The Apple earnings warning yesterday reinforced for me a theme that we’re going to see this year in banking, and that’s slower organic growth which means expense control. A variety of factors are working against banks’ ability to improve their net interest margins, with the risks of slower growth, a persistent flat yield curve, and even some deterioration in credit quality seeming the most significant to me.

This means earnings growth is going to have to come from other places–but where? Credit quality isn’t going to get any better than it is now (meaning banks can’t count on lower loan losses), so that leaves non-interest income (fees) and non-interest expense as the only two levers to pull.

CIOs don’t have much control over the fee schedule, but they can wield a significant amount of responsibility for millions of dollars in non-interest expense in a regional bank. In fact, in a typical bank it’s 8-10% of the entire bank’s non-interest expense according to the latest edition of the Cornerstone Performance Report for Banks.

We’re going to see a lot of CEOs and CFOs making requests of all departments to tighten up on expenses this year. How can a CIO respond with meaningful savings in 2019? If we assume headcount is where it needs to be (and that’s about 1/3 of a CIO’s budget) that leaves the big contracts as the other major focus area:

  • Commoditized Services: Communications, ATM/ITM, and Infrastructure-related service contracts are typically short-term and all-too-frequently auto-renew. There are one or more of these coming up for renewal at a typical bank in 2019. A formal bid process coupled market pricing and service level knowledge can help drive these costs down.
  • Core and Other Strategic Applications: Core, delivery, payments, and key business applications (CRM, business intelligence, etc.) are going to be among the bank’s largest contracts and don’t come up for renewal as often. However, by developing a strategy and roadmap for renewal, opportunities to open these contracts up now for negotiation by extension or addition of services can be identified.

What this isn’t the time to do is put off execution of projects that will help the Bank realize its strategic vision. I’ve taken calls from CIOs recently about helping them fund key long-term strategic projects by through realizing near-term benefits from the contract activities described above and it’s absolutely possible. But the clock is ticking for realizing 2019 savings, so CIOs need to start now.