How efficient is your banking system?

All businesses want to become more efficient. Some industries, like tech, make extreme efforts for efficiency and innovation. This is what allows tech companies to grow so quickly and efficiently: they spend a lot of time and effort researching new ideas, and are not afraid to fail often. This allowance for error enables incredibly quick development, growth and efficiency when trying systems and new ideas. Tech is truly a place where one can think clearly.
However, not all businesses can run with the same creativity and margin for error. A classic industry that tends to be stuck in its old ways is the banking and financial industry. And this is for good reason: when handling money, a lot less margin for error is allowed! Banks cannot just try new systems and see if they work or not. Banks, financial institutions and credit unions need to abide by strict rules that are set in place. They also have a small margin for risk and error. This means that employees tend to be too busy to focus on entrepreneurial ideas, and on top of that management does not encourage trying new things.
Whenever a loan is given out, the largest question is always how capable will the person be to pay back the loan. This very type of highly regulated and risk-averse culture that is found in most financial insitutions is one of the reasons why banking systems typically have a culture that scares away innovation and change. This is usually because whatever system they currently have in place is working, making them money and keeping them afloat, so why change? We already saw what happens when banks get creative from the 2008 mortgage crisis… we definitely want to avoid that problem again. It may be good to keep financial institutions from trying new and creative financial tools, but this should not keep these financial institutions from improving their overall efficiency. Many elements can always be improved without involving money, such as the banking onboarding systems for example.
The flaws of the banking system have become more and more apparent with the rise of FinTech. FinTech finally allowed banks, credit unions, and financial institutions to understand what the user actually wants from them: they enjoy a fast, easy-to-use, mobile, and accessible way to access their money and banking services. FinTech finally made banks, credit unions and financial institutions respond to the needs of their customers and members, without worrying about themselves first. This finally allowed innovation and efficiency to come to the world of banking. Many financial institutions are struggling with these new innovative banking systems and changes happening to the financial world, and are at risk of losing a large portion of their user base. One study shows that 31% of people are unhappy with their banking provider, and 15% are actually thinking of switching providers entirely. Therefore, financial institutions need to act fast and remain up to date with the current banking technologies and systems, or else they will slowly become obsolete and eventually run out of business.
Another problem that financial institutions, banks, and credit unions experience is that they have a tough time measuring how efficient their banking system is. Although management may say that everything is fine, that there is no need for change, and that the systems in place are perfectly efficient, it may not be the case. Management does not know how to spot efficiencies and quantify how efficient their banking system truly is. Management may not even know about the wide array of solutions that currently exist for their business. So, how can one quantify his efficiency? And, more importantly, how efficient is your banking system?

Calculating one’s efficiency

There are two main methods one can use to calculate how efficient his corporation, company, bank or enterprise is. These two methods are:

The bank efficiency ratio

The fastest (and easiest) way to determine a bank’s efficiency is to use the bank efficiency ratio. The formula for this ratio can vary, but the simplest (and most straightforward) formula is as follows:
Bank Efficiency Ratio = Expenses* / Revenue
*not including interest expense

The lower the banking efficiency ratio is, the more efficient a bank is. The idea behind this formula is quite simple: we can look at the costs associated to revenue as a ratio. The greatest advantage of the bank efficiency ratio is that any financial institution can calculate it immediately, with ease. There is no need to set anything up in order to calculate the bank efficiency, as long as the accounting is up to date.

The bank efficiency ratio can try to help undermine where the most senseless expenses are in an organization, and also help understand which elements of a business are not producing enough revenue. In other words, the bank efficiency ratio calculates how good a bank is at transforming its current resources into revenue. The goal is to keep this ratio as low as possible, in order to have revenue which is much higher than expenses.

The bank efficiency ratio is the simplest ratio that anyone can calculate, but it does not deliver the whole story. For a more detailed overview of a bank’s health and efficiency, it is best to use other metrics, such as the Data Envelopment Analysis (DEA).

The Data Envelopment analysis (DEA)
The DEA uses much more complicated math to determine a financial institution’s score. At its core, however, the DEA measures how much input is needed from an organization to secure a certain output. In the banking world, this means, for example, how much work is required to produce a credit check, or how many hours of labor are required from an institution to successfully onboard a prospect.

This DEA may be tougher to measure, but is definitely very helpful at understanding which sectors and which areas financial insitutions are spending too much time and effort on, and which sectors could benefit from a new and revamped system.

DEA analysis can help banks and financial institutions spot where the flaws are

Measuring and understanding where one’s inefficiency lies is definitely a huge leap forward. But now that we know where the inefficiencies lie, how can we make them more efficient? There must be some common inefficiencies centered around banks, credit unions and financial institutions which are very tough to solve.
How can we improve efficiency?

This is a very tough question to answer, as banking systems vary from one entity to another and therefore there is not one answer that solves all. However, thanks to staistics we can spot the main inefficiencies that plague most financial institutions, and present common solutions that tend to solve this inefficiency. The goal for any financial insitution is to make more money, and efficiency greatly helps bankers and employees spend less time performing costly administrative tasks, and more time performing actually profitable financial and banking work

Using automated compliance software

Financial institutions are extremely regulated because they handle money. They must keep frauds to a minimum, as well as operate within certain frameworks that are given to them by the government that they operate in. Over time, this has transformed into a huge mountain of papers, forms and administrative work that needs to be filled out and sorted in order to remain compliant as a bank or financial institution.

Now, thanks to technology financial institutions can make use of automated compliance sotware, which ensures that all of the forms that are filled out are up to the code and standards necessary to move an application or transaction forward.

Using digital apps

Many financial institutions have yet to develop a phone application for their users. This can be catastrophic, as not only do many people want this feature, but it can also save an enormous amount of administrative labor for the financial institution in question. With a digital application, people can perform their banking tasks without needing to go to a branch or talk to a person. That is much more efficient for both the user and the financial institution. In general, most banking services do not require any physical presence. Beyond depositing cash, almost all banking services can now be done online, if wanted.

The use of a digital app, if designed properly, can save financial institutions hundreds of hours of labor, while also delivering to their users what they want most: borderless, always-accessible banking

Improving onboarding systems

It is well known that the onboarding system has consistently been the most labor-intensive and annoying challenge for financial institutions to solve. Onboarding requires not only a lot of compliance, but it can require credit checks, proof of KYC, background checks, and more. Many banking onboarding systems can take multiple days for a prospect to finally be onboarded. In today’s day and age where people are losing attention spans much and much quicker, this is simply unacceptable. Luckily, some companies, such as Nimblefi, have found ways to make a prospect onboarding successful in 15 minutes or less!

How Nimblefi can make you more efficient

Nimblefi has been founded by experts in the banking industry. The founders truly know what are the pain points of any financial institution. They decided by attacking the largest pain point first: the banking onboarding system.
NimbleFi provides solutions that will onboard a prospect in 15 minutes or less! Best of all, our solutions will fit any current banking software or system. You can simply plug in our solution, and you are good to go!
NimbleFi provides state-of-the-art KYC, automated compliance, and general onboarding solutions, so that bankers can waste less time on administrative tasks and focus on what actually matters: banking!
Many banking inefficiencies can be solved in minutes, thanks to NimbleFi. Beyond just banking onbarding automation, we also offer credit checks, AMB, as well as automated workflow management for employees!