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5 Strategies to Cut Costs at Your Financial Institution

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If you work in financial services, you know that financial institutions are increasingly caught in a squeeze between dwindling profits and higher customer demands. At the same time, “rising credit costs are pushing more banks to get aggressive—and creative—to boost bottom lines.”

The economic upheavals caused by the COVID-19 pandemic have significantly increased the pressures most businesses face, including financial institutions. In some ways, financial institutions have borne the lion’s share of the burden for the economic downturn in the last two years, largely due to lower interest rates and higher default rates on loans. And they must meet these challenges in a climate of fierce competition among traditional rivals as well as digital disrupters.

What can your financial institution do to weather the storm—or better yet, thrive under these circumstances? Most sources suggest a course of strategic cost cutting to reduce expenses quickly while setting the stage for future growth.

What are the best ways to cut costs strategically? The following five suggestions will help you get started:

  1. Invest in technology.
  2. Simplify products and services.
  3. Improve staff productivity.
  4. Reconfigure your workplace.
  5. Use less-expensive marketing methods.

Let’s explore each of these cost-cutting strategies.


1. Invest in technology. 

Cutting-edge technical solutions increase productivity and effectiveness by an average of 20% across a broad range of businesses. "One thing that COVID has taught us is that we need to be spending a lot more money on technology and on the digital side of the banking industry,” said Brady Gailey, an analyst at Keefe Bruyette & Woods.

Financial institutions can’t afford to fall behind the competition when it comes to technology. Automating back-office processes with flexible and robust software is critical to improving your institution’s efficiency. Customers also expect and deserve excellent Web and mobile banking options, especially since the pandemic began. Fintech and fully-online banks make remote transactions easy; to stay in business, you have to offer what they do and more.

One way to confirm you’re up to date with the latest technology is to check with your current service provider first. Talk with them and identify any features that might be available but you’re not using yet. There might be a number of features you could be using that will enhance your institution’s technology.

The competition has raised the bar already on technical improvements: even before the pandemic, 70% of companies had a digital transformation plan.

Look for ways you can streamline your operation’s repetitive processes with automation. Any investment you make in this kind of technical transformation will pay huge dividends.


2. Simplify products and services.

Examine the products and services you offer and eliminate redundancies. Banks and other traditional financial institutions tend to keep adding products and services without eliminating older ones that are closely related. This practice increases complexity and costs because all your offerings are usually sold and supported by separate underlying processes, multiplied by a number of channels.

According to PwC’s recent study of banking products, “In several cases we have found that only 5% of products deliver over 80% of revenues and an even larger percentage of profits.”  To increase your financial institution’s efficiency, determine which of your offerings are worth keeping and which can be eliminated.

Even before you tackle digitization, cut the needless complexity caused by redundant products and services. Customers rarely miss those that are eliminated, because their functions are usually available in the remaining set of offerings. Then you’ll spend far less on digitization and still be able to satisfy your customers’ needs.


3. Improve staff productivity.

Closely examine the teams and departments in your business to make sure they’re working as efficiently as possible. Simplify organizational design if you can. You may be able to consolidate or centralize some roles or restructure departments to be more effective.

And don’t overlook the obvious. Examine ways you can benefit from established performance management techniques, such as clearly defined expectations, improved motivation and rewards systems, and better training and supervision. Bonuses or similar incentives given for team or individual excellence can be particularly effective.

Flexible work options can also boost productivity and cut operating costs. For example, allowing employees to work from home at least parttime cuts company costs dramatically. Based on conservative assumptions, Global Workplace Analytics estimates a typical U.S. employer can save an average of $11,000 per half-time telecommuter per year. Not only that, but employees who work from home are often more productive. Recent studies show productivity improves 13-47% when employees work remotely.

The pandemic has proven that working from home can be a welcome option for both employers and employees, even for community banks. Steven Klein, president and CEO of $5 billion-asset Northfield Bank in Woodbridge, N.J., expects to make working from home a permanent part of his business model, with fifty percent of employees working remotely at any one time, even after the pandemic is over.


4. Reconfigure your workplace.

It's no secret that brick-and-mortar branches are expensive and that the COVID-19 pandemic accelerated an existing trend of financial institutions closing branches. However, the extent of those closings may be surprising. As of December 2, 2021, the industry has closed more than 2,700 branches, “surpassing the record number of net financial institution closures in 2020, and industry experts do not expect banks to slow down anytime soon.”

This high closure rate is driven partly by consumers doing more digital banking and partly by employees’ need to work from home. And many employees want to continue working from home permanently. One study this past May shows that 61% of office workers would like to remain remote after the pandemic. Given the other benefits of digitization and working from home mentioned above, it makes good financial sense to consider how much real estate your business actually needs.


5. Use less-expensive marketing methods.

If your financial institution is still using traditional marketing media such as printed brochures, investigate lower-cost, electronic channels such as online, email, and SMS (texting). Internet channels such as banner ads and micro-sites within other popular sites are not only less expensive and reach a wider audience; they also allow you to track marketing returns more accurately.

The ABA points out these financial advantages of digital marketing:

  • You have more control over what you spend in digital marketing.
  • It’s less expensive than traditional campaigns. For example, you could spend $250 for a highly targeted LinkedIn campaign versus $50,000 for a broad-based TV campaign.
  • It can help you reach more of the right people at the right time, increasing your campaign’s ROI.



While the last two years have put unprecedent pressures on many businesses, including financial institutions, they have also opened up new possibilities by forcing us to adapt quickly. Using strategic cost-cutting methods like those outlined above can help your institution not only survive but thrive in the years to come.



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