The silent revolution in banking

February 17, 2011

Sanjeev-SinhaBy Sanjeev Sinha

Media coverage of the banking industry was once confined to newspapers’ business pages, but has now spilled over to headline coverage. Recently the remuneration of bankers has been treated with even more interest than the salaries of top football players.

Yet while newspaper readers have become familiar with the LIBOR rate and discussions about cash reserves, there has been a long process of banks restructuring operations that has nothing to do with mergers or nationalisation. A behind-the-scenes revolution has been taking place, driven not only by the need for cost saving but, more importantly, to improve efficiency, and enable them to compete in global markets. Increasingly, banks have been looking at outsourcing a wider range of functions as a response to global market challenges.

High street banks have long embraced outsourcing in order to have the freedom to focus on their core business. But the independent expertise of an outsourcer becomes even more valuable when facing competition from new entrants such as Metro, the first new high street bank to be set up for a hundred years, and Tesco and Virgin, companies that grow by using their brand value won in other areas to enter financial services.

According to the World Retail Banking Report 77 percent of retail banks now outsource at least one part of their operating model, from their back office functions such as collections and the processing of payments to IT.  Common industry estimates shows that outsourcing provides clients with 20-40 percent savings, depending on whether processes are located onshore or offshore.

One of the proven benefits of outsourcing is the ability of an outside company to measure operational efficiency and identify areas for improvement. Outsourcers have process improvement experts who can identify ‘pinch-points’ — inefficiencies in the business processes.

In mortgages, for instance, a major outsourcer cuts the processing time for mortgage applications for one client after noticing that the speed of the flow from application to offer was extremely variable, resulting in missed valuation deadlines. On examination, they found that most of the company’s valuations were not being diverted to the most responsive valuers. When the client acted on this feedback, the average valuation turnaround time was reduced from 14 days to 10 days.  This not only enabled the client to increase the mortgage offer uptake through more efficient turnaround time, it also increased mortgage revenues. The client’s Net Promoter Score (NPS) also increased significantly.

Outsourcers have also found that a significant number of customers are calling simply to check that a task that they had asked for had, in fact, been completed. Through simple measures like leaving an automated message or sending a confirmation email or text, outsourcers have been able to reassure customers while reducing expensive and unnecessary repeat interactions with customer service representatives.

These kinds of improvements can increase customer satisfaction in an environment where – with comparison websites such as  – consumers are shopping around for financial products more than ever before, and are willing to leave if they are not receiving good service.  According to last year’s Firstsource/YouGov survey on banking behaviour, more than one in ten customers aged between 25 and 34 moved their bank accounts within the last year: gone are the days when customers could be relied on to stay with a bank for life.

The customer experience can therefore be vital to retaining longstanding customers. An example of where outsourcers can really make a difference to responsive customer service is in providing capacity at short notice to meet the fluctuating demand for customer service when there are surges – at a peak time at weekends or when, for instance, the interest rate changes, and customers call to find out what this will mean for their mortgage. This helps banks avoid keeping customers on hold, which can be a very rapid way of exhausting their good will.

In a bank’s domestic market it can be difficult to find staff willing to work anti-social hours. Outsourcers have contact centres in different parts of the world that can provide a seamless round-the-clock operation, taking advantage of time zone differences. For one UK financial services client, we provide out of hours customer services from India that offers exactly the same services out of hours as the nine to five British operations, with staff trained to the same standard as British workers.  This has allowed our client to offer contact centre services from 8am to 8pm, while still retaining the core work in their UK contact centre.

So what lessons can be drawn from the experience of banks in outsourcing so far? Firstly, there has been a move away from the mega-contracts that defined the early outsourcing experience, as banks avoid becoming overly reliant on one supplier. Banks now tend to work with a range of outsourcing partners who have specialisations in particular areas – from credit cards, mortgages, and debt collection to customer services.  Secondly, given that successful outsourcing requires a particularly close supplier/client relationship, it is essential that there is a match between the corporate culture of the bank and the outsourcer, with shared attitudes towards risk and arrangements to share the rewards of successful outsourcing.

According to the National Outsourcing Association’s Confidence Index, the financial services sector is the most confident sector about outsourcing, with 71 percent of companies in the sector saying that they feel positive about its future. It is a mark of confidence in the sector that the World Retail Banking Report found that outsourcing growth in the foreseeable future would come mainly from banks that already outsource.

When surveyed in the same study, those banks that have adopted outsourcing strategies confirmed that outsourcing’s greatest attribute is not cutting costs, important though that is, it is in transforming the quality of operations. The future success of the banking sector lies in the ability to improve business agility and to transform operational models. Though much in banking is uncertain – from the future shape of regulation in the industry to the future of banker’s pay – one thing that seems certain is that strategic partnerships with outsourcers will soon become standard practice across the industry.

Sanjeev Sinha is the executive vice president of Firstsource Solutions, banking & financial services division. The opinions expressed are his own.

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