By : |June 7, 2007 0

Multiple research studies of EquaTerra, a multinational outsourcing and insuring advisory firm, have concluded that financial services organizations plan to expand their outsourcing initiatives into new geographies, business units and emerging processes more than other industries. The firm’s research also found that organizations in this industry are among the heaviest users of IT outsourcing (ITO) and business process outsourcing (BPO).

 These findings, as well as financial services industry outsourcing satisfaction levels, complexities, drivers, anticipated benefits and a wide range of other topics are detailed and analyzed in a new EquaTerra perspective paper titled, "Outsourcing Trends in the Financial Services Industry."

Emerging trends
According to EquaTerra research, IT is the back-office process most commonly outsourced by financial services organizations, followed by call centers and then HR. Other industry specific processes commonly outsourced include claims, transaction (e.g., credit card, equity trading) and check processing activities. The firm’s research also identified emerging trends in financial services outsourcing, including an increase in the outsourcing
of content and document management, as well as "knowledge process outsourcing" or KPO. The former is an important issue for financial services organizations since they generate huge amounts of electronic and
paper documents particularly when undertaking capital markets and M&A work for their clients, and stringent regulatory requirements around the management of these documents drives up costs. Financial services firms,
therefore, are exploring all options, including the use of third party service providers to help support these efforts.

KPO, a relatively new area, continues to gather momentum and encompasses a broad array of processes such as market research, financial analysis, M&A due diligence and related M&A legal work. The Indian market is
particularly well suited to KPO not only due to its lower costs, but also because of its reservoir of highly educated workers albeit with limited experience and context around some of the business processes they support.

"The growth in KPO is intriguing because it involves work that was traditionally viewed as too strategic to outsource, or where outsourcing was not viable because candidate services providers lacked the skills or experience required Said John Boyle, EquaTerra’s Managing Director, Financial Services, to perform the work," says John Boyle, EquaTerra’s Managing Director, Financial Services, "But these perceptions are changing. While
in most cases KPO today involves rote work and number crunching, the breadth and depth of work being performed is expanding as buyers gain comfort with the model and suppliers’ skills and levels of context improve."

But according to him, KPO work, particularly in the financial services industry, is not always outsourced in the true sense. Larger financial services companies are at the forefront in establishing captive operations to perform KPO and related work.

Towards bright future
EquaTerra research also found that financial services firms have greater future outsourcing investment plans than do other industries. For instance, 36 percent of financial services respondents whose firm’s had
outsourced one or more of the defined process areas planned to expand outsourcing into new geographies or business units, as compared to 30 percent overall in the study. Twenty-eight percent planned to expand
outsourcing into new process areas. Financial services firms will continue to invest in multiple forms of service delivery models including shared services operations, captive centers and the use of outsourcing providers.
While the nature of the industry complicates efforts, the potential rewards of adopted blended service delivery models, particularly impact on bottom line and share price, and outweigh the additional constraints and complexities.

EquaTerra believes the most innovative financial services firms will lead the way by showing innovation in their strategies around service delivery models and balancing that innovation with execution excellence and cost
efficiency. Those institutions that have already outsourced and are looking for ways to increase the value of their investment should consider the points below, among others:

 · is the outsourcing initiative achieving the value sought at the beginning of the relationship?

· is your outsourcing governance team utilizing all the tools in the
marketplace to effectively manage the relationship?

· have changes in the regulatory environment put your firm at risk
relative to outsourcing efforts? Can you ensure your service providers are
maintaining the regulatory integrity of your operations?

· are you diversified enough in your global services delivery
footprint? What are regional options beyond India?

EquaTerra’s new "Outsourcing Trends in the Financial Services Industry"
perspective paper also contains insights into how both financial services
organizations and outsourcing service providers are responding to the
current market and its complexities. To request a copy of the study,
please send an e-mail to:


CIOL Bureau

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