Improving Your Efficiency Ratio: 7 Financial Institutions’ Results

How can taking a platform approach to digital decisions improve your bank’s efficiency ratio?

In my last post, I outlined the nine success factors for digital transformation that improve your efficiency ratio. Now I’m going to share some actual results from leading financial services organizations that have achieved stellar performance. That post and this one are based on my recent article in The Journal of Digital Banking, which I encourage you to read.

To recap, banks calculate their efficiency ratio by dividing their expenses by net revenues, determined by subtracting loan loss provision from operating income.

Efficiency Ratio = Noninterest Expenses/(Operating Income – Loan Loss Provision)

For example, if a bank has net revenue of US$100m and expenses of US$65m, the efficiency ratio would be

US$65m/US$100m = 0.65 = 65%

In my last post, I outlined the nine success factors to help measure success:

Seven Financial Institutions’ Success in Improving their Efficiency Ratio

Now let’s look at an overview of seven banking leaders I know well, the specific KPIs they track, and the ROI they are achieving. These visionary companies are using FICO Platform as the foundation for their digital transformation. All are seeing dramatic improvements in the fundamentals of their businesses, leading them to optimal revenue acquisition and costs reduction.

1: Global Multinational Bank

• Prioritized efficiency with centralized and consolidated all systems across the bank
• 50% reduction in time to market of new projects, decision strategies and analytic models and 80% lower internal costs for development, strategy updates and training
• 60% decreased dependency on IT by empowering business users to implement new strategies
• 70% decline in incidents with operational risk

2: Large EMEA Bank

• Deployed a new decisioning system at 30% time savings and 25% cost savings, improving efficiency
• Transformed a projected loss to US$6.5m profit in less than 6 months
• Implemented new customer scoring strategies in just 1 week
• 50% faster go-lives, reduced testing times and slashed time to make changes from 2 months to 2 days, while reducing expected costs by 25%
• Enabled champion/challenger testing in credit risk, profiling, product specification and offer strategy

3. Leading NORAM Bank

• Incorporated existing customer relationship data into a new all-encompassing database to get a complete view of each customer
• Enhanced legacy decisioning system across 60 decisioning areas enterprise-wide
• Empowered business users to manage change at the speed of business
• Shortened cycle times significantly while improving loan quality and lowering risk
• Can run side-by-side adjudication strategies

4: Large APAC Bank

• Perfecting instant, customer-centric digital decision management
• New capabilities enabled bank to quickly expand into new customer segments while increasing the profitability of existing customer relationships
• Business users able to generate new dashboards and reports quickly, without IT involvement
• Launched new digital business, starting with personal loan portfolio
• Quickly met or exceeded the offerings of competing Fintechs

5: Major Latin American Bank

• More effective communication with customers and dramatically improved customer experience
• More agile decisions and customer focus; higher synergy between departments
• 90% reduction in the time required to confirm transactions
• 20% gross fraud reduction
• Increased volume of credit line management 3x
• Operational risk and expense reduction

6: Global Payments Processor

• Single underwriting/decision management platform that can scale across verticals, product lines and regions, which helps to accelerate future growth, acquisitions and global expansion
• Increased approval rates nearly 60%
• Drastically reduced induction from several days to a few minutes, resulting in improved customer experience and accelerated business growth
• Streamlined risk strategy and user-driven rules management
• Increased accuracy to reduce portfolio risk, cut costs and minimize fraud
• Roll out new innovations and applications: tiered underwriting, underwriting-as-a-service and consumer underwriting application

7: Top US Credit Card Company

• Deployed a common platform for decision management, while processing billions of transactions monthly across all channels
• Automated decision management for ROI of 20:1 or higher in the first year
• Accelerated application development, speeding solution delivery by up to 10x
• Common enterprise-wide framework, easily accessible and usable by business users
• Reduced time-to-change and create greater competitive advantage earlier

When you look at these institutions and their results, you can see that they cover the spectrum of the nine success factors I introduced in my last post.

You might ask why these institutions don’t all have the same results, or check all nine boxes. Although the end-goal of a digital transformation effort is to achieve the broader and more strategic use of enterprise intelligence at all points of customer contact, every company begins at a unique starting point dictated by their individual circumstances.

From there, no two companies’ journeys are alike; some take a fast, “big bang” deployment approach, while others prefer a slower, methodical approach. Either way, they make incremental progress towards their ultimate goal of reducing their efficiency ratio through the automation of smarter, faster, more profitable business decisions.

How FICO Can Make Your Digital Transformation More Successful

• Read my full article from The Journal of Digital Banking, “How Financial Services Leaders Are Using Enterprise Intelligence to Optimize Efficiency Ratios”
• Check out my previous post on this topic, “9 Success Factors for Improving Your Bank’s Efficiency Ratio”
• Explore FICO Platform capabilities
• Watch videos of our customers talking about their success with FICO Platform