategic business drivers. This will require investments in IT to additionally improve operational efficiency and regulatory reporting, better link their diverse platforms and systems, and obtain a more universal view of their clients who may use several of the FI’s products and services. 

FIs should also assess how they handle customer information internally. With many institutions still running archaic paper-based systems, an investment in a versatile Business Process Management solution can help FIs to cross-sell more successfully. Letting customer service agents have ready access to client data will also enhance customer service levels and escalate retention rates. Industry case studies indicate that implementing a BPM solution can easily up back-office productivity by 20 per cent – 30 per cent. Projects that use data more efficiently to advise risk management decisions, back strategic plans, and conform with regulations, as well as augmenting technology systems that interface with the customer, should also be focussed on.  

In pursuing operational efficiencies, FIs need to take a holistic view of their products and services, uncover their core competencies, and concentrate on those. This may mean excising unimportant operations, but this will result in a stronger core business and a more focused strategy. FIs should also consider outsourcing those non-core internal business functions such as accounting, finance, and HR. Industry trends show that FIs can achieve cost savings in the region of 30% – 60% within a five to seven year period by outsourcing these functions. 

The main reason FIs should outsource is cost avoidance. Financial institutions continue to struggle with managing operational and other risks and these are set to increase as the number of financial products, business processes and IT systems are rapidly developing. But legacy systems or multi-office systems integration present huge challenges, so all FIs need to align their internal capabilities with their business strategy in order to select the most versatile, robust and scalable solution. As FIs discard legacy systems they can avoid costs and improve operational efficiency by outsourcing rather than upgrading. Today, there are few companies that would look at outsourcing without using a consultant due to the complexities involved, so it’s wise to consider this option. 

Financial institutions’ leaders recognise that the focus on rationalisation can only achieve so much and that increasing revenue is crucial as conventional financial services are not nearly as lucrative. While FIs await an increase in services demands, their growth tactics, operating models, and goods and services will continue to develop in a volatile environment that’s beset with many ambiguities about regulatory issues and the economy as a whole. 

The foregoing solutions, of course, are expansive areas, and each financial institution will need to assess their own business to really appreciate the practical steps – real and quantifiable changes and investments – that need to be followed to improve its profitability. 


VMSL provides strategic guidance for banks, credit unions, captive finance companies and other organisations within the financial industry.