Accelerating the Efficiency Engine
A new year is time for new resolutions. And for many banks, that means resolving to make their operations run leaner and better, at less expense.
But that’s easier said than done, as many banks this year have struggled with efficiency ratios in the face of slow revenues. Case in point: The efficiency ratio at 230 banks with $40 billion or less in assets averaged 67.1% as of Sept. 30, rising from 64.1% a year earlier, according to research from American Banker. Here are some approaches banks of all sizes are using to fight the good fight against cost-creep and operational inefficiency:
Offering electronic deposit. Signature Bank, a seven-year-old start-up based in Chicago, has “created efficiencies from day one through investing in the use of technology,” says Executive Vice President Bryan D. Duncan. For example, the $450-million asset bank was one of the first in the Chicago area to offer merchants scanned deposit, which 90% of its business customers now use. Since its customer base is made up largely of small- to mid-sized businesses, Signature has been able to grow its accounts and effectively serve customers by only adding two branches, and not the five to 10 branches it initially expected to open, saving the bank potentially millions in support costs, Duncan says. “By continuing to utilize this technology that’s useful to our customers, we don’t need the overhead of a branch network as much.”
Rationalizing business units. Perhaps the biggest cost-saver on the horizon for most banks is reducing or “right-sizing” business units such as mortgage based on the current financial climate. Atlanta-based SunTrust Banks Inc. is planning to improve efficiency “by rightsizing our mortgage business due to both the resolution of legacy matters and as a response to the current origination environment,” according to Chairman and CEO Bill Rogers at a recent Goldman Sachs conference. The move is part of the bank’s larger plan to meet its stated objective of reducing its efficiency ratio to under 60%, Rogers said. So far, SunTrust has reduced its adjusted expenses by 11% over the past two years and reduced the tangible efficiency ratio from 72% to approximately 65% on an adjusted basis during the same timeframe.
“Expense management is happening across the organization at all levels, but we have some larger initiatives that will have an outsized impact on our expense base,” Rogers said at the December conference. That’s where down-scaling the mortgage business comes in, which should result in $50 million of cost savings per-quarter by the second quarter of 2014, according to Rogers.
Utilizing mobile devices to support branch employees and customers. Like many larger banks, Signature Bank is using mobile technology internally as well as for customer-facing services in hopes of making its employees more effective and able to offer better service. The bank has deployed iPads to its front-line employees, for example, and allows them to use electronic signatures to sign off on important documents. The bank also supports a mobile application for automated clearinghouse (ACH) payments and a Positive Pay application for iPad as well as desktops. “We know there are inherent savings,” Duncan says.
Hire and cross-train employees to handle multiple roles. Human resources represents a significant overhead, but most banks would agree that they don’t want to skimp by hiring unqualified people on their frontlines. Hence, many banks are looking to hire branch employees with a more varied background who can operate as a jack-of-all-trades at the branch office, cross-training for duties beyond basic transactional services. Given its upstart nature and its focus on small businesses, Signature Bank looks for employees with an entrepreneurial background and cross-trains its people to wear multiple hats. “We look for employees who are not just siloes responsible for one job,” says Duncan.
Go paperless. Some banks created a tidal wave of consumer discontent in recent years by choosing to charge for sending out paper statements. Charging aside, the decision was born out of the fact that banks produce a lot of paper and at great cost. Lately, more banks are seeing the value in trying to cut down the internal and external costs of paper processing by instituting “paperless” programs wherever possible. Huntington Bancshares Inc. of Columbus, Ohio has made going paperless a cornerstone of its continuous improvement initiative, according to Jeff Sturm, Huntington’s chief continuous improvement officer.
“In the area of efficiency improvement and expense control, one of our key continuous improvement initiatives is to convert diverse paper processes to a common framework that utilizes digital imaging, electronic document management and automated workflows,” Sturm says. “We are piloting these new technologies and processes, with plans to roll out these paperless capabilities in key areas of the bank throughout 2014.”
Ms. Hoffman is a contributing writer to BAI Banking Strategies based in Ansbach, Germany.