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By Sylvia Carr, 12 August 2005 00:05

NEWS Changes are afoot in the way European financial services companies outsource horizontal business processes, such as human resources, finance, accounting and procurement, new research shows.

Whereas previously these tasks tended to be outsourced on an individual basis, now the trend is toward setting up centralised services and integrated, end-to-end functions, analyst Datamonitor predicts.

Financial services firms are becoming more motivated to consider this sort of business process outsourcing (BPO) as complexity increases for tasks such as accounting and procurement, in large part due to the need to comply with new laws and regulations. They must now decide whether to invest significantly in updating processes in-house or outsourcing the whole job to a vendor who's already got offerings in place.

In addition, increased cost pressure in retail banking and the need to stem costs in financial markets makes BPO particularly attractive, according to Datamonitor.

The move toward comprehensive horizontal BPO in financial services is also coming about, said the analyst, because the vendors are getting better at it, and are offering end-to-end services firms have a hard time saying no to.

BPO vendors have increased in size - and gained a greater range of competencies - after the recent wave of mergers and acquisitions.

IT services companies, too, are moving into the BPO space through acquisitions - and their chances of winning new business from existing customers look good, said the analyst.

"The backgrounds of these [IT services] vendors lend themselves well to the challenges that these segments face, particularly in terms of transformation and in providing scalability required by top-tier clients," Datamonitor said in its recent report, Horizontal BPO in European Financial Services.

Procurement is set to be the fastest growing BPO function over the next three years, the analyst predicts, as it's a good fit for the efficiency drive characteristic of financial services firms these days.