Outsourcing more prevalent as banks focus on core business

By Richard Schlauri, Vice President of Global Outsourcing & Managed Services, Wincor Nixdorf For anyone familiar with the banking industry, it should come as no surprise that banks are relying more heavily on vendors and other third-party service providers than ever before. Under increased pressure to lower costs and improve their competitiveness, banks are putting an ever-greater focus on their core financial operations and are allowing vendors to perform a wider range of non-core functions. Demand for managed services and outsourcing among banks is particularly strong in developed markets such as western Europe and North America and is rapidly growing in the emerging economies in Asia-Pacific, eastern Europe, the Middle East, Africa and Latin America. In Germany alone, the market for outsourcing services to banks is estimated at €3 billion and growing. According to Pierre Audoin Consultants (PAC), global expenditure for IT outsourcing topped €46 billion in 2012. The financial services industry, one of the pioneers in IT outsourcing, has been handing over parts of its operations to third parties for decades. Numerous banks in developed markets have been taking advantage of the many benefits that outsourcing provides. Not only are they cutting costs, they’re also profiting from the latest hardware and software. Equally important, they are benefiting from access to IT and branch experts with a wealth of knowledge on the latest compliance rules and regulations, as well as security measures and solutions to curb fraud and avoid risk. Banks, it is fair to say, are outright paranoid about compliance and security and want outsourcers to help them. Outsourcing demands differ from country to country As powerful as the argument for outsourcing is in the financial sector, no two banks are the same– and for that matter no two banking markets. This means that demand varies widely. While some banks in some markets cannot outsource enough, others still prefer to keep certain operations in-house. In Europe, for example, banks in Scandinavia, the Netherlands, the United Kingdom and increasingly Italy are big users of outsourcing services. They are convinced of the advantages of letting service providers specialised in areas such as self-service technology take responsibility – and deliver results. And these advantages include not just a lower cost structure but, equally important, the opportunity to relieve staff of non-core tasks to refocus on revenue-generating activities. Banks in France, by comparison, still view their ATM assets as a means to differentiate themselves in the fiercely competitive retail banking market. Areas commonly outsourced to third parties include ATMs and self-service terminal networks as well as full IT infrastructure, ranging from PCs and servers to storage devices and data networks – the so-called ‘iron’ components. Cost reductions can be achieved by consolidating volumes and improving business processes. Increasingly, banks are also turning to service providers for hosted Web services in areas such as online banking and mobile banking. And while some cling to mission-critical financial applications, others see far greater benefit in having these managed by professionals focused on top performance. Outsourcing has evolved to meet varying requirements Like nearly everything in the world of technology, the outsourcing market is not immune to change. First-generation outsourcing deals generally saw banks awarding contracts to a single provider. Today, financial institutions tend to split their outsourcing projects, often giving the ‘iron’ part to one provider and bank-specific applications to another. Essentially they are multi-sourcing to tap different pools of expertise and satisfy