Banks Will Offshore More, Analysts Say

Almost one-third of the world’s financial institutions have outsourced work overseas, and the practice has spawned consumer and political backlash. But according to many analysts, the benefits outweigh the negative publicity incurred by financial services giants such as American Express and Discover. Offshoring not only will continue, but it will grow.

Celent Communications of New York suggests that the trend will mean the transfer of $17.5 billion in operational and technical budgets overseas by 2010. There is a potential to send almost 1.5 million U.S. banking jobs offshore, the firm reports, but it expects only about 430,000 will have moved by 2010. Even with American banking employees being replaced by technology and automation, offshore outsourcing is still expected to grow at a rate of 24 percent per year, according to Celent.

Offshoring Call Centers

Many companies, from mortgage loan providers to insurance underwriters, send paperwork to contracted vendors in Asia and Eastern Europe to save on processing. These foreign workers may occasionally make mistakes, but human error knows no geographic boundaries. The biggest risk is complaints by unemployed Americans and their legislative representatives.

However, some financial services providers have ventured to locate their call centers offshore, trusting vendors to handle inbound customer service calls, cross-sell and up-sell product lines and make collections inquiries.

Alenka Grealish, manager of the banking practice at Celent, told CRM Buyer, “A bank’s call center is one of the riskiest areas to offshore because it is a customer-facing channel. Not only does a bank have to assure that its operations are running smoothly, but also that the hundreds of thousands of its customers that call in are receiving the same quality of service as they would on-shore.”

Discover Weighs the Risk

For some financial services providers, this risk isn’t acceptable.

“Outsourcing is needed to stay competitive,” conceded Jennifer Kang, spokesperson for Discover Bank, issuer of the Discover card. Discover itself has used offshored call centers in India for years, testing which banking processes work best offshore and which yield the best savings.

But Discover won’t outsource its inbound customer service calls to vendors outside of the United States. Call centers in Delaware, Utah and Ohio handle all Discover customer needs.

“We will send work offshore as needed,” she said, “but we won’t outsource customer call centers offshore.” Successful uses of offshore outsourcing for Discover include collections activities and data entry of product applications.

Challenges to Consider

Any offshore outsourcing contract has its challenges, as Celent’s research attests. A recent study from the firm, titled “Outsourcing: A Detour Along the Automation Highway,” says many banks rushed into offshore outsourcing without investigating the practice and the ability of vendors to handle the work.

Frequent employee turnover at offshore vendors and hands-off management meant that many offshoring pioneers ended up spending more than they’d expected for low quality work.

“Banks have to undertake extensive due diligence to determine if an offshore provider has appropriate control, monitoring and accountability mechanisms in place,” Celent’s Grealish said. “Although the cost savings of offshore call centers are like a Siren’s call, alarm bells may ring with customers.”