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April 14, 2015

Four Reasons Bank Outsourcing Is Trending

Recently, we've been talking to a lot of bank CIOs about the subject of outsourcing. Here are four things we have learned that highlight a renewed interest in the practice:

Industry pressures are forcing serious prioritizing of focus.

Outsourcing didn’t used to be a welcome subject to bring up to bankers. Just a few years ago, the objections came fast and firm, even when the benefits were shown to be compelling. But today when we ask for a conversation about outsourcing, we get a lot of, “Sure, what’s new? Who’s done it? How’s it working?”



One reason for the sea change is simply positive experiences. Functions that were outsourced after a lot of anxiety and pilots are today performing well at favorable expense levels. Nothing succeeds like success.

But probably the main reason is sheer attention span. Since 2008, the retail bank model has been severely weakened by the credit crisis, the recession, the loss of consumer trust, an onslaught of regulations, and the rise of digital models. Bank management is closely focused on solving these challenges, what’s core and what’s not is more visible, realizing they are core, and thus increasingly willing to let trusted partners take responsibility for other areas.

When you think about it, it is probably time we stopped calling it “outsourcing.” Some are calling it “right-sourcing,” but in reality, when bank CEOs start enumerating what they would and would not want to outsource, all they are really doing is “prioritizing.” 

More candidate functions are being teed up.

By and large, the obvious functions have already been outsourced: credit card processing, human resources, and various finance and accounting functions, and so on. So bank managements are widening their lens – and broadening their expectations. They aren’t just looking for economies but also for greater expertise.

One that comes up often these days, end user support, illustrates how significantly the outsourcing conversation has changed. End user support used to be a key area for the CIO – an important means of ensuring performance standards and maintaining control over the bank’s use of IT. The consumerization of IT has upended that role. Now, as one CIO put it, “As hard as we have to compete for talented IT resources, I want ours focused on innovative product design and such matters, not on servicing end users. But at the same time, I want our end users to have top-notch services that are aligned to their needs and work styles, without worrying about security, compliance and control. That’s not our core bank business, but it is a core business for others I can partner with.”

In saying that, he echoes the foundation of high-quality outsourcing: “Everybody’s back office is somebody else’s front office.” If it’s their front-office, they are going to be more skilled in doing it, they are going to be more focused on the training, productivity, quality metrics.

Cloud is obviously a prime outsourcing area, albeit traditionally fraught with control, cost, and security concerns. But month after month, banks are being better served by cloud providers and consequently are more trusting about moving various workloads from their own servers to hybrid and public cloud. One huge driver of the trend is the explosion of data that is making in-house data storage prohibitively expensive.

As data management becomes more sophisticated, it becomes a likelier candidate for outsourcing. Its complexity is greater because of cloud, but also because of the growing number of data-related technologies that enable banks to gain significant value from their data, both structured and unstructured. Outsourcing partners can ensure that it is managed and stored in a way that enables these new analytics, business intelligence, and big data technologies. They can also provide higher levels of integrity and security as these data stores become hacker targets.

Mobility is another frequent candidate for outsourcing, particularly in the area of managing the bank’s mobile environment. Two other challenges for banks, that vendors are already primed to provide, are mobile application development and mobile enablement of the workforce. These skill sets already exist outside of banks; it’s hard to see many of them deciding to create the expertise in-house.

More outsourcing options are available.

There is a lot of worry about the consolidation of bank vendors, with very large players acquiring boutique providers. But that can be seen two ways. A lot of that consolidation is being driven by the boutiques who recognize that on their own they can’t land mid-size to large banks as clients, but they could as part of a large outsourcer. Large banks also are interested in limiting the number of vendor relationships they have to manage.

But aside from the consolidating providers, many banks continue to seek creative alternatives, especially groups of banks with similar challenges pooling their resources to set up their own jointly owned outsourcing entities. The currency/cash shared utilities created by the pillar banks in Australia and South Africa come to mind, as do partnerships formed for check image archive/exchange and other payment processes.

In such areas, one huge barrier to keeping the functions in house is the enormity of the systems upgrading each bank would have to undertake.

Vendors are making transitions faster, easier, safer.

Another thing that eases today’s conversations about outsourcing is the advances made in transferring the knowledge and services from the bank to the outsourcer in a transparent and methodical manner.

This includes rapid education and training for the incoming team, non-disruptive job shadowing for a period of time, updating of the process and system documentation involved, and of course, implementing the process for managing quality, an effective governance model, and tracking and reporting mechanisms. There are established frameworks that are proven and repeatable, taking a lot of the worry and delay out of the transition process.

About the Author: Mr. Olson (News - Alert) is Vice President, Global Financial Services and Mr. Crowe is the Global Solutions Director, Application Services for Blue Bell, Penn.-based Unisys Corp. They can be reached at [email protected] and [email protected].




Edited by Dominick Sorrentino
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