2017 – THE YEAR OF COST-CUTTING

Henri Wajsblat, Director of Financial Services, Anaplan

2016 was punctuated by a large number of banks announcing their intentions to cut costs. In the UK we saw efficiency drives from the like of HSBC and Lloyds Banking Group, with the latter publicly targeting a further 20% belt-tightening by the end of 2017. RBS made cuts on its investment banking side, and Barclays described itself as “unrelenting in its pursuit for lower costs”. Further afield the trend continued, with similar major announcements coming from Swiss bank UBS and German bank Commerzbank announcing it is to cut a fifth of its workforce.

2017 is set to hold a similar, if not even more extreme trend, with a continued focus on cost reductions. Many are looking to technology to help them achieve this goal. In particular, harnessing new developments in automation to tackle the range of pressures that are leading to cost reductions.

Threats from all angles and disruptive technology

Banks across the world are suffering from the “fear factor”. The instability and volatility of global financial markets and the macro-economic environment has caused a huge amount of uncertainty. It has spawned a natural fear for the forecasted margins for 2017. For an industry that is already traditionally very risk-adverse, this additional insecurity has put banking leaders on edge, and turned attentions to a cost-consciousness and cautious approach to the new year. The theory here is that banks can then offset these uncertainties on the revenue side.

But it’s not just the turbulent outlook that has banking execs concerned. 2016 saw the continued proliferation of, and demand for, digital customer services, while the stalwarts of the industry are also increasingly finding themselves under pressure from new and dynamic startups, including the likes of Atom bank and Metro bank. Established banks are being forced to rethink their business models and their approach to customer service, in response to these unprecedented threats.

Banks are turning to technology to solve this, driving the adoption of artificial intelligence and biometrics, to transform operations, particularly in areas such as retail banking and wealth management. There are direct and severe implications for the make-up of their workforce and real estate portfolios, as banks drive optimisation programmes across the board. With the latest technology to run scenario planning in real-time and effective what-if analysis, banks can have greater visibility on necessary headcount and real estate adjustments to streamline operations, while keeping pace with modern consumer demands.

As an example, one of the largest UK banks decided to implement a new planning and performance management solution a few months ago, to support a strategic headcount reduction plan of thousands of employees across all lines of business and regions. With this more agile technology in place, the bank can set FTE targets, plan and forecast workforce movements to achieve these. It can also run gap analysis and decide on what interventions are needed and how to course-correct the plan to get to where it needs to be. This is not just an issue in the UK, but is indicate of the situation and challenges financial organisations are facing around the world.

Regulation restricting adaptation

Another factor to consider is regulation. The overly complex and constantly changing regulatory landscape has forced large banks toward short-term investment behaviours. But these come with massive recurring costs to keep up with the everchanging compliance rules. These have come to be perceived more as a low-value yearly operating expense, rather than an investment and banks are now looking to target these costs for potential savings.

New developments in technology are set to provide the answer here, as agile planning and performance management allows banks to automate regulatory forecasting and stress testing processes. By reconciling with business-as-usual finance forecasts, banks can respond faster to changes in regulation. Acknowledging the challenges to reconcile accounting, management and risk data, both at group level and across their different lines of business, a large European retail bank recently adopted a new performance management and planning platform. Using the new technology to monitor their profitability, solvency and liquidity KPIs with more flexibility and better collaboration, the bank saw huge gains on agility, responding to changes in regulations faster.

Large banks are constrained in their investment strategy due to the strict solvency rules that rose out of the financial crisis. At a time when it’s paradoxically crucial for them to adapt their business models to the new financial services landscape, in the wake of digital disruption, banks are finding themselves increasingly restricted by regulation. Banking leaders have to analyse their margins across every line of business and products with a laser focus to ensure they are as efficient as possible. Technology is certainly disrupting the industry but it also much of the solution, providing the insight to identify where costs can be cut and savings made, as banks across the world look to adapt to the new 2017 landscape.

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