Financial Services Offshoring On The Rise

May 5, 2005

According to a report announced this morning by Datamonitor, "Global sourcing in European and North American Financial Services,"�financial services companies are in part driving the boom growth numbers in offshore outsourcing. Both North American and European financial services providers (particularly U.K. and Scandinavian companies) are increasingly sending core competency processes (mortgage processing, insurance underwriting, claims processing)�offshore. Part of the reason, according to the report, is the increasing flexibility to do so that today's enterprise technologies provide for.

The summary of the report is posted below.

TES

Outsourcing of core financial services functions offshore on the rise

While outsourcing of contact center and application services are relatively established, independent market analyst Datamonitor's (DTM.L) latest report on the subject "Global sourcing in European and North American Financial Services," expects increasing performance in core financial services functions - such as mortgage processing, insurance underwriting, claims processing - to be outsourced to alternative offshore locations. "Offshoring of core competencies amongst financial services institutions in Europe and North America is increasing as confidence in the offshore markets - be it via vendor or an in-house offshore operations - is improving rapidly," says Anders Maehre, financial services Technology analyst at Datamonitor and author of the study.

A global sourcing strategy is the dynamic use of distributed global resources in accordance with a balanced view of these issues across financial services institutions' (FSI) functions - not just the offshoring of certain individual tasks. The crux of a global sourcing strategy, as Datamonitor sees it, is the awareness of global and regional sourcing options and actively making sourcing decisions about all business functions, rather than using internal resources or resources in a certain location as a default position.

While the benefits of offshore outsourcing are well documented - lower costs, higher quality to name but a few, its use has remained mostly limited to certain function areas such as contact centers and application services. Whilst this immature view remains the primary perception of offshore outsourcing - even in the relatively speaking advanced financial services sector - it is developing rapidly in parallel with the growing acceptance of offshore services provision.

In terms of acceptance and take-up, North America and the UK remain significantly more advanced than the rest of Europe. However, Nordic FSIs are also increasingly showing signs of embracing nearshore alternatives for certain services.

The current shift, in terms of business process outsourcing (BPO) sourcing strategies in financial services, is enabled by a growing number of outsourcing service providers and IT services vendors having a credible global delivery capability, an ongoing simplification of the outsourcing process from the FSI point of view and improving industry specific expertise among the service providers.

FSIs need to develop global sourcing strategies that enable them to choose between operational locations and sourcing set-ups in accordance with their strategic objectives, weighing up a number of factors such as political and operational risk, regulatory issues, cultural barriers, cost considerations, vendor offerings and local skill sets.

Maehre concludes: "Offshore outsourcing has gathered tremendous pace in recent years. Political pressure and controversy has done little to deter top-line growth. The improving credibility of many of the offshore providers and increasingly global delivery capability of the leading outsourcing service providers will push FSIs in both North America and Europe towards intelligent use of global resources."