I’ve recently had conversations with a couple of technology providers that believe the next frontier for sourcing could be operations. Recent trends lend some credence to this theory:
- IT leaders have been finding ways to outsource commoditized services for a number of years now, converting their fixed costs to variable
- Some of the branchless bank players that have sprung up the past few years have decided they didn’t want to build out a back office, leaving those functions to their technology partners.
- The move to branch/teller capture has prompted some institutions to outsource their entire item processing function along with some of the traditional “Day 2” functions
Rick Seaberg has a piece up on BTN this week talking about the financial pressures banks are facing and how looking at sourcing may be an answer:
Flat revenues and the de-leveraging of customer debt has created immense margin pressure, fueling cost reduction initiatives and inhibiting the ability to invest in a business model that builds deeper relationships with the customer.
I think the nomenclature in the article is icky big-bank-speak and some of his examples are higher-value functions that ought to remain in-house (“Banks can transfer the responsibility for designing sales tools and campaigns, managing customer relationships and other branch tasks to a more efficient shared, industrialized model” doesn’t sound very appetizing to me, for example). But I believe the premise of looking at sourcing does make sense and we’ll be seeing more vendors focus on this space, and not just for global banks.
Simply put, it’s just a matter of time before the quest to maintain/improve earnings extends to taking a look at the sourcing of additional deposit servicing, loan servicing, and electronic banking functions.