As a potential recession looms and inflation persists, individuals and organizations across the U.S. and globally are feeling pressures from the current macroeconomic environment.
Banks are not immune to these challenges. Finastra’s recent “Financial Services State of the Nation Survey” found that four in five financial institutions have been “belt-tightening” and constraining their investments in technology, reflective of today’s challenging environment. However, even as budgets for new projects may shrink, banks still have an opportunity to invest right now in utilizing new and existing technologies — which can play a significant role in cutting costs in the long term and potentially even increasing revenue.
With our complex economic environment in mind, these three technology priorities should be at the forefront of a bank’s strategy to navigate challenges associated with decreased budgets.
Leverage existing data
There is a truthful saying that “you can only improve what you can measure,” making data a powerful tool. Financial institutions of all sizes have customer data at their fingertips, but many do not fully realize the benefits.
The key is knowing how to make data actionable for the benefit of both the bank and its customers. Making use of data already collected allows banks to better tailor their offerings based on customer preferences, which then helps enable them to remain competitive in a challenging market. The right data and analytics strategies can drive growth, enhance productivity, reduce risk, improve the customer experience, personalize product offerings and drive innovation.
The question is: How do banks reach this goal? Data tends to exist in multiple silos across a financial institution, often in different systems, making it challenging to use it effectively. However, with the right software solutions, a bank can place all its customer data in one simple-to-access place. Once this is complete, the bank can then analyze customer behavior across multiple channels, seeing insights that reveal customers’ preferences and their likelihood of adopting a new product or service. Using this information and the appropriate tools, banks can then make personalized recommendations to customers, increasing product adoption and revenue while reducing acquisition costs.
Essentially, it is critical that banks offer the right products to the right people at the right time. Given the potential impact on revenue, customer experience and cost reduction, it is crucial that banks leverage their existing data and analytics during challenging economic times.
Move toward cloud-based solutions
In the Finastra survey, respondents were asked the top five benefits of moving to the cloud; 50% named achieving efficiency gains, while 43% cited cost reduction. This reflects what I have seen throughout my career: Cloud-based solutions are often ultimately cost-savers for banks, allowing them to act more nimbly in response to evolving consumer demands.
In addition to the operational efficiencies associated with moving to the cloud, it’s important to note that Microsoft’s cloud infrastructure is 93% more energy efficient than on-premises servers. These energy efficiencies, in turn, reduce operating costs for banks looking to find areas to cut back. By reducing reliance on physical infrastructure, banks can decrease office space and save on utility costs.
Finastra’s research finds that 59% of financial institution respondents had most or all of their software hosted on cloud-based solutions, showing that the industry is already moving in this direction. If a bank is not yet there, now may be the time, especially when finding cost-savers is more important than ever.
Embrace BaaS and embedded finance
In the survey, the commercial opportunities and efficiency savings presented by banking as a service (BaaS) and embedded finance were strongly recognized. More than four in five agreed that these propositions offer a means for institutions to grow (84%), and a similar proportion agreed that they reduce their operating costs (83%).
By deploying BaaS and embedded finance solutions, banks can place their products directly into an otherwise disconnected customer journey. New entrants in the market continue to deliver seamless customer journeys, which include embedding banking solutions into traditionally profitable products and services. It is critical that banks act quickly to ensure they’re the ones delivering BaaS and embedded finance solutions and leveraging open APIs before new players in the market take hold.
Doing this creates new revenue streams while eliminating marketing and other acquisition costs associated with trying to win over new customers.
In recent years, banks have made significant progress in leveraging BaaS and embedded finance to create new revenue streams in a changing market. It is critical for future success that this momentum is not lost — and the fact that leveraging BaaS and embedded finance can help banks save on operating costs further underlines why they should remain a top priority in the current environment.
While the news continues to remind the industry that a global recession may be looming, or perhaps even have arrived, banks should not cease investing in technology. Challenging economic conditions often remind industry leaders to think differently about how to drive business through innovation, leading to increased revenue and newly realized efficiencies.
Ravi Metta is chief technology officer at Finastra, where he oversees technical strategy, operations, cloud and platform transformation.