A popular aphorism says “it costs money to make money.” What many don’t realize is that it also costs money to send, store, and process it. Managing overheads at financial institutions (FIs) can be challenging, especially given the rising cost of maintaining a great team.
The current regulatory and market landscapes are also contributing to a situation where it’s getting harder for financial institutions to expand profit margins each year, creating possible issues in operational agility and shareholder value.
Tech-driven profitability analysis has long been employed by banks and other FIs to guide decision-making and maintain acceptable profit margins relative to their risks.
Using a current-generation banking platform with the right kind of profitability analysis functionality can help banks answer such important questions as how much it costs to serve clients, which products offer the biggest margins, which processes could be optimized, and which services to end, among many others.
Here are some of the major profitability benefits that could be had by choosing a better software solution:
Benefits of Using the Right Software Solution
1.) More Accurate Profitability Forecasting
Modern banking platforms employ highly capable current-generation artificial intelligence (AI) and machine learning (ML) capabilities to generate accurate reports and forecasts. More accurate profit reports and forecasts allow FI decision-makers to better manage their risks and identify potential market opportunities. This can result in a healthier balance sheet for the institution, over time.
The availability of third-party cloud-based infrastructure also means that banks no longer have to purchase and maintain the costly equipment and systems that were previously needed for earlier generations of banking software. This means decision-makers can call up reports and forecasts at any time, from anywhere, without any delays due to physical access or system slowdown.
2.) Use Any Costing Methodology You Require
Every organization has different costing methodologies to suit their way of doing business. Newer banking platforms can accommodate any kind of costing method needed by a bank without the need for substantial manual data handling. This means that banks can save time and bandwidth that would have had to have been spent on simply making their software work for them.
3.) Better Resource Allocation
Using better profit analysis systems will allow the FI to identify which customers, business units, and projects are currently doing the most for its bottom line. At the same time, it helps identify which operations are not providing a sufficient return for the effort given. This enhanced visibility can allow a bank’s managers to use their available resources more effectively to gain and retain market share.
4.) Drive Profits Sustainably and at Scale
Some decisions that widen profit margins will only work for a short time. Older software often has a blind spot when it comes to forecasting future profits and facilitating sustainable growth, simply because the available predictive modeling capabilities are not as powerful as what is currently available. This means that relying on older banking platforms can present a risk to long-term profitability.
Using current-generation software gives banks the benefit of more powerful AI and ML modules. This increased computational capacity offers FIs a much more refined view of profits, allowing managers to create substantial long-term strategies that go beyond merely driving short-term boosts to revenue. When properly set up, newer platforms can be foundational to sustainable gains in performance, year after year.
While not ideal, it’s not unusual for banks to operate a variety of different systems, particularly if they were part of a merger or operate in multiple jurisdictions. This almost always presents a challenge for FI’s trying to keep their overhead costs down, as they have to hire more specialists and maintain more infrastructure.
Also, profitability analyses that derive data from such setups can be less accurate and more prone to human error, given that human input is often needed to consolidate data from different silos.
Modern banking platforms tend to be better designed to help FIs mitigate or even do away with these issues. This is especially true if the legacy systems are relatively recent and are from the same vendors. This integrative capability allows profit analysis activities to be done faster and with much better precision, improving the balance sheet and overall survivability of the institution.
Upgrade Your Bank’s Profit Analysis Capabilities Today
Banks and other FIs that want to drive profitability to increase organizational flexibility and shareholder value should have the best possible profit analysis solutions available to them. While older systems can still offer respectable performance, they generally lack the AI- and ML-driven capabilities and system integration features of current platforms, ultimately hampering their potential for expanding an FI’s profit margins.
Choosing a modern banking platform that offers more capable profit analysis functions can help struggling banks to not only enjoy better revenue streams but also to gain a clearer idea of potential market risks and opportunities.
Thus, banks that have not updated their platforms in the past several years should strongly consider updating their technologies, not just for profit analysis improvements but also to maintain their competitiveness in all areas of business.