IT outsourcing for financial services companies: key benefits

IT outsourcing for financial services companies: key benefits

Oksana Wojtkiewicz

By Oksana Wojtkiewicz, Head of Sales & Marketing at Solwit

For over 15 years, Oksana has advised clients on the most effective technology solutions to take their businesses to the next level. Among her portfolio are dozens of successfully-completed projects for Scandinavian and Polish clients. Privately, she is an award-winning golfer and dog lover, especially of West Highland White Terriers.

“Outsourcing may be a solution to the rising costs resulting from inflation worldwide and the Big Quit phenomenon.” This bold thesis is put forward by specialists behind the IT Outsourcing Statistics 2023 report. What is the reason for the popularity of outsourcing IT professionals, including in finance? What services are among the most willingly transferred to external providers, and what problems are addressed through IT outsourcing for finance and banking?

In this text, we will explore the most popular types of IT outsourcing and why it can be especially advantageous for financial companies.

IT outsourcing in a nutshell

One of the most commonly outsourced services is application development. According to the “Deloitte Global Outsourcing Survey 2022,” external resources account for 79% of teams developing dedicated IT solutions. In addition, 81% of the outsourcing companies provide cybersecurity services, which are now a priority for all markets, not just the financial sector.

Typically, partnering with an external provider involves one of two models: project outsourcing or staff augmentation.

Essentially, project outsourcing entails the outsourcing of the implementation of a specific IT system or application to an external company. Project outsourcing relies on the supplier performing a particular task – they are responsible for its delivery and outcome. Staffing, timekeeping, and quality control are all their responsibilities. Here, we deal with an external, specialized, and closely-knit team working remotely from the client’s or service provider’s premises.

Staff augmentation is also a type of IT outsourcing. As part of this process, an internal project is enhanced by experts or a complete team of specialists. In essence, it is an extension of the existing squad but with specialized people from outside, a so-called team extension. Managing their time and accounting for their results will be on your end. Using such a model, you can add programmers or testers to the internal team at different project development stages.

IT outsourcing in the financial industry

Financial organizations can be broken down into two types for this article:

• Start-ups and new companies introducing innovative products and services (e.g., Revolut, VISME, or Neonomics), setting the tone in the market,
• Conventional companies (banks, insurance companies, mutual funds), that have existed for many years, endowed with tremendous public trust, bound by many legal restrictions.

IT outsourcing services are a measurable and quantifiable benefit to the entire sector. However, each type of organization faces different challenges, and the answer lies in the use of third-party IT solution providers. Both groups have one thing in common – they need IT products to win and retain customers. An influential link, tipping the scales in favor of external services to supplement in-house development teams, is risk mitigation. It is the technology partner responsible for delivering the product or service specified in the contract agreement. Naturally, within the timeline agreed upon.

Start-ups & innovative businesses

They are the trendsetters that the rest of the market is looking up to. The financial industry often drives innovation through cutting-edge technologies or artificial intelligence. However, it’s not always straightforward when sourcing specialized, experienced employees who can shoulder the burden of an IT project. The shortage of employees is common among startups, especially when the business faces several challenges in this field as a whole – high salaries for skilled programmers or testers, difficulties recruiting key employees, and the volatility of the economic and geopolitical situation.

On top of all that, in recent months, the collapse of many banks, which played quite a crucial role in the financial ecosystem of startups, has rattled the market. Consequently, these two factors make talented engineers less inclined to work for startups – rising inflation and market instability push them to seek secure employment and monthly salary coming in on time. Outsourcing some or all of the development to a technology partner, or hiring temporary cover for the competence gap, may be an alternative to acquiring engineers.

The major advantages of IT outsourcing are:

• A fast entry into the project – traditional recruitment takes at least three months for a newly-hired employee to join;
• Technological fit – allows you to fill skill gaps and provides employees with the opportunity to learn new skills while working with experts;
• Efficiency from day one – allows you to increase productivity and efficiency, resulting in a competitive advantage.

Conventional companies (banks, insurance companies, investment funds)

These companies already have IT systems in place. More so, they’ve had them for so many years that, oddly enough, it’s one of their biggest hurdles. Due to emerging IT solutions, applications and systems are often burdened with technical debt. Technological adaptation to today’s trends can be a struggle, and adding new functionality is often an unsurpassable challenge.

Let’s face it – no engineer wants to work in old code with outdated technologies, yet specific tasks must be completed, and systems must be adapted to meet market demands. This is when a technology partner and IT outsourcing can come to the rescue. When a third-party provider takes on those tasks that cannot be omitted, the organization can relieve its burden, and handing them over to employees will lead to dissatisfaction. Developing existing systems or applications is essential to avoid being left behind, as is introducing new products or adding features. Then again, it is always necessary to keep in mind the fundamentals of these IT solutions. In general, these are usually created with technologies that may not be cutting-edge but still serve as the foundation, providing stability and security for banking products.

Fifty-seven percent of executives indicate the primary driver of Traditional Outsourcing is cost reduction, typically via staff augmentation for transactional business and IT activities. When an organization needs skills, the easiest path is to use Traditional Outsourcing to bolster its workforce.

SOURCE Deloitte Global Outsourcing Survey 2022

The main advantages of IT outsourcing are:

• Transfer of tedious tasks to an external team – working with legacy code isn’t fun;
• Short projects, maximum use of competencies – if you know you need certain specialties of engineers to implement one project, you don’t need to waste time hiring them – outsourcing reduces costs, and these are not low;
• Fast delivery in case of an emergency – for instance, legislative changes that make it necessary to make dynamic changes or add functionality.

How does outsourcing support the financial industry?

When choosing a technology partner, there are several factors to take into account:

– Experience in working with a specific industry (or a specific part of it) – you need to know the rules of the field; if someone has not worked with banking, they will have difficulty entering this type of project smoothly;

– Availability of specialists with specific, relevant competencies (selection, replacement) – it is worth checking whether the company has a wide range of specialists;

– Technological background (whether the company can provide engineers with niche technologies if needed).

Benefits of IT outsourcing

• Transparent rules for counting ROI – for in-house teams, costs are often incalculable due to hidden values;
• Shortening time to market – by giving a specific task, we get a deadline for its completion, and we settle on that basis;
• Responsibility for delivery shifted to an outside company – risk mitigation that works well when we are behind on milestones, have encountered a problem we can’t handle, or don’t have specialists in a particular technology;
• Instant team scalability (both up and down);
• Safeguarding the employer’s image – when black swans appear, we can manage costs without harming employees inside the organization;
• Lower operating costs – rather than investing in building and maintaining an in-house IT team, we can outsource these tasks to an external company that specializes in providing IT services;
• Focus on core business areas – by outsourcing IT services, financial companies can focus on their strategic business areas and competencies.

Summing it up

Several factors need to be taken into account when considering IT outsourcing – chief among them is working with experienced providers. Ask whether the chosen technology partner has already implemented similar projects. If they have a great deal of success under their belt, they will surely provide you with a portfolio and even references. For instance, if you’re looking for a proven outsourcing company, you can talk to Solwit consultants. Over the past 12 years, the company has completed over 1,000 projects,including supporting two entire development teams in building a PaaS application for a fintech company. IT outsourcing speeds up work, mitigates risks, and brings savings. Don’t wait any longer, and use external experts in your IT project.