Offshoring Financial Services

''For the first time, we're seeing economies of scale becoming a factor.''
Stephen TaubJune 29, 2004

The number of global financial-services companies that moved specific functions offshore increased by 38 percent from a year ago, according to a survey by Deloitte Research.

By 2010, according to the survey, more than one-fifth of the industry’s global cost base will have shifted offshore, resulting in an average saving of 37 percent per relocated process. The 100 largest institutions — those with a market capitalization exceeding $10 billion — are projected to offshore roughly $210 billion of their cost base.

Those top 100 companies will experience an average cost saving of more than $700 million by the end of 2005, added the survey.

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“Last year, we predicted that offshoring would completely transform the global financial services marketplace over the next five years; however, we didn’t anticipate how quickly this transformation would occur,” said Peter Lowes, the U.S. leader of Deloitte Consulting LLP’s outsourcing advisory practice, in a statement. “In the last year, we estimate the number of offshore jobs in financial services has increased by a factor of five.”

Added Lowes: “And now, for the first time, we’re seeing economies of scale becoming a factor and having a direct impact on the top and bottom line within the financial services industry. Clearly, offshoring is unleashing a potent, new competitive dynamic.”

The survey is based on responses from 43 financial institutions based in seven countries and included 13 of the top 25 financial institutions in the world by market capitalization.

Not surprisingly, the most popular place to outsource is India — which fetched about 80 percent of all financial services offshoring activity — followed by the Philippines and Malaysia.

Despite offshoring’s apparent popularity and success, many financial services companies are still hedging their bets. For example, the survey found that 90 percent of the companies have not brought operations back onshore, yet more than 50 percent have contingency plans should they face a serious problem.

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