Trends in Outsourcing in the Financial Services Industry 2009 – 2013
Despite the return to growth in the financial services industry in the year since we published our last report, the new “regulatory reality” has led banks to recognise that even as the economy recovers and performance improves, financial services institutions will need to work much harder to achieve the same returns they enjoyed before the crisis. The increase in required regulatory capital, and the subsequent need to implement more robust processes and transparent governance is driving institutions towards cost reduction strategies that are both innovative and sustainable.
In addition, financial services institutions have been put under increased pressure by the growing expectations of customers. Customers increasingly expect unprecedented quality of service, availability and transparency from financial institutions, a trend already observed in other industries.
From a demand perspective this is driving changes in the way Financial Services are looking at outsourcing as part of the toolset to address these market changes:
- In their search for value, financial services institutions are increasingly looking for services which span the value chain and are taking a multi-sourcing approach as their maturity in managing outsourced services grows
- Financial services institutions continue to see outsourcing as a means of cutting cost, however they are also looking for increased value in line with their long-term business strategies – including new capabilities, reducing capital investments in infrastructure and improving service
- The increasing demands on financial services institutions from global regulators means third party service providers will be expected to support their customers by implementing greater transparency and more robust control frameworks
Against this backdrop, the global outsourcing sector in financial services overall has continued to grow modestly over the last four years and this growth is forecast to accelerate. Behind these headline figures, the major changes in the financial services sector are starting to change the nature of outsourced services. Our analysis reveals a fundamental blurring of traditional definitions of outsourcing is making typical industry classifications less and less relevant:
- Outsourcers are diversifying their approach and seeking to build more innovative solutions that align with their customers’ cost and value agendas, including broadening services to previously ‘core’ areas of financial services activity such as mortgage and securities processing
- In this context the provider landscape is changing; bank-to-bank outsourcing agreements on transaction processing which previously would not have been considered as ‘outsourcing’, make up some of the largest transactions in the marketplace
- The traditional boundaries between BPO and ITO are becoming blurred as service providers look to provide integrated, end-to-end solutions for clients not just leverage wage arbitrage
- As financial institutions become more accepting of new technologies such as cloud-based infrastructure and software services, the need for large, monolithic outsourcing solutions in this space is diminishing
- These trends have had a noticeable impact on the sourcing behaviours of financial institutions. As a result new service providers are emerging, whilst existing providers are adapting their service offerings to respond to these trends.
Features in this year’s report
In addition to our market trend analysis, we have also sought to provide an additional perspective on the challenges the industry faces. In our features section we examine some of the key themes from our report in greater depth.
- What is the impact of changing regulation on financial services sourcing models?
- What will be the impact of increased customer expectations on the sourcing behaviour of retail banks?
- How can transaction banks move up the value chain and offer innovative outsourcing solutions to help their clients cut costs?
- How is the insurance industry using outsourcing?
- What alternative outsourcing destinations are challenging traditional offshore locations?