Most companies in the Nordics within Banking, Pensions or Insurance have significant ambitions to reduce cost, but lack behind international peers on impact – and are now experiencing increased pressure from the COVID pandemic. Ensuring that your cost reduction is both impactful and sustained requires a structured approach and a stringent focus on execution.

Generally, Nordic financial services are performing well by international standards with cost-to-income ratios (CIR) between 50 and 70 %[1]. However, competition is increasing and global incumbents such as Barclays and Deutsche Bank have taken significant steps to eliminate cost from their business models, reducing their CIR with 20-30 percentage points. Combined with increasing regulatory expectations putting pressure on profitability and disruption from digital challengers, a proper competitive response requires a full-fledged transformation of the cost base.

Nordic financial services are behind international competitors for a number of reasons. They have seen a significant increase in regulatory expectations in the wake of the financial crisis – and even more in recent years as a result of Nordic Financial Supervisory Authorities moving from a trust-based governance model to a more stringent and instructive model as a result of a number of money laundering scandals. In addition to financial service companies ramping up to deliver against regulatory requirements (where we have seen some grow their AML compliance-related FTEs to a staggering ~20-25% of total staff), they are also significantly behind on the digitalization agenda, where many services are run on legacy applications, manual processes and done by either inefficient teams or unnecessarily serviced through high-cost locations. Some efforts have been underway, but generally the CIR has stagnated or increased for the majority of banks, insurers and pension providers. 

In spite of these cost reduction efforts by most financial service companies, their operating costs have on average remained mostly flat, primarily due to a lack of structured application of transformational levers. In order to reap significant gains in profitability that will sustain over time, the bank’s need to improve their underlying productivity. We generally approach cost efficiency discussions from a number of angles, pending on the reduction ambition and time-horizon. However, as many Nordic companies today are significantly challenged on their profitability, but are not at the brink of collapse - such as was the case of Deutsche Bank - our recommendation is to build an Efficiency Transformation Programme.

Exhibit 1 - The type of cost reduction depends on the ambition and time horizon


5 steps to Build an Efficiency Transformation Programme

In order to reap significant gains in profitability that will sustain over time, the bank’s need to improve their underlying productivity. Generally, the following steps to build a structured efficiency transformation programme is necessary:

  1. Get transparency on your cost structure by building a front-to-back diagnostic cost-matrix, breaking down total costs by activities, processes and services - and benchmarking cost levels top-down internally and externally. Banks, Insurers and Pension providers will often find that a few number of processes and activities account for a significant amount of the overall cost base, with a tail of more fragmented activities
  1. Reverse engineer your cost-base to identify a set of initiatives by taking a bottom-up view of cost-drivers and workload analysis across the cost-matrix. Point of departure should be taken in a holistic view on reduction initiatives applicable across multiple types of services:

Exhibit 2 – Initiatives with cost impact generically applicable across activities

Exhibit 2 – Initiatives with cost impact generically applicable across activities
  1. Rethink your processes and services by conducting a bottom-up review of the processes from a customer perspective to redesign them without constraints, unnecessary features and a legacy setup. On a high-level, areas such as the below should be considered to select initiatives and deep-dive on these:
    • Service degradation levers asking questions like “Do we need this activity?”, “What is the right service level?”
    • Efficiency levers asking questions like “Who should do this?”, “Can it be simplified?” and “Can it be automated?”
    • Resource levers asking questions like “Are we using the right resources?”, “Are resources over / under-qualified?” etc.
    • And more..
  1. Set the ambition for the transformation by considering current costs and ability to apply the levers defined above in a sustainable way across the redesigned products, services and processes. To ensure a sustainable cost transformation, it is necessary to take a reverse-engineering approach to the cost-base, building up the minimum cost base ‘to keep the lights on’, then adding the costs to deliver on strategic must wins and thus identifying the savings potential. Completing this step also involves a double-sign-off between the budget owner and the CFO to ensure that commitment is achieved
  1. Design execution plan and approach by first prioritizing where to start. Most Banks, Pension providers and insurance companies, also in the Nordics, will find that more than 50 % of their transformation potential will stem from the top 20 end-to-end processes. Designing an execution plan to attack these requires a precise cost target, measurement and financial impact of initiatives, defined outcome deliverables for business, IT etc., clear responsibilities for targets and outcomes and a transparent time-frame with well-defined milestones for effects combined with estimates of resources and investments.

Beyond has been helped financial service companies in the Nordics, such as banks and pension providers, to reduce their cost base by up to 30 % over a two-year period, while retaining customer satisfaction and deliveries. If you want to get started, let us know and we can introduce you to how we have helped others and can help you!

Reach out to Henrik Priebe Hold, Partner at Beyond on +45 30 62 18 94 or 

[1] Source: Beyond Analysis of Nordic Banks compared with S&P Market Intelligence for global banks