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August 11, 2005

European financial services industry embraces BPO

All is about to change in the relatively mature and fragmented area of horizontal business process outsourcing (BPO) in financial services. The move from individual task outsourcing to more complete/multi-function outsourcing is being driven by increasing vendor credibility, operational risk regulation and improved acceptance of global sourcing models.

By CBR Staff Writer

To date. BPO in financial services has been fragmented, dominated more by individual task outsourcing than by end-to-end function or shared service center outsourcing. However, there is a clear move towards a more strategic view of horizontal BPO manifested through the increasing interest in cross-function horizontal BPO services and complete centralized shared service.

Increasing vendor credibility

There is a marked move to genuine horizontal BPO services in European financial services, emphasizing cross-functionality and transformation of function processes to match best-of-class practices and applications.

Effectively this means a more complete outsourcing of the function in question, but also incorporates multi-function outsourcing. One example of this is Accenture’s Deutsche Bank agreement, which spans procurement and certain finance and accounting functions.

The shift towards strategic horizontal BPO in the marketplace has, in part, been enabled by the growing capabilities of the vendor community. This has been driven primarily by two factors:

– M&A internally in the market segment driving greater scale and furthering the need for transformation skill-sets in the market

– IT services companies showing commitment to the market through significant acquisitions

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The emergence of truly strategic BPO services in the horizontal space hinges on vendors being able to bring together best-of-breed application with credible transformation skill sets. The influx of new vendors and consolidation of existing skill-bases have enabled the vendor base to make significant progress along this path.

Pressure for greater demonstrable control of the various processes across the financial services industry has also impacted the horizontal enterprise functions. The long-term effects of this change are yet to be established, but as the complexity of the horizontal function increases and compliance becomes more critical, financial services institutions will have an increasingly crystallized choice: carry the investment and additional process costs internally or outsource to a vendor with compliant processes.

Global sourcing strategies

Horizontal services are well-suited for global sourcing as they are operationally removed from customer interactions and are often perceived to have lower immediate business impact. European financial services institutions continue to favor signing their agreement with onshore vendors, but are increasingly demanding that the vendor migrates the work offshore to cut costs and to carry out the transformation process. The latter aspect, transformation, will be crucial in delivering on the benefits financial services institutions seek and will increasingly be enabled by the influx of large services vendors to the market.

Moving towards a shared service center structure has been an internal strategy in Europe’s financial services companies for a long while. What we see now is that these banks and insurers have a new increasingly credible option of outsourcing the entire shared services function.

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