Dematerialisation in essence, is doing more with less. And we are seeing it increasingly in the banking sector: perhaps a trend whose time had come, the recent global banking crises has certainly catalysed interest.

The last two years has seen $5.5 trillion wiped off capitalisation of the global banking sector, (a fall to 60% off peak levels). Many of the gains made to key performance indicators pre-crisis have suffered set-backs: Boston Consulting Group's global banking database indicates rises in cost/income ratios, falling return on assets and soaring loan loss provisions. There is increasing pressure to quickly reinstate improvements that had taken the best part of this decade to realise. If anything, the outlook is even more challenging; if regulators demand higher Tier 1 capital requirements, this will further squeeze return on earnings, without improved efficiency measures to offset the impact.

The tricky thing is, much of the low hanging fruit of cost take-out has been implemented in the last year or so. The adage, often attributed to Machiavelli, ‘Never waste the opportunities offered by a good crisis' has been taken to heart.

Often however these quick-fixes' have been people-related actions, and there is some evidence to suggest that staffing cuts without aligned improvements in operational processes is having an adverse effect on customer satisfaction, with potentially severe financial consequences in the long-term.

The next wave of cost-take outs needs to be underpinned by a more calculated and measured approach - but there are significant gains to be achieved. Indeed, smart banks will use these levers to pull away from the crowd. Not surprisingly, most require the exploitation of technology, or demand a re-think on how technology is being used.

The elimination of waste (i.e. resources deployed that do not add value to products or services) from banking processes has more mileage. Techniques such as Lean and Six Sigma can play a role here, since a discipline is needed to be able to measure and determine sustainable savings and improvements at the same time. Yet equally important is an underlying technology infrastructure that can support the re-configuration of the business. One step closer would be where the technology actually embodies a process model to begin with. Then optimisation of these processes and the concept of ‘kaizen' (continuous improvement) become more readily accessible. After all, if processes are documented, they can be easily challenged. If processes are implemented, they can continuously be refined.

Focusing on optimisation of existing value chains is important, but one of the major criticisms of methods such as Six Sigma is that they do not do enough to help invent or disrupt the future, through new products and services for example. Process orientation, coupled with technology is starting to redefine operating models. Consider one example - banks can rightly claim to not be fully responsible for potential inefficiency or waste related to the authentication and verification process during new customer acquisition. Traditional practices, (often as a result of regulator encouragement), usually involve disrupting what could be a straight-through process and insist that potential clients provide physical proof of ID. For a prospective customer seeking to establish an on-line relationship, this either involves inconvenience to the individual through a visit to a branch, or delay and concern if the original documents are posted to a service centre for processing. For a branch walk-in prospect, this invariably means another visit. However regulator-friendly services, reliant on technologies are emerging that verify the individual electronically.

This is game-changing in its own way for internet customer acquisition, but the real trick will be to extend this to the branch - where arguably it is not ‘needed' since clients are able to present documents as they have done for years. Now we have common processes re-used across channels, along with greater customer convenience, and a slicker (and lower cost) fulfilment process. Thinking along these lines can start to completely re-define the role of branches - an area where arguably the debate is still raging as to what purpose precisely the customer of the future will use them for. Business re-engineering of this nature will give some institutions a huge advantage.

Dematerialisation is a growing trend within the IT function itself too. We are seeing increased focus on addressing the IT cost base, and arguably this is long overdue. Research shows that banking has higher IT costs as a percentage of total costs than practically any other industry. This disparity is not fully explained either by potentially more complex business environments, higher security, lower failure tolerances and regulation.

Simply put, banking technology costs too much. One explanation is that banks have been slower to adopt commercially available packages and components to the same extent as other industries. By way of comparison, no manufacturer or retailer builds an ERP system today; there is a mature source of proven solutions from specialist vendors. Banking has been slow to buck the trend but we are seeing movement. The shift in thinking is particularly apparent in larger banks; institutions that five years ago would not have contemplated package applications are now either embracing them or at least actively considering them now.

Appropriate technology platform choice can offer significant cost reduction opportunities yet can often do more too. This is true of hardware - and increasingly of the core systems too. Core system replacement is a major undertaking, but for many institutions this undertaking may be the next big move to dematerialise the organisation.

Dematerialisation presents a final challenge - the likelihood that major investment will be needed to affect a significant, sustainable change in the cost base. The incentive, however, is that the next round of cost take-out is not just harder; it is better. Being able to do more with less makes sense. The investment, carefully calculated, will lead some institutions to the head of the pack.

Gareth Jones is retail business development director at Temenos