The global bank is currently undertaking a massive restructure of its operations in order to make up to $5 billion in cost savings. HSBC is beginning to see results.
Technology, digital and automation of processes will play a huge part in this and Group Chief Executive Stuart Gulliver has said today that the plans will “refocus the business for stronger, sustainable growth”.
However, the bank’s latest annual report also highlights that there is an “urgency” to focus on securing systems from bad actors and financial crimes, as more and more transactions take place online, via multiple channels.
The bank warned that it faces a “bumpier” road ahead because of slowing growth in China, but it said that it would focus on the country’s Pearl River Delta region, as its economy has strong technology capabilities. The annual report notes:
China’s slower economic growth will undoubtedly contribute to a bumpier financial environment, but it is still expected to be the largest contributor to global growth as its economy transitions to higher added value manufacturing and services and becomes more consumer driven.
This transition is driving our focus on the Pearl River Delta as a priority growth opportunity given its concentration of high tech, research focused and digital businesses.
That being said, the bank reported pre-tax profits at $18.9 billion and revenue at $57.7 billion, a rise of just 1% for both.
Focus on digital
Despite a bit of a difficult year, Gulliver noted that the company had started to implement the cost saving measures announced in June and that although “there is a lot to do to achieve the targets”, he added that HSBC had “made a good start”.
As we noted in the middle of last year when the cost cutting measures were announced, HSBC would be looking to digital investments to deliver a lot of the cost savings. It was estimated that this could amount to as much as $1 billion worth of investments.
It’s top-level priorities at the time, were as follows:
Continued investment in digital to make it easier for customers to do business with the bank.
Implementing tools for front-line staff to make better use of their time.
Automating more operations to get more out of high quality low cost service centres.
Getting more for less from what the bank spends on technology.
And it seems that this has already begun to pay off. HSBC’s annual report highlights thousands of jobs that have been removed by the introduction of automated processes, the reduction in IT costs and increased digital capabilities in the Consumer Banking Business (CMB). It notes:
We removed the requirement for nearly 3,000 roles by automating and eliminating processes in 2015. We completed over 13% of our target to remove 750 software applications by the end of 2017. We are optimising our branch network, and we closed more than 130 branches in 2015 in six of our largest retail banking markets. We also introduced a new IT operating model that achieved a 4% cost reduction in the IT run rate compared with 2014.
We increased productivity in our UK branches through online customer support and appointment booking. In CMB, we simplified our processes and are using technology better to open new accounts globally.
We significantly reduced the time taken to approve personal loans from an average of 20 days to two days, and in some cases instantly, in four of our priority markets.
It’s worth highlighting that HSBC isn’t the only global bank undertaking such measures, with Barclays also announcing last year that it would look to the automation of manual processes to strip out thousands of jobs from its workforce.
The risks
Whilst digital presents a huge opportunity for HSBC, both in terms of bettering its customer experience and reducing its cost base, the bank also notes that with more transactions taking place in an increasingly complex online world, this presents some risks for the company too.
HSBC said that it would be focusing on global standards to ensure that it has the best protections in place against cyber criminals. But it noted that it still has work to do. HSBC said:
We made further progress embedding the standards now expected to protect customers and the financial system from bad actors and financial crime. We are, however, not yet where we need to be. There is still more investment to make with ever greater urgency as more and more activity takes place digitally through multiple channels and via increasingly sophisticated mobile devices.
HSBC’s determination to address emerging risks and identify bad actors remains
The company’s group chairman, Douglas Flint, also called for a more public discussion about who’s responsibility it is when things go wrong. He said:
Technology advancements in financial services are broadening access, improving customer service and lowering the costs of service delivery. At the same time, the amount of data held digitally is exploding, reinforcing the need to bolster cyber security.
There is an urgent public policy need to clarify how responsibility is to be shared, given the growing number of routes through which customers can authorise movement of money from their accounts or the sharing of data within these accounts.
My take
Traditional lenders face a tough landscape. Whilst they have the benefits of scale, resource and capability, they also are facing a consistent threat from the new agile, digital-first entrants to the market.
It shouldn’t come as a great surprise that thousands of jobs will be automated and will likely continue to be automated. However, HSBC needs to carry out this exercise whilst also improving its digital banking capabilities - which has proven to be weak in certain areas, following recent outages and failures.
This is a multi-year journey for banks like HSBC and they’ve got to hope that when they reach the end of it (if they ever do) that they haven’t fallen too far behind.
