Cost containment in financial services

From PwC's Financial Services Institute

Almost a decade after the global financial crisis, financial institutions still face a low-growth, low-margin, highly-regulated environment. To stay afloat in these difficult times, reducing costs remains a top priority. But few firms have a handle on costs across the enterprise, where cost problems exist, and how to manage them. They also struggle to make room in shrinking budgets for strategic investments.

A look back

What is driving cost pressure?

These key factors are driving the industry to concentrate on cost containment.

  • With interest rates at historic lows, firms are focusing more on noninterest income.
  • Customers are putting pressure on financial institutions to innovate. New market entrants are providing a better user experience, often at a lower cost because they aren’t saddled with an expensive legacy infrastructure. Existing firms feel the pressure to meet these customer demands while simultaneously modernizing their environment.
  • Regulations have been a significant cost burden across the industry.

But where to cut? In recent years, financial institutions have taken advantage of shared services, process optimization, outsourcing, and offshoring to keep costs in check. Even with these changes, margins are still tight. Few firms have a good handle on costs across the enterprise, where cost problems exist, and how to manage them. As a result, firms are looking for fresh ideas, and the conversation has turned to a few key areas of investment, including technology, preparing employees for change, and finding ways to get change to stick.

Cost containment in financial services - PwC

The road ahead

What else are you willing to let someone do for you? In the coming year, financial institutions will be taking a harder look at what they really want to be good at so they can focus on their core mission and eliminate, reduce, partner for, or outsource almost everything else.

Digital tools. We’ll see leading firms continuing their move toward using digital technology to cut costs, both in the short- and long-term. They’ll look to tactical tools such as robotic process automation (RPA), document processing, as well as more innovative technology like blockchain and machine learning.

Deploy. Learn. Repeat. We expect financial institutions to move their new initiatives beyond the proof-of-concept stage. It’s important for firms to create minimally viable products to understand and address customer feedback. Once they’ve found an offering that demonstrates value, they can build on their initial success.

What to consider

Think differently. You should question every expenditure to be sure it supports your overall business strategy. You should focus on functions you can excel at and find alternatives for everything else. You’ll also want to restructure your organization to align with new operating models.

Don’t be penny wise and pound foolish. When cutting costs, it’s tempting to reduce all department budgets by the same percent. We think this is one of the bigger mistakes a firm can make. To get things right, start by drilling into your end-to-end cost structures. Trim expenses that don’t differentiate the business and invest in capabilities that do.

You may need to invest to save. Cuts in vital areas might reduce costs now, but they may also undermine the future of the business. To support growth, you should invest strategically. For example, investing in emerging technologies around data and advanced analytics can lead to enhanced offerings and growth as well as streamlined operations and reduced costs.

Focus on talent. As you redesign your organization, you’ll want to think through implications for your team. For example, what are your organization’s critical roles? To support the differentiating capabilities that you want, what skills will you need?

“Many traditional cost-cutting techniques—centralizing, offshoring, outsourcing—are largely done. Now, we’re seeing tactical uses of technology, like automation, to drive cost savings."

Kelley Mavros Partner, Strategy& Financial Services Advisory

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How PwC can help

Our teams in asset and wealth managementbanking and capital markets, and insurance are helping our clients tackle the biggest issues facing the financial services industry. With professionals across tax, assurance, and advisory practices, we can help you find ways to thrive even in a period of uncertainty. Whether you're preparing for regulatory changes, putting FinTech/InsurTech to work, or rethinking your human capital strategy, we work together with you to deliver value to your business.

For more information on how PwC can help with cost containment, reach out to one of our leaders below.

Contact us

Kelley Mavros
Partner, Strategy& Financial Services Advisory
Tel: +1 (312) 298 5303
Email

Marie Carr
Financial Services Institute
Principal
Tel: +1 (312) 298 6823
Email

Cathryn Marsh
Financial Services Institute Leader
Tel: +1 (720) 931 7836
Email

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