Ten years after the 2008 global financial crisis, the profit margins of banks in advanced economies remain at historically low levels. The reason is simple: costs have been growing faster than revenues. Banks’ average return on equity has fallen to unsustainably low levels, especially in Europe.
The increasing focus on governance, risk and compliance has also resulted in declining profitability. While consumer-facing tech like real-time payments and mobile banking hold great promise for banks, updates to behind-the-scenes infrastructure could be the key to cost savings and competitive advantage. Banks urgently need to act if they want to increase their profit margins. Because boosting revenue in the current environment will be difficult, banks must slash their costs.
Ways for banks to improve profitability
So what do banks do to counter the impact of falling net interest margins and arrest the slide in profitability? In theory, there are two ways in which banks can improve profitability: increasing revenue and decreasing expenses
- Increasing revenue
Because any increase in interest rates in the current global business environment is very unlikely in the face of competition, regulations, customer expectations, etc., banks are now exploring other options to generate revenues, such as increasing customer base, diverse product offerings for enhanced fee-based incomes and developed ecosystems in which coupons, offers, merchants etc. drive revenues.
However, all these measures entail significant marketing expenditure, which can further drive up costs. As a result, with low loan demands and large security portfolios, profitability is unlikely to be driven from outside the bank. That change has to come from within.
- Decreasing expenses
Change from within to improve profitability essentially means improved operational efficiency and productivity. With the banking industry facing low margins and hefty compliance investments, banks need to remain vigilant and keep costs well under control. While there are several potential strategies to manage costs, digitalization definitely is one of them.
Decreased expenses by digitalization and automated T&E Management
The trends of rising costs and constrained revenue growth are unlikely to change, so banks must take bold steps. And even though tech advances, such as artificial intelligence (AI) and blockchain, will clearly play a role in the evolution of banking, modernizing the infrastructure backbone is arguably the most important step banks will need to take.
In order to remain competitive, banks will have to update their technology on the back end in order to deliver a seamless experience on the front end. One of the main ways to achieve this, is for banks to go digital. So when banks make the investment to automate their finance and accounting functions for example, they can and will realize enormous benefits that improve efficiency, reduce operating costs and mitigate risk. Digital technologies, such as automated T&E management software, can make a major impact, worth all the investment of your time and money.
Saving money with rydoo
Almost every industry, and the banking industry in particular, has struggled to keep pace with our evolving digital world. However, where some financial institutions are failing, others are making tremendous strides forward. Especially those, that have embraced digital transformation with open arms. Key is the fact that their leadership is not afraid to shake up the status quo while keeping a keen eye on future tech and trends. So, even though entire industries may be facing disruption on many fronts, these banks and institutions have found a way to save tremendous costs, by going digital and by outsourcing their key financial roles to become and stay more competitive in our fast-paced business environment. Finance and accounting functions that are digital and are successfully being outsourced nowadays, vary from bookkeeping, payroll processing, accounts payable & receivable, to financial administration and travel & expense management.
Of course it is of the utmost importance, that your business processes are handled efficiently and with utmost care and security by your provider. At rydoo, we take pride in the fact that we do just that: taking care of your business as if it were ours. As a competent and experienced automated T&E software company, not only do we help you save costs and streamline the way processes are being implemented, we also help you boost internal productivity and enhance your competitiveness. Other advantages that working with rydoo offers include:
- Reduction of operational cost;
- Time savings;
- No more errors and delays;
- Staffing flexibility;
- Raised efficiency;
- Sound advice from experts;
- Compliance with relevant rules & regulation;
- Increased employee satisfaction;
- No more (frustrating) paper reporting and spread sheets.
According to our customers, Rydoo is a highly reliable T&E management software provider and business partner in this digital era. With our integrated, mobile T&E solution, we strive to always deliver the “cost-plus” value proposition and help you capture your ‘value beyond’.
Originally published , modified