Digital Banking

Retail Banking’s Use Of Tech Improves Margins, Customer Services

For banks, beyond the vagaries of interest rates, income depends in part on managing costs. Manage them well, and margins get a boost. The converse is also true, of course, as inefficiencies can paint bottom lines a stark shade of red.

In its starkest definition, the efficiency ratio is operating expenses divided by revenues. A lower ratio means the bank is operating with better cost control.

One way to boost efficiencies? Rein in the costs tied to branches and currency, the hard, tangible kind, of the paper and metal sort.

Case in point: Reuters reported on Tuesday (June 12) that a Bank of America executive has pointed to an improvement in efficiency ratio as the company cuts costs that are part and parcel of physically getting cash, and checks, from place to place amid commerce wrought by physical means.

Dean Athanasia, co-head of the firm’s consumer and business banking operations, said at a conference that the efficiency ratio would stay below 50 percent. That comes as a continued downward trend has been in place over the last few years. Keeping in mind that the lower the ratio, the better for the bottom line, the tally stood at 49.6 percent in the first quarter of this year and was 61.1 percent through 2014.

The betterment of that ratio comes as BoA has brought tech-based initiatives to bear on operations. Among those efforts, the company has looked to automate more functions in its day-to-day activities, especially at branches. Consumers also have access to a virtual assistant, which helps them complete tasks without further interaction with the company. Athanasia said that Zelle, the digital payments system that is less than a year old, will also ramp down the efficiency ratio.

The company is not alone in finding that tech is among the game changers in expense management. The upfront investments may be heavy, the continued investments a bit less so. But the accrual to the top line is what remains important. The fact remains that – all things being equal – if revenue growth outpaces expense growth, good things happen to earnings.

Want another example? American Banker noted a few weeks ago, amid earnings season, that for BB&T, technology efforts are self-funded from continuing operations. Overall expenses were down 20 percent year on year, as the company was able to close branches and reduce tech expenses tied to outside IT firms. Those expenses fell, and the efficiency ratio improved to 57.3 percent in the latest quarter from 58 percent last year – even as the company has been testing digital payments platforms prior to a planned rollout.

Also on the horizon: continued traction in Zelle, and new projects that focus on mobile apps for auto lending.

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