Big Banks Shift Offshoring Into Overdrive

Offshore outsourcing has grown legs and looks to be getting even bigger for the American financial services industry, according to several recent news stories.

International consulting house Deloitte Touche Tohmatsu reported in June that 75 percent of large financial institutions had moved some processes overseas compared with less than 10 percent in 2001. These large institutions had an average of 2,700 employees offshore in 2006, compared with 150 in 2003, Deloitte reported.

Deloitte has projected that the banking industry will move more than 20 percent of its costs offshore by 2010, up from less than 10 percent in 2005. Deloitte surveyed 36 financial institutions, including six of 10 largest banks in the world. It did not name those surveyed.

A company moves jobs overseas to save employment costs, ensure it has workers in time zones around the globe and to make its processes more efficient. Collection-related tasks may be part of the work shipped overseas.

Moving collection jobs overseas doesn’t mean the financial institution will face a less stringent regulatory environment, says Nate Thompson, a spokesperson for ACA International, the credit and collections trade organization. “The [offshore] calling centers must comply with all the same rules as those that apply in the U.S.,” says Thompson. “There may be additional burdens with the storing of personal data of consumers.”

The Charlotte Observer, the hometown newspaper for Bank of America and Wachovia, reported last week that BofA’s subsidiary in India employs about 2 percent of the bank’s 200,000 employees. Continuum Solutions in India employs 4,000 BofA workers, up from 2,500 just last year, according to the Observer.

Wachovia hired Genpact, an India-based spin-off of General Electric, to handle collections, loan reviews, and investment banking analysis.  Wachovia is also working with Genpact in the Philippines to operate a call center.

Indeed, call centers in the Philippines are on a roll, due to low labor costs and a large population that speaks English. The Contact Center Association of the Philippines is reporting that the number of call center workers doubled in both 2005 and 2006 to about 200,000, and could total 500,000 by 2010, according to the ABS-CBN Interactive news service in the Asian nation. Philippine-based call centers could garner as much as $3.5 billion in revenues by next year, the association reports.

The Philippines’ Advanced Contact Solutions Inc. reported it would more than double in the next three years, growing to 15,000 seats in 2010 from 7,000 today, ABS-CBN reports. The subsidiary of Paxys Inc. reported revenues of $13.7 million in the first quarter, up nearly 40 percent from $9.8 million in the same period a year ago.

Off shoring can lower costs but banks are seeing mixed results, Deloitte reports. The financial institutions in the Deloitte survey saved an average of 40 percent for each business process sent overseas. But savings ranged from 20 percent to 70 percent for the survey participants, suggesting the offshore movement remains a work in progress for the finance industry.