“I’m not going to pretend it’s easy,” HSBC chief Noel Quinn said at Financial Times’ Global Banking Summit last week. What he was referring to is his commitment to shaving off a whopping $1.7 billion of extra costs to keep the bank giant’s spending at bay and its overall target of costs rising at 2% next year.
The British bank is not the only one looking to cut costs in a bid to improve returns amid runaway inflation and a stalling economy. Global players are taking turns announcing major job cuts, Reuters reports – a move that isn’t entirely out of nowhere at this time of the year but is expected to take on a bigger scale in 2022.
Focusing on axing jobs, however, they might be missing out on major cost-saving opportunities hiding in plain sight. They’re on the tech side of the business rather than the human one and, if fully realised, can bring immediate savings as well as lock in future earnings for banks in one go. Let’s see where to find them – and turn them into avenues of growth.
1. Be a tech company without relying on tech people
Banks aren’t just users of technology anymore. They’re also makers of technology. For example, Francisco Gonzalez, BBVA’s former executive chairman, talked about how the Spanish lender was on its way to becoming a software company as early as in 2015. Fifteen years into its digital journey, BBVA’s transformation is recognised as an industry benchmark, has won a trove of awards and is powered by methodologies typically used by Apple, Google, Amazon and the like.
That said, the bigger a bank’s dependence on technology, the bigger its dependence on the teams who design, build and run it. IT isn’t a department within these organisations, it’s their bloodline – and a major cost driver. US banks’ technology spending, according to Insider Intelligence, is set to increase by a record 10.6% in 2022, faster than in any previous year, to hit nearly $86 billion in 2022 and $112 billion by 2026. Will it translate into actual profitability or predictability gains? Only time will tell.
What’s certain is that spending this money on technology that doesn’t take an army of developers to run could significantly improve their chances.
More specifically, technology that is designed for citizen development. Fast and agile, the citizen development model encourages non-tech staff, such as business users, to create or customise business applications using low-code or no-code platforms. The result? Applications that are fully aligned to business and market needs, delivered when and where it matters – without taking away from IT teams’ operational bandwidth or growing their backlog.
2. Open up your app ecosystem to cut time to market
Building on my previous point, financial institutions can have the newest, safest and fanciest technology in the world; if it doesn’t allow them to move quickly, they will end up paying for it twice. Once when they buy it, then when they miss out on potential customers and revenue because of a long time-to-market.
Focus on building an open ecosystem of technology solutions, all connected and designed with customers in mind, rather than siloed systems or standalone tools. The problem with closed systems is that only one team or vendor understands how they work. So if they need a tweak, let alone a major upgrade, you’re looking at weeks of planning, building, testing and building some more. Plus a hefty bill.
In an open ecosystem, by contrast, any stakeholder can create a business logic, say, a remortgage calculator to estimate potential borrowers’ monthly mortgage payments, and transform it into a working frontend application. Any number of additions, native or non-native, can be plugged in and rolled out in a matter of weeks.
3. Turn your customer data into customer (and bottom-line) gold
To say that banks are sitting on a goldmine of data is a half-truth. Banking data, such as transactional information and customers’ personal details, is only as valuable as what banks can do with it. And what they should do with it is analyse and respond to it in real time so it can drive value for customers and revenue for the business.
For example, a retail bank has access to its customers’ current account balances at all times. This means that they, in theory, are also able to see if there’s a significant drop in someone’s cash balance because of an outlier transaction, say, a new car purchase. So far, this is only information.
But what if the bank, learning this piece of information, sends the customer an offer for an overdraft to cover their upcoming monthly bills or a loan to finance the purchase, in part or full? It turns into an insight that customers and financial institutions alike can make smarter decisions on.
4. Go beyond banking – and don’t look back
Customers don’t live the way banks wish they did. As in they don’t walk into a branch because they feel a sudden urge to take out a mortgage. What usually happens is that people make a decision to buy a new home, then they realise they need to find a way to finance it. Enter the bank.
Netflix, in comparison, doesn’t sit around and wait until it dawns on you to watch the Knives Out sequel. It will send you a nudge to check it the second it drops, because Netflix knows you’ve watched the original movie exactly 10.5 times and rated it with two thumbs up. You’ll also get recommendations for similar movies whenever you open the app. In other words, Netflix wants to do more than just cater to your streaming needs. It wants to cater to them before they even arise.
This is very similar to the mindset that I think banks should adopt moving forward, and what we at Finshape call beyond banking.
It means going beyond people’s apparent banking needs, such as giving them a home loan, and also helping them, say, calculate how much they could sell their existing property for, find real estate listings within their price range and search area, and then sending offers to finance the price difference. And when the deal is closed, offers for home insurance.
Armed with 360-degree information on mortgage applicants’ financial situation and personal preferences, customer service agents could also close deals at a higher rate and with improved speed and cost-efficiency over the phone. Imagine how much a customer would appreciate it if a lender took all this hassle and stress out of buying property and let them only focus on what actually matters to them: turning it into a home.
Overall, the ability to design and create sophisticated customer journeys in a fast and simple way will separate winners and losers in 2023 and beyond. As will their willingness to invest in open technology and personalisation solutions first to unlock new revenue streams – save big – later.