A careful balance for banks

While banks have benefited from high interest rates in recent years, those rates are expected to decrease while costs continue to climb. As a result, banks worldwide have ambitious savings targets.

According to KPMG International, some are targeting 20 percent to 30 percent over the next two years^[1]. And in the US, more than half say their profitability will grow through cost transformation^[2].

However, an overfocus on cost could risk underinvestment in key functions contributing to growth. A better approach is to carefully balance cost reduction with value management — by digitizing operations, reducing labor costs, and designing new operating models that get more value from business processes. 

One such operating model is managed services.

In this type of outsourcing, as an essential lever for increasing profitability, leading providers combine advanced technology, domain expertise, and strategic collaboration to deliver knowledge-intensive processes on an as-a-service basis.

Offering predictable costs without prohibitive upfront investments, managed services can help banks tap both savings and value in areas such as:

• Operational resilience
  From the OR-2 requirements in Hong Kong to the Digital Operational Resilience Act in the EU, regulations increasingly require banks to deliver critical operations amid potential disruptions, such as cyberattacks, technology failures, or labor issues.
  
  With any-shore delivery and the ability to quickly scale resources up or down, managed services can be an important piece of the puzzle. The model can help maintain continuity in areas like cybersecurity, regulatory compliance, and core business applications.

• Financial crime compliance
  As digital banking causes exponential increases in transaction data, managed services can provide the ongoing, advanced analytics that banks need to identify suspicious activity while reducing the cost of compliance with intensifying regulations in Anti-Money Laundering (AML) and Know Your Customer (KYC).
  
  Leading providers have the automation and expertise to monitor high volumes of transactions while expediting data review, reducing false-positive alerts, enriching customer profiles, and helping banks earn the trust of regulators and customers.
  

• Access to emerging tech
  Generative AI can play a critical role in banking operations, whether it’s responding more quickly to compliance needs, diagnosing IT problems, or continually detecting threats and vulnerabilities. However, the required investment is holding many organizations back.

  For some key business processes, such as cybersecurity or IT service management, managed services can be a cost-effective way for banks to use providers’ technology instead of building their own.