Mixed Messages on Banks and Offshoring

Ann All

As someone who used to work in the financial services trade press, I was interested in the results of a recent Datamonitor survey discussed in the Business Banking Review, which found that bankers seem largely impervious to the offshoring trend.


According to Datamonitor, just 18 percent of retail banks had offshored business processes, while 40 percent had outsourced such services. The top three drawbacks to offshoring cited by survey respondents were geographic distance, security risks and bad PR. All three reasons are likely linked. Distance may make it more difficult to maintain management control over security, as well as other issues. And there's nothing like a juicy data breach for generating some negative publicity.


Interestingly, the IT Business Edge directory includes conflicting reports. A recent report in the Business Standard, for instance, cited a statistic from India's National Association of Software and Service Companies that U.S. banks could send up to 30 percent of their total transactions to Indian BPO providers by 2010.


So what gives? For one thing, Nasscom tends to be unusually bullish when it comes to offshoring forecasts. Though the story about the Datamonitor survey didn't specify, it may have been confined to British banks, which tend to be more conservative -- and more fearful of bad publicity -- than their American counterparts.


An April report in the Outsourcing Journal outlined the growth of offshoring in banking and predicted the growth will continue, driven by the increasing globalization of the financial services market. Based on the companies sending work offshore, however, the trend appears to be confined largely to big players like JP Morgan Chase, Citibank and American Express, many of them multinational. It'd be surprising to see the trend extend to the smaller guys.


Another interesting tidbit in this article was banks' fondness for captive facilities, in which they run their own operations offshore rather than contracting with a third party. This is a logical way to address the distance, security and publicity concerns cited in the Datamonitor survey.


Players like Wachovia have been quite successful with captives. In fact, Wachovia may be establishing a new model with its deal with Indian BPO provider Genpact, which is a cross between a captive and a more traditional third-party relationship.

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