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Jan 31, 2008


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Anil and Amit:

Good input - and viable points for financial services. Firstly, there has been very active IT Outsourcing for years in this sector, but there has been very limited BPO - mainly restricted to industry-specific process such as claims / credit card processing. Secondly, BPO is a logical way for many firms in this sector to go - most large FSI firms have captive operations in India and other lower-wage countries. Many firms are realising the cost and management-resource drain of trying to manage captives themselves and are more interested in selling them off to an outsourcing provider, which is often better equipped to maneage them. Thirdly, as I mentioned in an earlier piece on consolidation, most of the leading BPO firms are targeting catpive acqisitions as their preferred vehicle of growth. I see this tredn contiuing for another couple of years before they reach saturation point.


Hello Phil.

I always tell people who are thinking of outsourcing offshore to start with small tasks or operations that are repetitive and mundane. Creativity and specialized local skills (local to the client's location) are something you don't toy around with outsourcing offshore. A creative project may still contain repetitive and mundane tasks--then, that's a possibility for outsourcing.




Beyond doubt, FSI companies need to re-align themselves in order to achieve all the benefits that you have mentioned. But I don't think that Outsourcing is the answer to it.

I agree to Amit’s viewpoint that FSI sector is already very heavy on outsourcing. If I look back at my previous projects, all my teams were off-shore heavy. So probably, there is less scope of further outsourcing specially with companies like Goldman Sachs and Morgan Stanley, who have large accounts with Offshore vendors or Offshore captives.

FSI companies need to evaluate and adopt new emerging methodologies like Service Oriented Architecture (SOA), Agile Software Development etc in order to become more flexible to the dynamic business environment. Indeed, offshore vendors will also have to keep pace with these companies and success of offshore vendor will depend on their ability to match steps with innovations in technologies and software development practices in Financial Services sector.

But thanks for initiating the discussion on this topic. I would be interested in reading answers posted to this question.

Anil Piplani

Hi Phil,

I think its too early to call it a trend, but the outsourcing deal that you highlight is a significant one. The challenges in BPO outsourcing are two-fold:
1. on account of regulations that prohibit financial institutions from decentralising too much that might make it difficult for them to contain the risks (because of Sarbanes Oxley, audits & other norms).
2. on account of their own internal challenges of outsourcing i.e. SLAs, is customer service core or non-core, security risks, etc.

I think these challenges are far more grave than the advantages you highlight. Financial institutions have been one of the early adopters of outsourcing and their "optimal offshoring ratio" is already higher than most other sectors. It seems logical that the only way they can further reduce costs is by outsourcing business processes, but there are potential issues that need to overcome. The regulatory one is key, and I am not aware if a concerted effort is being made by the industry to influence regulations.

Ideally, captives do provide a certain amount of mitigation to these issues, hence I think quite broadly, financial institutions will prefer to get captives right, rather than go on an outsourcing expedition when it comes to BPO.



The looming economic downturn is going to drive more urgency into FSI firms. There is no reason for them NOT to get more aggressive with BPO and they key reasons for the slow uptake are more cultural, than business-oriented. We will see several of these "captive sell-off" style deals this year,


I agree that it's inevitable, but I'm not sure if it's poised to do so right now. I do know of a Media company that is in the process of outsourcing their accounting and back office functions to India, but in general it's still a possibility more than a likelihood for the financial services sector in the near-term.

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