Is BPO the new mantra for future banking?

D SHRIVASTAVA Manager (planning),
Bank of Maharashtra

Technology has ushered in deep-seated changes in the functioning of banks. It has facilitated them to change their internal functioning and has also helped in providing better customer service. Technology is set to break all barriers and is encouraging global banking business.

With continuous innovations in technology and on account of expected opening up of financial services under WTO, it is likely that we will be witnessing many more changes in coming years.

With branch banking under transformation, many bank functions are being outsourced in order to achieve cost reduction and concentrate more on core competencies.

Banks are not resistant to the charm of business process outsourcing (BPO). However, managing sensitive financial issues may not necessarily be easy in this sector.

A new system geared to meet all the financial needs of customers has been invented. One-size-fits-all solution is no longer accepted.

Customer expectations are high, and banks are competing to providing a new range of services to them.

Banks taking up varied activities find that this puts pressure on existing manpower and hence BPO is the best solution without diluting the core competencies of the bank.

Banks thus feel that many of the functions outsourced gainfully do not affect the quality of service.

The last three years have experienced a momentous rise in outsourcing of IT services by banks. A year on year growth of about 25-30 per cent per has been envisaged in IT services outsourcing in the banking sector.

When banking giants announced their IT investments, one thing which stood out in the huge plans was outsourcing of their basic requirements to strategic partners.

This indicates that the outsourcing wave is catching on in a big way. BPO is the future growth area as far as third party outsourcing in the banking segment is concerned.

The Banknet survey 2003 indicates that 57 per cent of bankers who opted for outsourcing with the intention of cost savings, found that this 'focus' on main business improved efficiency benefits overall.

Areas where BPO can be implemented -

• Clearing of local cheques
• ATM outsourcing -
• Collection of customers' data in CRM format and opening of accounts function'- .
• Loan recovery function -
• Hiring of manpower -

The third party's systems will force a certain extent of change in procedures and functions of the banks. This will call for the reengineering of banks' system, procedures and policies.

The changes taking place with the outsourcing of any activity have to be aligned with the banks' overall business strategy.

At the same time, there are issues. From the security point of view, there are risks involved in outsourcing of services as personnel of service providers gain intimate knowledge of banks' systems and misusing the same.

At the same time, the outsourcing agency might take care of the processes and functions, but is not accountable to customers.

There is always the possibility that banks may lose control over the work process that has been outsourced. Once the outsourcer gains customer information, its bargaining power increases.

Outsourcings of business processes bring along with them the operational as well as legal risk. The attitude of employees of the service provider can have an impact on reputation of the bank.

'Core' problems remain

P K ROY
Faculty, Staff Training
College, Bank of India

Outsourcing has been existing for the past several years and is an important management concept to face the challenge of competition.

Outsourcing is the strategy of identifying the core competence of an organisation, pointing focus on it and simultaneously transferring the execution and delivery of non-core activities to a service provider.

Post liberalisation, India has emerged as a major destination for outsourcing information technology-enabled services (ITES) and software solutions.

India is considered as the biggest supplier of IT personnel to the world market. Payroll outsourcing, the concept of employing an external agency to do all the routine work related to the management of salary disbursement, has been operational in India since 1997.

There are a good number of players in this arena "" ICICI Onesource, Satyam Computer Services' NIPUNA and Infosys' PROGEOIM. Other players in the field include Epiccentre, Transworks, 24/7 Customer, Exl Services, and Daksh.

ABN Amro, a multinational bank, in June 2002, entered into a partnership with EDS, a global services company to launch its credit card in India.

EDS will handle the entire back end support including application processing, data center activity, network connectivity and interfaces with franchisees such as Mastercard and Visa.

Pfizer India outsourced 40 percent of its manufacturing, its building maintenance is done by Knight Frank, corporate travel is outsourced to Cox & Kings, payroll to India Life Hewitt and cash management to Deutsche Bank.

Philips India, a multinational firm has been posting losses for the last few years. The strategies adopted for turnaround are staff reduction through VRS and outsourcing.

It consolidated its operation, outsourced activities such as service centres, part of human resources and routine operations. The staff on roll is reduced by 26 per cent and a substantial saving on establishment cost is made.

At the same time, success is just one side of the picture. Very often we come across statements like "our systems are down" and "there is a virus".

The world has seen so many failures in outsourcing such as the Airport Project, London Stock Exchange project, as well as in the case of US government projects.

In India, outsourcing service providers face severe competition both within the country as well as outside. Since it is a capital-intrinsic industry, capacity to infuse capital is a pre-requisite for players to dominate the market.

Outsourcing demands a high level of trust and a spirit of partnership. It is a costly proposition that bank's computer personnel can do better than experts, it is desirable to stick to covering competencies.

Occasional conversations and presentations can not replace continuous involvement of actual users who are in prime position to estimate their needs.

Therefore, deputation of IT personnel to client outsourcing will be meaningless unless actual users are excluded from involvement as insider users know their business problems and requirements along with dealing with the business and the customer.

By this way banks are to grow with internal competence to exploit the technology and methodology of a client.

The prospects of outsourcing are immense, considering that 87 per cent of banking business in India is dominated by public sector banks, which use total branch automation packages or partial automation process packages and some even continue with the manual system.

There remains problems of core banking solutions owing to cost consideration, difficulties in shifting from existing system overnight, and gradual change in mindset of employees.

Most banks have started the shift, which may take a longer time roughly of three to four years. Core banking solutions take care of centralised system providing central accounting, customer information, transaction processing function. In future, core banking model will be branch-based having multi-delivery channels.

Outsourcing will bring to focus point-of-sales devices, internet banking, mobile banking and call centres.