Business
Do Everything for Less: Cost Efficiency in FS
Since the dawn of the digital era in financial services, businesses face the same story every year:
Do everything for less without sacrificing services — and don’t forget to innovate.
On paper, prioritizing cost reductions through digital means sounds great. Yet, in practice, finding the right comprehensive solutions to cover all of a financial service provider’s bases can be a true challenge.
The problem lies in how to achieve optimal success with these cost reduction and optimization efforts, particularly in terms of how to do so without minimizing value for clients and stakeholders. This problem is only reiterated by the costs associated with adopting and implementing innovative technologies.
Sounds like an impossible challenge, right?
Wrong — while cost efficiency can be difficult to achieve independently, with the right mix of strategic partnerships and resources, a financial service provider can accomplish this goal and ensure their business is competitively fortified as the digital evolution of finance presses onward.
To better understand this obstacle and how to overcome it, let’s begin by placing the cost-efficiency challenge for financial service providers under a microscope.
The Challenge of Driving Innovation & Cost Efficiency Simultaneously
The simple reality of technological innovation in the financial services space is that it can be costly.
Many factors can make the adoption of digital services and new technologies tricky in the financial services industry, with one of the biggest being regulatory compliance.
Unlike other businesses, financial service providers are subject to stricter regulations to protect not only their own financial safety but also that of their clients and business partners.
However, the adoption of digitally innovative technologies in financial services is nowhere near slowing.
In 2022, a Gartner report predicted IT spending by banking and investment companies to increase by 6.1%, reaching a global value of $623 billion (USD). The report further highlights three key technologies that are likely to see the highest spending in the next few years:
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Privacy-Enhancing Computations
Privacy-enhancing computation is expected to be one of the largest upcoming digital advancements in the industry, with an estimated 60% of large organizations leveraging this technology by 2025.
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Autonomic Systems
Autonomic systems — which are primarily software-based but have the potential to become hardware-based — can handle many key activities, including debt management, automated lending, and personal finance assistance for clients. These systems are capable of adapting to a changing environment autonomously and in real-time.
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Generative AI
By 2025, Gartner predicts that 20% of all consumer-side test data will be “synthetically generated” by generative AI. Generative AI offers vital capabilities that can help to enhance fraud detection, trading predictions, and risk factor modeling in the coming years.
This is just one slice of the pie when it comes to the potential IT, tech, and digital spending for financial service providers. Innovation can come at a steep cost, especially for businesses and institutions that attempt to rely solely on in-house talent and resources to accomplish various implementations.
Here are three reasons why in-house tech spending can ultimately drive costs higher:
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Expanded Compliance Needs
As mentioned earlier, financial service providers are always going to run into the challenge of regulatory compliance when implementing new technologies. Introducing an innovative business strategy can result in greater compliance considerations, as there are more digital risks to contend with. In turn, financial service providers can end up spending even more capital on expanding their compliance teams, both in terms of the size of the team and the responsibilities the team holds.
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Over-Extended Talent
Bringing in new technologies and innovative digital strategies can be advantageous — but only if you have the right amount of talent on your team. One vital consideration for financial service businesses is that implementation is only one step of the process. After implementation, your team will need to manage and maintain these business changes as effectively as possible. Yet, if your team remains the same size despite the growth in business resources, they can end up over-extended and unable to prioritize any particular task.
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Insufficient Digital Resources
The third key cost-efficiency consideration for financial service providers is how prepared their organization is to house and manage new technologies. Choosing to go about this process without help from third parties, like FinTechs, can result in a company investing a high level of capital into innovative products and services, only to realize they do not have the digital infrastructure or resources necessary to support these new offerings.
Two Key Factors for Reducing Costs without Minimizing Innovation
1. Strategic Partnerships
Before a financial services provider can begin deciphering how to implement innovative technologies without exceeding the bounds of their budget, the first crucial step is to find the right partner.
In a strategic partnership, a business chooses another business or organization to partner with based on several strategic advantages that the partner has to offer, such as:
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Location & Time Zone
Easily one of the most important considerations for a strategic partnership is where a partner company is located. The ideal partner should have multiple locations spread out across the globe to give your financial institution the freedom to choose which offices to work with based on convenience and proximity.
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Cultural Alignment
When a partner business has offices located all around the world, it is more likely for that partner to have key insights into different business cultures seen in various regions. This is highly essential, as finding a partner who has a deep understanding of your culture and its standard business practices makes getting to work quickly all the more simple.
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Language Accessibility
Language barriers can present major challenges when partnering with another company, especially in industries like financial services that deal with oftentimes sensitive or private information. Finding a business partner with team members fluent in several major languages (English, Spanish, Mandarin, etc.) is crucial for effective communication.
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Talent Outsourcing
Last but not least, a strategic partnership should offer a financial service business the opportunity to outsource talent necessary for tech implementations and management. Through talent outsourcing, a financial service provider can avoid the hassle and cost of recruiting and onboarding new team members.
With the ideal partner, a financial institution or other financial service business can leverage this partnership to take on the challenge of digital innovation head-on. Moreover, this relationship can evolve into a multi-year strategy that helps build a resilient technological foundation for a business.
2. Strategic Resourcing
The second key factor that can help unify innovation goals with cost savings objectives is strategic resourcing — a method for outsourcing key resources from a strategic partner.
Strategic resourcing is a very specific type of outsourcing method, as it strives to choose the optimal suppliers and providers for a business’s needs. In a strong strategic resourcing setup, a business should have the appropriate balance of local, nearshore, and offshore outsourcing.
You may be wondering, “Why is such a balance needed?”
As we discussed above, for a business partnership to be strategic, a partner needs to have key localized advantages such as a close location and language fluency. The same is true for resources — to make the most out of a resourcing strategy, a business needs high-quality yet affordable resources that are easily accessible from their home country or main office.
Worldwide, supply chain delays continue to persist in the wake of ongoing health crises, sociopolitical conflicts, and other global issues. Thus, the ability to access strategic resourcing from local, nearshore, and offshore sources gives businesses greater flexibility in the face of fluctuating markets.
Final Thoughts: Build a Resilient Resourcing Strategy with Exadel
No matter the scope of your needs and budget, Exadel is here to help.
As an expert in a wide variety of services — from platform implementations and digital transformations to regulatory compliance and open finance — the Exadel team has decades of experience that can assist financial service providers in embracing innovation.
Exadel is strategically positioned to provide financial service businesses with the key advantages needed for an exceptional partnership. With offices all across North America, South America, Europe, and Asia, our network spans the entire globe, giving financial service providers easy access to our digital solutions.
As a technology services provider, Exadel services financial businesses in two vital ways:
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Transformational Services
With Exadel’s transformational services, we take a look at a company’s current digital infrastructure and offer key consultations on how to improve upon it. Core transformational services we offer include digital banking, robotic process automation, predictive technology, omnichannel solutions, open banking, DevOps, and cloud services.
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Managed Services
Implementation is only the first piece of the puzzle. Exadel provides the ongoing support and technical management businesses need to keep their new digital infrastructures operating smoothly and cost-effectively. Our managed services include platform services, regulatory change management, digital development, software development, and production support.
The need for reduced costs does not have to overshadow your business’s innovation. Through partnership with Exadel, your business can establish a custom solution that aids you in reaching your cost reduction goals without putting innovation on the back burner.
Contact Exadel today to book a consultation and learn more about our financial technology services.
How to Reduce Costs Without Minimizing Innovation
Location & Time Zone
Cultural Alignment
Language Accessibility
Talent Outsourcing
High-Quality Affordable Resources
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