The Balancing Act: How Banks Can Digitally Transform While Also Controlling Their Costs

Global economic conditions are soft at best. In a recent article, JP Morgan’s Ginger Chambless, Head of Research for Commercial Banking, noted, “The 2023 economic outlook for the United States is being defined by decelerating growth, rapid monetary tightening and moderating inflation. Relatively healthy consumer and business balance sheets, however, could help keep some momentum.” 

From a budget standpoint, US banks are feeling the pinch in 2023. Here at EPAM, we surveyed bankers in late fall of 2022 and heard that digital transformation continued to be a priority during budgeting. Anecdotally, we have more recently heard stories of banks not finalizing their 2023 budgets as of the time of writing this in late-January. Many US banks are bracing for increased defaults and lower demand for mortgages and other loans as interest rates have increased. The New York Times reports that the nation’s largest banks have “increased reserves to protect against deteriorating economic conditions.”

Increased reserves and an attitude towards cost cutting means that budgets that were planned to be used for digital transformation may now be lessened or routed to other priorities. At first blush this may seem to be a delay in the important evolution of the industry demanded by customers and the market. However, organizations do not have to make a choice strictly between investing in digital transformation and cost-efficiency.

A quick review of the standard banking and wealth management processes at most legacy financial institutions (FIs) can easily yield insights about areas where bad customer experiences and cost inefficiencies exist. These processes likely begin with inefficient paper-based onboarding and account opening, dual data entry to underwriting and funding systems, delays in funding and fulfillment, and redundant and inefficient customer service. Additional internal inefficiencies that affect customer experiences indirectly, like inappropriate use of CRM platforms, data management issues and lack of straight-through processing, are also worth mentioning.

Understanding the intersection of digital transformation and cost optimization, many large banks are looking to automation, AI and other technologies to solve for both. Suman Bhattacharyya writes in an article for Banking Dive about banks such as Truist, Chase and Wells Fargo that are, “looking at automation beyond the context of specific tasks and toward holistic processes.” 

Cost Optimization Assessments: A Solution

With limited budgets and strained resources, what can FIs do to address these issues? 

They can do what organizations have always done: delay improvement projects, cut staff to the minimum, and freeze any spend that isn’t going to keep the lights on. Of course, that response is also an overreaction that puts the future in doubt for any organization in a competitive market like financial services.

As is often the case with any significant challenge, the wise move is to take a deep organizational breath, step back, and define opportunities that the current environment offers. Given the challenges noted, plus the difficulty of hiring and retaining highly skilled technology employees, many financial organizations turn to partners like EPAM to help them perform cost-optimization assessments.

The most impactful cost-optimization assessment framework is one that focuses on areas that have become cumbersome from prior attempts at digital transformation – think process, people, technology and information (PPTI) on steroids. Ultimately, the focus for FIs should be to find opportunities to optimize costs while also improving client experiences.

For financial services firms using this framework, it’s not uncommon to uncover inefficiencies in certain processes that, once addressed, can result in a substantial cost reduction while simultaneously providing a customer experience more aligned with the expectations of a customer-centric organization. Similarly, an examination of the firm’s infrastructure and related practices might uncover opportunities to substantially save on manhours per year. These are just a handful of the many possible outcomes after an effective assessment framework. 

Questions to Ask During Optimization

An effective cost-optimization assessment should address several key areas and ask important questions. Examples include:

Cloud Resources
How are you managing your overall cloud resources? Do you have unnecessary duplication? Is your pricing optimized?

Automation Opportunities
Do you have processes that can be digitized or automated? Can you apply technologies such as robotic process automation (RPA) to reduce or eliminate data entry? Can you apply AI or machine learning to automate decisions?

Managed Services
Do you have the right resources to manage cloud infrastructure, security operations, network operations, applications support or a virtual service desk? Should you consider a managed services partner?

Operating & Delivery Model Analysis
Do you understand exactly how you are creating value? Do you have the right metrics of success and a clear view of key dataflows? Are your delivery models well understood, with clear owners?

Partner Spend & Vendor Consolidation
Are there duplicative capabilities throughout the organization? Can processes, technology and vendors be consolidated?

Data Management
Does your data strategy include achievable goals and KPIs? Do you have the appropriate infrastructure and tools to manage data in transit and at rest?

Waste Elimination
Based on D.O.W.N.S.I.Z.E. (Defect, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, and Extra Processing), where is your organization generating waste? What percentage of time is spent in QA or correcting errors? Are processes and people being tracked effectively?

Change You Can’t Afford to Avoid

As we move into the new year, organizations, like people, have an opportunity to start anew. While you may have started a new exercise routine or resolved to read more books, organizations can also take a step back and identify what can enhance both efficiency and their bottom line. By leveraging detailed assessment frameworks, organizations identify choke points and gaps, optimize operations and resource utilization, eliminate waste, increase efficiency and, ultimately, improve the customer experience.