All things considered, a bank’s outside-in view of performance benchmarks (Earnings Per Share, Shareholder Value, stake-holder value) is not fundamentally different from an inside-out (Topline, Bottom-line, Growth, internal value creation) perspective. All of these are different manifestations of Return on Investment, the improvement of which is a top priority of every bank’s executive management.

The implication for technology companies is that their solutions must add teeth to ROI improvement by aligning with their partner banks’ value creation objectives and alleviating their pain points. In other words, they must think of themselves as providers of outstanding business solutions and not merely brilliant technology.

Since cost reduction is the cornerstone of ROI management, banks are constantly looking out for ways to improve efficiency and productivity to bring down the per unit cost of “doing business”. However, there is a limit to how far costs can be cut. For instance, fixed costs towards hardware, networking, physical infrastructure et al can be reduced under innovative leasing, outsourcing and hosting arrangements, but still make for heavy expenditure. The need for branches can be curtailed through the introduction of direct channels; however, regulatory mandates do require banks to maintain some amount of brick and mortar infrastructure.

Hence, since total costs can never be brought down to zero, the solution must lie elsewhere. The automobile sector, and more recently, the telecom industry are great examples of how to push up ROI by lowering per unit cost, with volume acting as the game changer.

A parallel can be drawn in the banking industry, where cost can be expressed per transaction, customer, unit of revenue, unit of capital deployed, channel and so on. Quite simply, an increase in any of the aforementioned at the same total cost shows up as a healthier bottom-line and ROI. This builds a strong case for replacement of legacy core systems with a modern alternative that can support a continuous increase in the scale of business for years, at the cost of a one-time investment. Banks, which typically view core transformation as a burden on expenditure, need to adjust their perspective accordingly.

Apart from increasing the volume, customer base or transaction “denominator” to cut per unit cost, ROI may be enhanced by a cross-sales “multiplier”, which is explained as follows. Each time a customer interaction succeeds in selling an additional product, it not only doubles the productivity of that event, but also saves the cost of resources needed to make a similar sale at a future date and therefore “multiplies” the impact on ROI.

So, the magic formula for ROI improvement prescribes stretching an investment as far as possible to serve an expanding business, for instance, scaling up transactions by adding new channels, acquiring more customer accounts through right-selling and enlarging the customer base through inclusivity. While the prioritization of these actions will depend upon the banks’ business objectives, the core banking platform is a common facilitator in all.