A bank’s board plays a major role in its budgeting process each year. The process is tough since decisions with dollar signs attached to them typically get the most scrutiny. One of the reasons for this is that not many bank executives or board members enter into the budget cycle with a positive attitude, anticipating few opportunities to say “yes.” For community and regional institutions, giving some thought on how to prepare the board to say yes to important budget investments is vital.
So how exactly does saying yes become easier? It mostly centers on finding funds from other areas within the organization and allocating them to new initiatives or programs. The main challenge here is knowing the questions to ask and where to look for that “found” money. Believe it or not, there is one place where it can be very rewarding to seek these much-needed funds.
Financial institutions frequently plug vendor costs into the budget without questioning whether certain figures can change. There is an “it is what it is” attitude that can extend from the cost of stationery all the way across to operations and payments, digital banking, core processing, and more. However, by implementing the best practice of checking all major agreements and contracts annually to make sure the fees being charged are not outside of market levels, you just may find that what your financial institution is paying now is not a given.
There are numerous areas across banks’ contract relationships that present opportunities to either uncover new cost savings or identify greater revenue potential. And often, this does not necessarily mean cutting back on service agreements or switching vendors. Instead, consider taking a closer look to check that current contract terms match services delivered, and that pricing is still within market.
In payments specifically, banks often are not enjoying the level of revenue they should be. It’s also one area that boards commonly do not consider when looking for additional funds since payment services are not usually an expense line item unto themselves within a budget, and, at the same time, are not viewed as cost centers.
For example, a financial institution’s debit card program is a revenue-producing resource. However, does the profit being generated represent the full potential of that card portfolio? The answer is a direct function of debit interchange as well as the cost to process the transaction (or, the costs from the network and processor). When was the last time that these costs were evaluated for their competitiveness, or that the portfolio is growing at a rate greater than or equal to the market? These same questions can be asked of the credit card portfolio.
Other areas in payments to consider include relationships with the PIN/POS networks and decisions related to card branding. Even contracts for consumer checks can be worth a look: whether the institution gives them away, sells them or should be selling them. By optimizing existing vendor contracts in these areas and perhaps others, banks more often than not free up funds to pursue critical projects.
Take for instance every bank’s emphasis right now on building the right digital presence – spanning the branch environment, online and mobile access, and in-app experiences. The goal is to ultimately pay the right price for the best solutions that are also the optimal fit for the organization. What if it’s possible to fully or partially fund a new development priority, or to hire new talent in this important area, by evaluating and renegotiating existing contracts with vendor partners?
Even with some found money to help justify investments in new technology and services, boards often feel they have to say “no” to certain initiatives because there is no clear way to justify a return for them. For example, so-called soft costs such as charitable giving, employee training and/ or marketing campaigns are often the first to get cut, when – in fact – not pursuing these opportunities can cause losses in other ways. While removing these line items from a budget rarely creates immediate pain, failing to enhance the skill set of your workforce or not reinforcing the bank’s brand image in a competitive environment has delayed – and material – consequences.
Employees are a financial institution’s greatest assets. Banks that do not invest in them are underutilizing the people who make their overall organization what it is. Conferences, schools for specialized training, webinars and certifications all play into an employee’s professional development, industry awareness and social peer network. Building more informed, empowered individuals enhances the impact of their contributions and, often, their loyalty.
And, saying yes to an additional payment to a local charity or to supporting an unexpected, yet timely, cause is about more than money. For one, that donation provides for a special need in the community. The action also demonstrates the institution’s commitment to something bigger than itself while humanizing personal relationships, interests or affiliations that it might have.
Budgeting for technology is not usually considered optional, as it is typically viewed as an investment for the future that improves the institution’s competitiveness. In no lesser way, monies budgeted for community causes and for the workforce also distinguish the organization’s brand. Help make room in the budget for technology advancements as well as for charitable contributions and employee betterment initiatives. Do this by first taking a deeper look at those major vendor contracts. There may be money hiding here that gives your bank the chance to do both.