From Setbacks to Solutions: How to Handle Surprise Costs

If yours is like a lot of businesses this year, the end of 2024 has already brought the unpleasant news that employer healthcare costs are rising again by anywhere from 5 to 10% on average. If your financial institution doesn’t find ways to offset this increase, you may be heading into 2025 already behind your budget.

Rising healthcare costs are certainly not the only surprise costs that impact an organization when they arise. Other vendor price increases and unexpected credit losses can also catch us by surprise. While it’s not always possible to predict or prevent setbacks, one thing is certain: They will happen! And often there’s no time to make big structural changes to the organization when a pivot needs to happen quickly.

The good news is that financial institutions have tools in their toolbox to offset and minimize surprise costs when they occur. It’s crucial to be nimble and react quickly with smart decisions now to avoid negative long-term consequences. For example, responding to rising healthcare costs by slashing your benefits offerings can save in the short-term but could affect your ability to recruit and retain your employees, leading to a talent crunch in a highly competitive labor environment.  

In previous blogs, PRI consultants have shared suggestions for offsetting unexpected costs. Let’s look at some of the most common solutions they recommend.  

Identify opportunities to increase revenue, profitability.

In PRI’s blog 5 Ways to Increase Profitability in Economic Uncertainty, Director of Process Improvement Jen Megee, recommends proactive actions financial institutions can take to make a meaningful impact to the bottom line. These revenue-boosting actions include reviewing the deposit and loan products and developing a robust debit card program. 

• Deposit and Loan Product Review
  PRI recommends that FIs review their product lines to ensure that appropriate and competitive fee and rate structures are in place. It’s also an important exercise to ensure that the institution’s products meet customer expectations, which may have changed over time. Now is a good time to tweak the product set to reduce expenses and increase income, Megee said. 
• Develop a Robust Debit Card Program
  The debit card program is the FI’s primary source of non-interest income from a deposit perspective. Analyzing the debit card program and ensuring it is as robust as possible is a strong investment in profitability. PRI recommends several actions including:
  • Measuring P/A/U (Penetration/Activation/Utilization) and putting a plan in place to maximize program performance.   
  • Marketing the value propositions of the debit card program to ensure the FI’s debit card is “top of wallet.” For a deeper dive into ensuring the FI’s debit card is “top of wallet,” see Candace DeBarger’s blog, Winning the Wallet War: Top Tips to Make Debit Card the Go-To Choice.
  • Educating staff on the value proposition of the debit card so they can communicate it to customers.
  • Negotiating the Brand, EFT and PIN agreements for maximum profitability. 

Monitor and negotiate vendor contracts.

Another way to improve profitability and offset surprise costs is by regularly monitoring vendor contracts. Often, FIs have contracts with multiple vendors to provide products and services, and they fail to effectively track renewal dates. Implementing a tracking mechanism ensures that renewals don’t occur automatically with unfavorable pricing. This allows the FI to negotiate and potentially bring new, more progressive vendors into the mix for better servicing, automation and pricing. 

The PRI blog Why Does Contract Negotiation Matter to Financial Institutions? reminds leaders that any time a contract is up for renewal, the terms and conditions should be closely reviewed for how they impact a bank’s profitability and success. (Note that many contracts should be addressed as early as 36 months prior to expiration!) Terms that allow for annual price increases need to be understood so the FI will know what to expect over the term of the contract. Decisions made today affect your future success. Make sure they are sound! 

Review Your Operational Effectiveness

Megee said operations departments have been overlooked over the years for automation opportunities, and now is the time to review processes and system utilization. 

“Technology has come a long way in recent years, and one of the areas PRI specializes in is going into an FI’s operational areas to evaluate where manual processes can be streamlined or eliminated through system enhancements,” she said. “We need to look at what we do daily and ask if there’s a better way. There are usually several opportunities to save time in operations, which is finding hidden treasure in terms of profitability.”  

And although it’s a longer-term play, Mikelle Brady, PRI partner, says in Preparing for a Focus on Process and Efficiency that enhancing the customer experience is the top priority in process improvement projects because the old saying rings true: It costs less to keep a happy customer than to acquire a brand-new customer. The next priority is improving employee engagement, which happens when process and efficiency put employees in the driver’s seat of solving problems and acting in alignment with the organization’s overall purposes. When an FI gets these two priorities right, a reduction in costs and an improvement of the bottom line will flow from their commitment. 

For a deeper dive into improving operational efficiency, check out Wasting Time: 8 Opportunities for Improving Operational Efficiency. 

If your institution is facing surprise costs in 2025, dig into your toolbox of solutions to find ways to offset them. Stick to your strategic objectives for the organization and refuse to be derailed by unexpected costs (which are really to be “expected” in business!). Staying nimble and cultivating your organization’s ability to pivot will ensure the decisions you make today will pay dividends far into the future.    

Resources 

Survey: Employers expect third year of high health cost growth in 2025  – Mercer 

5 Ways to Increase Profitability in Economic Uncertainty – PRI 

Winning the Wallet War: Top Tips to Make Debit Card the Go-To Choice  – PRI 

Why Does Contract Negotiation Matter to Financial Institutions? – PRI 

Preparing for a Focus on Process and Efficiency – PRI 

Wasting Time: 8 Opportunities for Improving Operational Efficiency – PRI 

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to strategic planning to propel growth and improve profitability.