In a Rising Market, Are Banking Outsourcers Pulling Their Weight?

Graham Donald, Managing Director, Credit Services, Equiniti Group

The Quarterly Outsourcing Index[1] recently confirmed that outside the public sector, banks and financial institutions are by far the most prodigious users of business process and technology outsourcing. In the first quarter of 2016 the industry’s contracts totaled a whopping £324m, up six per cent on the same period last year.

This comes as no surprise. Despite consumer lending continuing to rise (gross mortgage borrowing, for example, is up 64 per cent year on year[2]) many banks remain in jeopardy. In April, two of the high street’s biggest banks reported that operating losses had more than doubled since the previous year.

Commentators are quick to point the finger to past malpractice. It’s true that some big banks are facing huge FCA-imposed fines and are burdened by high volumes of customer complaints as a result. But lenders are also being impacted by other significant factors. Changes in regulation, for example, the global economic slowdown, Brexit and the Eurozone crisis and increased competition from new players entering the market. Widespread restructuring is commonplace and, in a bid to reduce cost and enable banks to refocus internal resources on generating revenues, many are outsourcing the operational upkeep of non-core operations to third parties.

But are the outsourcers that stand to benefit from these conditions adjusting their practices in order to accommodate the changing needs of banks? Historically, banks would outsource individual contracts to individual partners, each relating to a specific product or service in accordance with their departmental structure. But as internal resources are reduced and redirected, banks are fast becoming unable to manage the ever-higher numbers of partnerships that this model creates.

Consolidation is the key.

This is a huge opportunity for outsourcers with the vision, capability and the wherewithal to adapt. The most forward-thinking among them are establishing market differentiation by blending service offerings to enable banks to achieve more than they could by themselves. By replacing a bank’s legacy systems with their own agile and interoperable platforms, a multi-departmental contract could be capable of delivering the ‘single customer view’ that has long evaded so many banks. In complaints handling this is particularly pertinent; many banks are still unable to aggregate complaint data from a customer’s car insurance policy, with the data they hold that relates to their current account, car loan, or overdraft. Doing so would enable the bank not only to deliver a more connected and meaningful customer experience, but to also evaluate the commercial impact to the bank that each case poses.

Multi-departmental or ‘blended services’ outsourcing is also the route to greater cost efficiency. A bank’s negotiating power with a single partner grows in line with the scale and breadth of the contract on offer. By creating bespoke service contracts that combine specialist technology with experienced personnel and FCA compliant processes, outsourcers are able to address each bank’s specific needs, eliminating service overlap and mitigating unnecessary spend.

Banks may differ in structure, but many share the same set of challenges. For outsourcers, this means that the needs of one can support the needs of many. Specialist staff and industry best practices, sharpened by the experience gained from servicing multiple loan books for different banks, enable outsourcers to deliver continuous improvement across their entire customer base.

So my message to banks is simple: view your partnerships in terms of how they can improve your operations, not just reduce your costs. The right partner should help you to achieve both.

Graham Donald, Managing Director, Credit Services, Equiniti Group

The Quarterly Outsourcing Index[1] recently confirmed that outside the public sector, banks and financial institutions are by far the most prodigious users of business process and technology outsourcing. In the first quarter of 2016 the industry’s contracts totaled a whopping £324m, up six per cent on the same period last year.

This comes as no surprise. Despite consumer lending continuing to rise (gross mortgage borrowing, for example, is up 64 per cent year on year[2]) many banks remain in jeopardy. In April, two of the high street’s biggest banks reported that operating losses had more than doubled since the previous year.

Commentators are quick to point the finger to past malpractice. It’s true that some big banks are facing huge FCA-imposed fines and are burdened by high volumes of customer complaints as a result. But lenders are also being impacted by other significant factors. Changes in regulation, for example, the global economic slowdown, Brexit and the Eurozone crisis and increased competition from new players entering the market. Widespread restructuring is commonplace and, in a bid to reduce cost and enable banks to refocus internal resources on generating revenues, many are outsourcing the operational upkeep of non-core operations to third parties.

But are the outsourcers that stand to benefit from these conditions adjusting their practices in order to accommodate the changing needs of banks? Historically, banks would outsource individual contracts to individual partners, each relating to a specific product or service in accordance with their departmental structure. But as internal resources are reduced and redirected, banks are fast becoming unable to manage the ever-higher numbers of partnerships that this model creates.

Consolidation is the key.

This is a huge opportunity for outsourcers with the vision, capability and the wherewithal to adapt. The most forward-thinking among them are establishing market differentiation by blending service offerings to enable banks to achieve more than they could by themselves. By replacing a bank’s legacy systems with their own agile and interoperable platforms, a multi-departmental contract could be capable of delivering the ‘single customer view’ that has long evaded so many banks. In complaints handling this is particularly pertinent; many banks are still unable to aggregate complaint data from a customer’s car insurance policy, with the data they hold that relates to their current account, car loan, or overdraft. Doing so would enable the bank not only to deliver a more connected and meaningful customer experience, but to also evaluate the commercial impact to the bank that each case poses.

Multi-departmental or ‘blended services’ outsourcing is also the route to greater cost efficiency. A bank’s negotiating power with a single partner grows in line with the scale and breadth of the contract on offer. By creating bespoke service contracts that combine specialist technology with experienced personnel and FCA compliant processes, outsourcers are able to address each bank’s specific needs, eliminating service overlap and mitigating unnecessary spend.

Banks may differ in structure, but many share the same set of challenges. For outsourcers, this means that the needs of one can support the needs of many. Specialist staff and industry best practices, sharpened by the experience gained from servicing multiple loan books for different banks, enable outsourcers to deliver continuous improvement across their entire customer base.

So my message to banks is simple: view your partnerships in terms of how they can improve your operations, not just reduce your costs. The right partner should help you to achieve both.