Cost-Cutting Isn’t Enough to Solve Crisis in Financial Services Industry

Cost-Cutting Isn’t Enough to Solve Crisis in Financial Services Industry

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With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs, according to PwC. Even in the asset management industry, where ROE is higher than the financial services industry as a whole, there is downward pressure on margins and profitability. Cost cutting will only deliver so much. If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise.

“The cost cutting agenda adopted by many institutions since the financial crisis has, in essence, de-globalised the industry to make it more local or national, shrunk global footprints, divested businesses, and shed clients. However, this process has run its course.  If profitability is to get anywhere near the highs of fifteen years ago, what’s needed now is a fundamental focus on building a sustainable productive business model that can compete with both incumbent institutions and digital-only competitors,” said John Garvey, Global Financial Services Leader for PwC.

Based on a detailed survey of the global financial services industry, PwC has identified six areas where financial institutions can focus their productivity efforts to boost long term sustainable profitability:

  1. Better understanding the workforce - Experience indicates that by simply tracking hours by task, organisations can improve productivity by 15% to 20%, and the implementation of service catalogues and multi-tier sourcing can bring another 20% improvement.Of the organisations that didn’t track work by hours and tasks, 62% believed such tracking would yield productivity benefits.
  2. Rethinking change functions - 40% of financial institutions are spending 20% of their entire budget on so-called ‘change-the-institution’ efforts. However only 15% said they were satisfied with their ability to execute change.
  3. Embracing the platform economy - Only 21% of financial institutions employ crowdsourcing tools today. Platforms can run challenges that tap the collective brainpower and resources of a crowd, driven by a sense of competition to develop the best response. PwC predicts that gig employees will perform 15% to 20% of the work of a typical institution within five years. This translates into significant cost savings across the board, along with the potential to improve the level of talent and innovation delivered from the employee base.
  4. Improving workforce digital IQ - As people live and work longer, and unemployment rates remain low, digital training and retraining of existing workforces is particularly crucial. Despite its importance, research shows that current efforts are not achieving the desired results. Of the financial-services leaders polled in PwC’s 2018 CEO Survey, 75% reported they were concerned about shortages of digital skills within the industry.
  5. Bringing an agile mind-set to the mainstream - To keep up with digital-only competitors and rapidly deliver a seamless and instant customer experience, 77% of financial institutions are turning to agile somewhere in their organizations.
  6. Mastering digital labour - Over 50% of CEOs believe artificial intelligence (AI) will have a bigger impact than the internet.  Getting the balance right between tasks performed by AI and tasks performed by people will be key to future success for financial institutions.

“It is clear what financial institutions need to do to build future profitability and to remain competitive. However doing it and making the necessary changes will be a huge challenge. Very soon we will start to see which CEOs have taken the productivity agenda seriously”, added Garvey.

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