Retail banks across Latin America have increased their revenues without increasing their cost-to-income ratios—the result, among other things, of generous spreads between the banks’ average borrowing and lending rates and of a greater uptake of banking services by the region’s middle-class population. But some of these factors may prove difficult to sustain as Latin America’s financial markets mature. Our research¹ suggests that to continue this strong growth, the region’s banks must raise their productivity by streamlining back-office operations, reducing channel costs, and capturing more value from IT investments.

Centralizing back-office operations (such as processing checks or opening and closing accounts) offers the greatest opportunity for savings. The performance of the banks we surveyed varied widely; the worst performers spent nearly six times more per transaction on their back-office operations than did the leaders. However, we found no correlation between centralization in IT and operations, on the one hand, and cost leadership, on the other, mainly because many banks in our sample created central offices yet were reluctant to reduce staff levels or infrastructure expenses in branches.

Nevertheless, top performers, whatever their...