Bank executives, analysts and investors understand the importance of the efficiency ratio. AI carries great promise in both reducing the numerator and increasing the denominator. As competition for deposits continues to accelerate and net interest margin pressure grinds higher (both for a well-covered set of reasons), improving service delivery, reducing errors, and taking out operational costs are critical.

The banks that thrive will be the ones that embrace the initiative to lower the efficiency ratio and put the gains to work. I have seen this firsthand. Over the past two decades, I have helped some of the largest organizations streamline and automate their operational processes, among them NASA, IBM, Apple, Intel, PayPal, GoPago (which I sold to Amazon) and Fiserv.

Efficiency is where the return shows up first. Growth follows. As AI takes over work that once consumed staff time, customer service can improve in specific ways: faster cycle times on account openings and loan decisions, fewer errors for customers to chase down, and a better understanding of client needs and product fit. Banks can also offer products and services they were not able to support before. A number of opportunities open up as a result, but none of them are within reach for a bank that is still buried in manual work.

That is why the efficiency ratio is the right scorecard. It forces a plain question: what does it cost to produce a dollar of revenue? Every manual handoff, repeated data entry and rework loop adds to the answer.

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