Banks need to drive rapid, sustainable efficiency ratio improvement to meet the rising customer expectations and remain competitive.
To remain viable long term, financial institutions will need to solve the customer-cost-revenue equation. Specifically, they will need to reduce efficiency ratios (operating expense divided by revenue) to below 50 percent. That’s an aggressive goal, as today the average U.S. bank has an efficiency ratio of approximately 64.2 percent.
The good news is that by taking bold action in the four areas below, you can be poised to seize emerging opportunities in 2021.
1. Focus on the Customer
A customer’s best experience, across any product or service, has become what is expected of everyone they do business with—banks included. Financial institutions need to transform to deliver what consumers want: on-demand, self-service, with easy and error-free transactions. When banks fail to address those expectations, competitors enter the market, working feverishly to close expectation gaps and grab their share of customer trust and loyalty.
2. Enable performance improvement
For most financial institutions, the benefits initially gained from performance improvement or cost reduction programs that were implemented ten years ago are now gone. While many of the keys to elevating improvement are largely the same, some levers have changed.
3. Accelerate digital transformation
COVID-19 has clearly fueled digital transformation strategies and budgets. These transformations require new business and operating models—and will drive enormous customer benefits. Linking performance improvement to digital transformation initiatives will help financial institutions shift focus to digital channels for sales, service, and operations.
Despite the mixed motivations, COVID-19 is accelerating digital transformation strategies and budgets and surprisingly many see this as a galvanizing opportunity to create a new operating model
have accelerated elements of their digital transformation strategy moderately or significantly, as a result of the pandemic
have increased their digital transformation budget moderately or significantly, as a result of the COVID-19
of organizations are focusing the scope of their digital transformation strategy across the entire enterprise
4. Develop a continuous improvement culture
Most financial institutions have matured over decades of transitions, acquisitions and spin-offs. This means that operations cannot be undone in a matter of weeks or months; the journey will not be short nor pain-free. Once improvement initiatives are implemented, planning for how to sustain the new operational and organizational changes is critical—and commonly overlooked.