By Nick Heath, 10 March 2009 14:21
NEWS
Banks are turning away from outsourcing companies in favour of setting up their own offshore operations, according to two of Europe's biggest banks.
Increased regulatory scrutiny, failure of offshorers to deliver and the recent revelations of a £1bn fraud at Indian outsourcer Satyam are making banks wary about trusting outside companies to handle their information.
Eran Eisenberg, senior legal counsel at Barclays Bank, said financial institutions are now choosing to set up their own in-house offshore operations, known as captives, to handle business process outsourcing contracts.
"Captives offer a company benefits. Particularly from a regulatory and control perspective it offers peace of mind, control and the reassurance of it being part of the larger organisation," he told silicon.com at the Financial Institutions BPO Across Europe conference.
"I see a growth in captives - a lot of the larger outsourcing contracts have not achieved the benefits that were expected. That has driven forward a strategy of 'If we are going to make the investment, then we may as well invest in ourselves'."
Philip Davies, senior counsel at Deutsche Bank, said the notion of creating a captive is receiving attention in light of the recent confession by Satyam chairman Ramalinga Raju that the company had been logging non-existent cash and interest on its balance sheet.
"We have seen a situation in recent months where a very large international supplier has thrown out a huge financial risk for its customers. We are only able to assess any partners in the light of the information that is available."
An increase in regulation is also playing its part in encouraging banks to consider captives.
"[Outsourcing] is being seen as more risky. We are seeing much more aware regulators in the market, who are understanding more fully the risks associated with outsourcing and they want to see a strong governance process in place," Davies said at the event, hosted by law firm Simmons & Simmons.
"At the moment, given the increased regulation, there is a lot of emphasis among colleagues to very carefully consider setting up a captive," he added.
However, not all companies that have set up captives have chosen to retain them: both Aviva and Citigroup recently sold off their captives to outsourcers.
Some outsourcers are already proposing financial institutions sell off their captives in order to fund the high investment costs of large business transformation outsourcing deals.
Gilbert McClung, senior corporate counsel with global BPO company ACS, told the conference: "We are offering to buy our customers assets as a way of generating deals because we know that customers will want to get rid of those assets."
Comments
There are 5 comments. Join the discussion
1. Chris Stevens
I should change my name to Cassandra.
I was working at an Investment Bank and predicted the problems that people are now discovering with outsourcing. They were obvious but ignored by the managers driving the outsourcing projects.
My reward for foresight (and plain common sense) was a rapid "redundancy" exit. As the Naked C has discovered you can't stand in the way of the tide.
2. Steve Merrony
Old news, this trend has been clear in the investment banks for three or four years.
A shame the article title confuses 'offshorers' with 'outsourcing'.
3. John Ray
So called market leaders don't always make decisions for efficiency reasons; Aviva and Citigroup probably sold their "captives" to try to improve their financial positions.
4. misceng
It won't cure the worst problem.
Too often the result of offshoring/outsourcing is that the customer finds that the person at the other end is working from a script that does not include any sensible response to the problem. The response is given in a strange form of English with an accent that the customer has great difficulty in understanding. This is not helped if the customer is like me slightly deaf and the speaker is talking as fast as possible because their income depends on how many calls are dealt with in the day.
5. Karen Challinor
proof, if ever it was needed that offshoring has nothing to do with quality of service and everything to do with being able to pay less to the people doing the work due to a cheaper cost of living in the country offshored to
while our cost of living is so high in relation to offshoring countries we will remain an economic source and they will remain an economic sink, the flow of money will be one way and the UK will effectively bleed money until it is bankrupt
we need legislation, not for protectionist agendas, but to level this playing field so competition with offshoring countries is based on some other factor than price