Q: Why is the banking and mortgage industry gaining momentum in outsourcing?

BT: Our research indicates that the banking and mortgage industry looks toward placing their IT and business processes offshore to address the competitive pressures and often short term cost increases of decreasing back office costs, paperless origination initiatives and services cost pressures. All are technology and labor cost driven. We are seeing trends, that depending on the bank, some are choosing to outsource and or establish captive centers with the aim to access the low cost labor that is so readily available in India, Philippines and Eastern Europe. Often these initiatives take the form of a discrete process pilot and or wider areas of Information technology or back office processes. Competition is also a major determining factor. Banks and mortgage lenders with higher operating profit per employee are pursuing offshoring and outsourcing as a strategy because there has been an increase to be competitive amongst the larger financial institutions.

Q: What are some of the things that banks and mortgage lenders are outsourcing?

BT: Those in this industry are outsourcing everything from origination services to account services and even areas core to the origination process such as underwriting. Additionally, procurement BPO has emerged as a ready-for-primetime BPO service with several service providers offering true industry depth of solution or technology.

Q: What effect has outsourcing had on the financial services industry?

BT: While not directly linked, it is clear that Financial Services companies that have well thought out and strategic sourcing programs also seem to enjoy higher pretax profits as a trend as well as higher efficiency ratios.

Q: What trends do you expect to see in banking and mortgage outsourcing in 2007?

BT: We expect several trends to continue into 2007. The industry will see significant growth in outsourcing as service provider’s fine tune their offerings. Offshoring will be the target for resources of domain-specific services. Broader process outsourcing involving many discrete functions to include finance and accounting (FAO) will grow exponentially because it has become a sought after BPO service. Large financial institutions will shift away from internal shared services (see GE Capital sale of GECIS) and more towards outsourcing those same functions while regional players will begin or continue aggressive offshore programs to match the operating costs of the larger players.