The financial world is searching for ways onto a path of stable growth. However, there are challenges along the way. Trust among customers – both retail and corporate – has yet to be fully regained. The depth, breadth and frequency of regulation is increasing
as new bodies such as the EBA come into clearer focus. Revenues, and therefore profits, are still reduced as customers have yet to fully recover. So how can banks add more value to their client offerings and, ultimately, widen their margins?
Three key areas that financial institutions should focus their attention on are: organic growth through state of the art customer management, cost reductions through increased operational efficiency, and non-organic growth through integrated mergers/acquisitions.
To boost organic growth, institutions should look at how they communicate – both internally and with their customers. Many institutions are looking at opening up new channels, such as social media – a
report from Aite Group last November found that 79% of institutions were integrating social media into their marketing efforts. Utilising social media, and other platforms such
as mobile, will help increase customer engagement and therefore retention – although it is important that banks communicate in a way and on the platforms the customer desires. Banks should also review how they communicate customer information internally. In
order to expand customer accounts, banks should have an efficient Know Your Customer (KYC) system in place, and ensure that customer information is available on demand in real time. With many institutions still operating outdated paper-based systems, an investment
in a strong Business Process Management (BPM) solution can help the bank to cross-sell more effectively. Giving customer service agents client data at their fingertips will also improve customer service levels and increase retention rates. In my experience,
implementing a BPM solution can easily up back-office productivity by 10%.
When seeking operational efficiencies, banks should take a birds-eye view of their products and services, find their core strengths, and focus on those. This may mean sunsetting less relevant operations, but it will result in a stronger core business and
a more focussed strategy. Firms should also consider outsourcing any internal functions which fall outside core business areas such as HR or finance and accounting. By outsourcing these functions, institutions can achieve cost savings in the region of 30%
- 60% within five to seven years.
Many financial institutions will also opt for M&A activities. All too often, though, mergers end with a loss of customers (in my experience a loss rate of around 15% is to be expected) or a long and painful systems integration process. Banks looking to acquire
should invest in the appropriate systems first and, if possible, develop a central data repository enabling others to integrate their existing processes and get up and running sooner.
These, of course, are broad areas, and each institution will need to take a view of their own business to really understand the practical steps – tangible and measurable changes and investments – that need to be taken in order to improve profit.