The good news is that retail banking transaction volumes are growing steadily. The bad news is that a growing number of these transactions are not profitable. Consumer demands and competitive pressures have forced many banks to launch new channels, services and transactions (e.g. mobile access to account information and basic banking transactions, etc.) at great expense without a solid business model for generating revenue. It takes time to evolve a new business model; strategies must be devised, products must be developed, launches must be executed and customers have to be convinced. In the meantime, you need strategies for managing zero revenue transactions.
Every transaction has a “handling cost.” For ATM transactions these can be up to $0.85 and mobile transactions can be executed for as little as $0.08. Most of this cost is fixed – you’ve already invested in the technology and host partnerships. However, part of this cost is variable; it’s a hidden handling cost you pay because you don’t operate newer infrastructure as efficiently as you could. Decreasing this hidden handling cost is the key to managing zero revenue transactions and buying yourself time to roll out new business models and unlock incremental revenue.
Here are some of the places you can look for hidden handling costs in your business and how you can decrease them:
Core banking renewal efforts. In many core banking renewal efforts, you’re not only paying for two parallel core systems – you’re paying for two independent stacks of software for managing and monitoring these core systems. Explore ways to use a single monitoring system across old and new. This can also help you reduce risk during the migration process as you have an accurate “before and after” picture of key transactions.
Payment modernization initiatives. One of the most expensive operational use cases for a payments system is identifying and isolating the cause of problem transactions. Ask how this process is conducted today, how many tools are involved and how long it takes. For most banks, this is a ripe area for operational efficiency improvements.
Omni- or cross-channel initiatives. If a consumer interaction fails in one of your high-profile services, do “blamestorms” ensue between the related channels and technology owners, or can the source of the problem be readily identified? Hint: blamestorms = hidden handling costs!
Mobile. Most mobile development is focused on the “front-of-glass” experience, and yet, delivering this involves a complex set of “behind-the-glass” transactions that often span multiple systems, infrastructures and third party environments. Equipping operations teams to ensure that all of these hand-offs execute smoothly can greatly reduce your hidden handling costs, as well as provide a better front-of-glass customer experience.
Business analytics. Have you ever asked what’s involved in putting together the reports your retail teams use to understand business performance? This process is often very labor-intensive and results in stale information being used as the basis for critical decisions. Improving the efficiency of these processes and the freshness of the underlying data can eliminate direct costs, as well as the cost of errors in decision-making due to stale data.
Hopefully, the disproportionate growth in zero revenue transactions is a temporary phenomenon as retail banking business models and consumer interaction patterns evolve. Regardless, a disciplined effort to reduce the hidden handling costs of these transactions will help you gain the operating efficiencies you need to improve your cost to income ratio.
Mr. Sanii is president and CEO of Canada-based INETCO Systems Ltd, a leading provider of transaction monitoring and analytics solutions for the banking and payment processing industries. He can be reached at firstname.lastname@example.org.
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