6 Strategies for Improving Banks’ Operating Efficiency

Why does efficiency matter for bank operations?

More than simply a cost-cutting exercise for banks, efficiency is a strategic imperative. Inefficiency doesn’t just erode margins. It diverts resources from the very investments banks need to remain competitive. A singular focus on trimming expenses might deliver short-term relief, but long-term success depends on a permanent mindset of improving bank operations while building the capabilities required for a fast-changing marketplace.

Shifting customer expectations, the rise of digital competitors, and rapid advances in technology are all reshaping banks. At the same time, the banking industry is evolving toward a model that blends digital speed and convenience with the human touch customers still value. In this context, pressures such as narrowing margins, slow deposit growth, and the threat of an economic downturn leave little room for waste.

Operating efficiency: Critical for the future of banking

To succeed, banks must strike the right balance of optimizing legacy systems, personnel, and branches while investing in automation, self-service, and digital capabilities. Efficiency becomes the bridge that allows organizations to contain costs, free up resources, and reinvest in the future. For today’s banks, becoming more efficient is not optional. It’s the foundation for resilience, growth, and relevance.

“Efficiency is a mindset supported by discipline. It's not an event.”
– Dawnella Johnson, Partner, New York Metro Market Leader

Setting operating targets for improvement

So how can a bank move toward these outcomes? Across-the-board budget cuts inevitably are a recipe for disaster. They’re damaging in areas that already are productive, and they’re not sufficient for the most inefficient parts of the business. The most successful bank efficiency initiatives follow a more analytical approach that reflects the specific circumstances facing each line of business and support function. Following are six strategic areas where today’s banking industry leaders are focusing their efficiency efforts.

6 strategies for improving efficiencies of banking operations

Alignment

The basic premise of alignment is to exit business lines that have low margins and move instead into lines that are inherently more cost-effective and increase bank profitability. Leading banks take a robust approach to strategic planning by assessing the minimum commitment of resources needed to compete in a particular line of business and identifying opportunities to differentiate themselves from competitors. This process begins with a comprehensive analysis of business lines and products to determine where the greatest opportunities for efficiency and growth exist.

In many instances, strategic planning means that traditional banks might choose to move into nontraditional businesses, such as specialty financing and payment processing, provided, of course, their analysis reveals they can compete effectively and efficiently. Counterintuitively, these strategic transitions might require the bank to increase its investment and costs in the short term to realize improved margins and efficiency in the long term.

Staff productivity

Some of the most significant opportunities to improve bank workforce productivity involve using established performance management techniques such as clearly defined expectations, scorecards, and better training.

One element that shouldn’t be overlooked is improved motivation and rewards systems centered around working more intelligently and efficiently when serving target customers. Recognition programs and incentives help boost engagement by acknowledging individual and team achievements, which in turn drives productivity and strengthens bottom-line growth.

Third-party relationships

Improved management of vendors and other third parties is a focused effort designed to derive the greatest possible value from these relationships. Selecting vendors that closely align to the bank’s business objectives is critical. Maintaining strong vendor performance is supported by service-level agreements and vendor scorecards to monitor performance issues such as system availability, response times, and direct expenditures. These tools help provide a more complete view of the vendor relationship.

Other basic cost-cutting techniques include consolidating vendors and benchmarking costs against comparable services in the market. It’s also worth bearing in mind that vendor relationships can affect regulators’ views of the organization’s risk profile.

Technology-driven automation

Because of its broad, enterprisewide impact, the use of technology and automation also merits individual attention as part of the overall efficiency improvement effort. Three overarching goals include:

• Offering applications that facilitate customer transactions or queries on a self-service basis without requiring employee efforts
• Using technology to reduce the time employees spend finding information
• Implementing automated business rules and decision models to move work more quickly and efficiently through processes

For example, automated workflow processing gives managers greater visibility into the activities being performed and allows them to monitor work queues, identify bottlenecks or problems, and reallocate work to respond to changing conditions.

Beyond helping to automate core processes, technology has an obvious role to play in a bank’s channel optimization efforts, process optimization, internal communications, and many other areas.

Channel optimization

The goal of channel optimization is to assess whether a bank is engaging with target customers in the most effective and productive ways. Many banks are significantly reconfiguring roles, duties, and staffing within their branches and employing new metrics for analyzing branch performance and value to determine optimization.

It’s important to note that channel optimization is not only about branches; it also includes contact centers, online and mobile banking, ATMs, and relationship managers as important channels for customers as well. For instance, some banks are enhancing their contact centers via improvements to operating hours and technical knowledge – as well as their chat, text, and social media capabilities – to meet customers’ changing expectations.

There is no one-size-fits-all approach, as channel optimization is about reaching target customers in the most efficient ways. Some banks assertively promote electronic account openings, remote deposit capture via smart devices, and accounts that are designed to be virtually paperless. Other banks – often those with large commercial customers – pursue a fundamentally different approach and focus on personal service with a relationship manager and support team assigned to each qualifying account. The high-value business generated by this approach can offset the added costs.

Process optimization

Process optimization is one of the most powerful yet underused levers for bank efficiency. At its core, the goal is to reduce the unit cost-to-value ratio of each activity, whether that’s opening a new account, preparing a loan package, or processing a routine transaction. Achieving responsible optimization requires more than surface-level cuts. It demands a comprehensive view of how work gets done across the organization, and employees can be a valuable resource for process optimization ideas.

Banks that invest in process improvement begin with measurement. Tracking per unit, such as cost per call in the contact center, cost per transaction, or even cost per branch, provides the visibility needed to identify where inefficiencies lurk. Benchmarking performance at the individual, branch, and systemwide level helps reveal gaps and highlight best practices. From there, optimization involves rethinking workflows, which might include streamlining back-office operations, using electronic documents, and introducing automated routing and processing.

Instilling a culture that values efficiency

Sustainable efficiency cannot be achieved through cost-cutting measures alone. It requires a culture that values and rewards it. Leadership must set the tone by demonstrating a clear commitment to balancing value and cost, reducing waste, and establishing metrics that hold teams accountable. When efficiency becomes part of the corporate mindset, it shifts from a one-time initiative to an ongoing discipline.

Still, profitability depends on more than efficiency. Banks must deliver meaningful value to customers at competitive prices while maintaining costs that support a healthy return. The key lies in setting realistic operating targets and pursuing improvements that match each organization’s unique circumstances.

Experience shows that when banks approach efficiency with focus and discipline, the gains are significant. Often, the real payoff goes beyond lower costs. Scalable processes support growth in revenue and assets that outpace overhead and create a strong foundation for resilience, competitiveness, and long-term success.