Many businesses realise they are not IT or data specialists, and so outsourcing is a strategic decision for banks to tap into specialised consulting expertise and digital capabilities, enabling them to sharpen their focus on core objectives, writes Bhupender Singh

The global banking and financial services industry’s business process outsourcing sector has a forecast CAGR of 6.8% during 2016-2020.

The market’s growth is being largely driven by the increased adoption of technology and automation through third-party services.

When it comes to outsourcing and risk, the conversation typically steers towards managing risk when working with outsourcers, vetting the vendors in relation to compliance, regulation, cost savings and financial or technical performance.

When engaging with vendors, it is without question that any bank or financial services firm is expected to perform appropriate due diligence. However, what we should be asking ourselves is how outsourcing can help banks manage risk within their business, whether this is in regards to managing surges in customer demand, rectifying processing errors, or preventing technology outages.

As we start the new year, new regulations such as GDPR are increasingly compelling banks to examine their business relationships in order to assess risk. To comply with GDPR, the controllers of data – in this instance, banks – remain responsible and accountable when it comes to its use. Having said this, banks need to ensure that the vendors they are trusting to process their data also demonstrate compliance.

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Unrealistic expectations and lack of well-thought-out strategy are the biggest areas of risk for banks that are trying to do too much too soon. Innovation is happening at such a rapid rate, with a lot of investment being ploughed into R&D budgets.

However, without distinguishing an actual business case for any digital technology, a business can be drawn into the hype without creating defined objectives and goals. Both the processors and controllers of customer data need to define appropriate use to avoid unnecessary risk being passed onto the customer.

Take time to define what issue it is you want to resolve. This could be, for example, speeding up the mortgage application cycle so it takes 48 hours rather than 11 days. Banks also need to consider the risk of not being able to cater to customer needs. For example, the GDPR, which comes into effect later in the year, allows customers the right to be forgotten on request.

Banks are faced with the challenge of reducing costs and streamlining operations that boost productivity while improving customer service. In response, many banks are turning to automation technologies to encourage more efficient workflow processes to manage staff workload. In one case, a UK national bank was able to increase in-house staff utilisation by up to 20% up front, and reduce response times by 50%. This moves attention away from repetitive and mundane tasks towards more strategic roles, making staff more invested in the bank’s future.

When engaging with external digital experts, be sure to meet the right people. In addition to meeting the C suite and executive level of outsourcing companies, meet on-the-ground teams who will be implementing any new technologies. This will give banks the strategic and operational input they require to understand the value of adopting these next-generation technologies.

To ensure continuity, internal operations teams and external consultants need to share insights to steer the business forward. Both teams need to work together and avoid a disconnect that could trigger risky consequences for the bank as a whole.

Fostering deep collaboration between the bank and vendor requires managing the workflow processes between permanent staff and the contingent outsourced personnel. As the scale and complexity of these relationships increase, the associated risks and the importance of effective vendor management should also rise.

Initially you might think about managing the risks associated with outsourcing in terms of compliance, regulation, cost controls or transparency, but in fact, we should be flipping this on its head, and asking how outsourcing can help to manage risks in a bank’s operations.

When engaging third-party services, a poorly planned and managed relationship can negatively impact a business’s customers, services and staff.

With a clear and comprehensive strategy, banks can facilitate resource deployment where they think appropriate to meet the future demands of the business.