COVID-19 has highlighted the cost imperative for banks globally. In our recent survey of more than 200 banking executives from some of the world’s largest banks, a clear majority said they are looking to intensify, refocusing and accelerate their cost transformation programs and cost reduction initiatives. Digitalization and reducing headcount are the new important levels for achieving these cost reduction targets.
Our latest KPMG International research report, New cost imperatives in banking, examines the essential success factors for cost transformation including understanding and prioritization of the critical cost levers, a clear view of the target operating model to deliver the cost benefits and a strong “cost culture” within the bank.
COVID-19 has made banks wake up to new cost reduction priorities. Digitization and specific needs withing cyber security and fraud have quickly risen on the agenda.
Banks are accelerating existing cost reduction initiatives and increasing their cost savings targets, although they expect to make savings over a three year period rather than a 12 month horizon. In the research we also see that banks are bullish about the historical performance of cost reduction initiatives but admit that clear cost-related outcomes haven’t always been achieved successfully. Banks are continuing on evolving their future target operating model. To achieve their vision, banks recognize the importance of strong culture and leadership accountability for cost optimization as well as keeping up with the changes in company culture.
The report shows that in order to be successful banks need to focus on a number of key programs rather than a multiplicity of small micro initiatives to reduce costs. These programs can be grouped into 12 underlying cost transformation levers, approached through the lenses of strategy, simplicity and engineering.
In short successful banks need to focus on setting a focused cost agenda, rethinking the target operating model to maximize benefits and recognizing the importance of cost culture and enablers.
Some people believe you can’t be cost conscious and customer-centric at the same time. I disagree. If you’re laser-focused on what the customer really wants, you will naturally shed costs.
The current environment requires most banks globally to transform their operating models and move their cost bases onto a sustainable lower footing. Those banks that don’t move fast enough are likely to find themselves unable to compete on price, value and delivery with their leaner and more efficient rivals, and eventually lose market share.
The New cost imperatives in banking survey investigated banking cost transformation, the barriers from the past and success factors going forward. Whatever the market position of an individual bank, certain key principles for effective cost transformation will hold true.
At KPMG, our experience working with banks around the world on cost optimization initiatives has shown us just how much is possible and provided us with practical insight to address challenges.
With COVID-19 having highlighted the cost imperative for banks globally, they have it in their hands to go further still and create a new blueprint for the future.