The retail banking sector is shunning offshore BPO services, despite the increased take-up across other industries, according to a survey by Computer Business Review's parent company Datamonitor.
The survey of retail banks showed that only 5% of respondents viewed offshore delivery as key to their outsourcing strategy, and only 18% had outsourced any of their business processes offshore, compared to 40% that had used outsourcing.
While loss of control is normally the most frequent reason for refusing to use offshore services, the survey revealed that this was only the fourth largest drawback. Geographic distance, security risks, and bad PR were all cited more often, though some may equate geographic distance concerns with loss of control.
That security risks are such a worry is revealing, and perhaps best illustrates why retail banking is proving such a hard vertical for offshore vendors to crack. Practically all other verticals have finally begun to embrace offshore services enthusiastically, albeit in a furtive manner, but retail banks are a big target for fraudsters, who see offshore operations as a security weakness. Resulting security breaches at a number of banks have been given national newspaper headlines in the US and UK, the most recent case being at HSBC’s data processing site in Bangalore where 233,000 pounds ($440,000) was stolen from UK customer accounts. Such headlines are especially embarrassing as retail banks have spent so much effort reassuring customers of the safety of migrating to internet-based banking services. One UK bank, the Royal Bank of Scotland Group-owned Natwest, is differentiating its services by advertising the fact that its call centers are all based in the UK.
As for reasons which might entice retail banks to use offshore outsourcing, the most popular was government subsidies, followed by round-the-clock support, getting a better educated workforce, access to multi-lingual workforce, and of course, cost of labor.
If, for the moment at least, the risks of offshoring are outweighing the benefits for retail banks, outsourcing itself is still in great demand and looks likely to continue to offer significant growth opportunities.
Currently 40% of survey respondents outsourced some business processes and 55% said that they were considering outsourcing some processes in the next two years. Those banks that had already outsourced were far more likely to outsource more processes than those that had not.
So what are banks looking for from an outsourcing provider? Survey respondents put financial flexibility and leading-edge technology as the main reasons. By outsourcing, banks can access technology that they might otherwise be unable to afford, which can in turn improve their products and the speed of getting to market. Surprisingly, domain expertise, which is usually seen as critical to winning outsourcing deals, was not a major factor for clients, possibly due to the maturity of vendors who have demonstrated understanding of the sector and the greater level of standardization of services.
Currently the most popular area to outsource is customer services, which is strange perhaps in that it is an area whereby retail banks really can differentiate themselves in customers’ eyes, but it is an area which offers great cost savings. The second most popular area is in card issuing and card acquisition services. In the next two years, banks are considering a whole host of processes to outsource, with loan and mortgage origination, corporate performance management, and HR, offering major vendor opportunities.