A growing number of financial institutions engages an external partner to run (part of) their backoffice. In the next five years 30 per cent of financial institutions will consider business process outsourcing (BPO). Here we will explain why.

Business process outsourcing is more than just an attractive cost reducing option. In the ever changing financial world outsourcing business processes has become almost a necessity to remain competitive. Financial institutions face considerable challenges in their business processes. Outsourcing is a solution that takes some of the challenges away and lets the institutions concentrate on their core-business.

Compliance, both regulatory and digital, is a major challenge almost all businesses face today. Ask yourself how much time, energy and budget is spent dealing with some of these challenges:

risen regulatory pressure: more local and global regulation, tax compliance and tax transparency, customer protection, prevention of crime.

outdated technology: high technical legacy costs, technical vulnerability, increasing importance of digitization, high complexity.

These challenges are not temporarily but  permanent and they will most likely only increase because the complexity and regulatory aspects of the financial world will not lessen. Neither is the technological advancement expected to halt any time soon.

Financial institutions have to adapt to a new reality and new society. On the business side we see that businesses feel the pressure of profitability. Costs of compliance are higher and the profit margins, return on equity and the cost/income ratio are decreasing.

On the customer side we notice that emerging countries have become more important and that there is a new generation of clients. These clients enter with higher expectations and they live in and are used to a highly digital world with a 24/7 connectivity. To be or stay successful in this world, financial institutions need to focus more on customer retention and acquisition.

In the current situation financial institutions should ask themselves if running a backoffice is still part of their core business. Shouldn’t the focus be more on customer approach instead of running business processes themselves?

Business process outsourcing is THE answer for small universal banks, small to midsized banks, wealth management companies, new banks and insurance businesses.

Processes suitable for outsourcing are typical backoffice processes like data-management and pricing, tax reporting, payment processing and fund processing. On the support side Risk, MIS, internal auditing and accounting & regulatory reporting are well suited for outsourcing.

Good BPO partners will offer a state of the art platform which they will maintain continuously themselves. Fixed costs will be transformed into variable costs; clients will be able to focus on their core business and on their customers; and clients will have time to start or expand further activities and increase quality and control. The BPO partner can realize efficiency gains by improved levels of automation and in the winning of new clients.