As the financial services sector continues evolving in response to rapid technological advancements, stringent regulations, and changing customer expectations, the need for efficient yet cost-effective operations has never been greater. One powerful tool that many institutions have turned to is back-office outsourcing.
What is BackOffice Outsourcing?
Backoffice outsourcing refers to the practice of contracting non-core business functions, such as accounting, payroll, human resources, data entry, and IT services, to third-party service providers. In the financial services sector, this can involve outsourcing of processes related to asset management, loan processing, risk management, and compliance, to mention a few.
For instance, consider a relatively small credit union unable to maintain a full IT staff for its digitally-based services. By outsourcing this particular function, the credit union not only enjoys round-the-clock professional IT support but also avoids the overhead costs related to hiring and maintaining full-time staff.
Why Outsource?
There are three broad reasons to consider backoffice outsourcing: cost saving, focus on core business, and access to specialized expertise.
Cost Saving: One of the main appeals of outsourcing is the potential for cost saving. According to Deloitte’s 2016 Global Outsourcing Survey, 59% of businesses cited cost reduction as their principal reason for outsourcing.
Focus on Core Business: Outsourcing non-core processes allows businesses to focus on their primary activities. This helps to improve service quality and customer satisfaction.
Specialized Expertise: Third-party providers often specialize in specific areas, giving businesses access to high-quality services without investing in extensive training or expensive technologies.
Addressing Concerns
Like any strategic move, backoffice outsourcing comes with potential challenges, including overlooked costs, cultural differences, and risk of dependency on the service provider.
However, these concerns can be mitigated with careful planning. Overlooked costs, such as contract negotiation and vendor oversight, can be taken into account during the financial analysis phase. Cultural differences can be tackled by ensuring regular communication and mutual understanding. Dependency risk can be minimized by actively managing the relationship with the provider and maintaining a backup plan.
A Look at the Trends
There’s no denying the rising prominence of backoffice outsourcing. A KPMG report revealed that 20% of financial institutions plan to spend more on outsourcing. This trend is being propelled by the emergence of specialized fintech companies that can provide highly efficient services.
Moreover, the advent of cloud computing and AI technologies has further increased the viability and attractiveness of outsourcing. For instance, those denied access to traditional banking services due to regulatory or infrastructure constraints can now access them through fintech companies.
Conclusion
Backoffice outsourcing, when strategically planned and effectively managed, can be a game-changer for financial institutions. Cost-saving, increased focus on core business, and access to specialized expertise are persuasive reasons to consider this approach. Though it does come with potential challenges, these can be mitigically addressed through due diligence and careful planning.
The financial services sector is in a state of continual flux, and businesses that can capitalize on efficient and cost-effective methods like backoffice outsourcing are likely to remain competitive in the long run. Instead of viewing this trend as a threat, financial institutions should see it as an opportunity to enhance their operations and unlock new avenues for growth.
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”- John F. Kennedy. It seems fitting to end with this insightful quote. As we look to the future of the financial services sector, there’s no doubt that change is on the horizon. The question is whether we’re prepared to adapt and thrive amidst this ongoing evolution.
