Banks are looking for ways to reduce expenses as loan growth is anemic in most places, deposit costs are rising, NIM is shrinking and consumer fee income continues to evaporate. One solution that has not been on the table in the past for most institutions is emerging as a viable option for routine tasks: outsourcing.
Providing jobs domestically is still and should always be the top priority for all of us, but economics also play an important role in our decisions.
Most community banks abhor this option, citing everything from foreign accents to mechanical application of rules to nix this option early on. However, with the emergence of Robotic Process Automation, generative AI and other technological tools to offload business-rule-driven tasks away from humans and onto intelligent technology, the outsourcing option doesn’t seem as far-fetched or inappropriate as it did in the past.
In addition, outsourcing options and sophistication have also undergone a metamorphosis over the past decade. First, universal banks have been using outsourcing, especially in India, for decades. As enterprising locals saw the opportunity to expand their customer base, they began addressing some of the issues that plagued the business in the past. That, in turn, made the outsourcing option more palatable than in the past. Second, as the largest banks trained outsourcing companies in Asia and elsewhere, their preparedness to assist other banks has improved dramatically.
Outsourcing is still an outlier option for most banks, but I think that will change quickly in the near future. Below are some suggestions and considerations as you evaluate whether this option is appropriate for your institution.
- A prerequisite – streamline any process you wish to outsource BEFORE you outsource it. Get the process right and document every single aspect of it – no shortcuts. Inefficient processes remain inefficient even if they are executed by a less expensive workforce.
- Use companies with experience in supporting American banks. Such experience will help you tailor your requirements and reduce break-points, especially if you are amenable to copying exactly existing workflows used by others. A good candidate for this approach is BSA/SAR processing, which is one of first processes to be outsourced. Experienced companies in India and the Philippines can help you improve your process while reducing operating costs without negatively impacting output quality.
- Outsourcing provides you with flexibility. It’s a good DR/BC tool. This is especially appropriate for call centers. I can see you cringe when I write the words, but today’s outsourcers have improved the accent and decision-making issues of the past.
- Outsourcing without home-office support is much less likely to succeed. Ideally your outsourcing location will be commutable for you (e.g. Mexico). When father away, build into your budget regular visits to/from your headquarters to ensure appropriate oversight and communication. Such dialog can stave off problems before they become big issues, and align the workforces to maximize efficiency and well-being.
- Use monitoring software. The quality and accuracy of such software have improved exponentially since COVID days and the advent of WFH. ActiveTrack, for example, offers excellent, intelligent monitoring that is installed directly on every outsourced resource’s computer. This is both a quality control and a workforce management tool that is useful for many remote work environments. Ensure you monitor for productivity as well. In some markets, soccer or rugby has such fervent fans that during major tournaments, productivity declines meaningfully, much like our hunting season in some markets or the Superbowl.
- Match your outsource solution with the system you use. Today’s outsourcing vendors often specialize in a specific system/software such as they already have resident expertise and a well-trained workforce in that system. Match your outsourcing company with the systems they will need to use for the work you plan to outsource (e.g. Beta for securities processing).
- Find locations that offer specific advantages. For example, The Philippines generally offer lower attrition and strong work ethic, especially for call centers. They also have good options for securities processing, bookkeeping and other areas.
- Do not enter into an outsourcing agreement without the hands-on involvement of a knowledgeable attorney and an accounting firm that can assist you in navigating local rules and regulations, legal, cultural and unspoken, and help you manage the workforce on location. They both should be involved from the start to avoid misunderstanding and critical flaws in your arrangements.
- Upgrade your workforce. For example, credit analysts in some outsourcing firms in India are PhD’s. You likely couldn’t afford such high-paid experts domestically, but they are available abroad at a different pay-scale.
- Maintain vigilant controls, both at home and abroad. There is no substitute for controls. Period.
- Use outsourcing to upgrade domestic staff tasks. Much like RPA, offloading mundane, repetitive, non-value-add tasks to others can facilitate upskilling your own people and improving their job satisfaction.
Accenture, Crowe, IBM and the top accounting firms all offer outsourcing assistance. Spend a lot of time upfront to ensure you’re doing this right and maximizing the benefits to your own staff as well as to the bottom line. At the end of the day, this is but one more arrow in your quiver. Use it wisely.