U.S. banks are poised to move beyond traditional outsourcing arrangements into business process outsourcing, according to management consultants who advise major banks on how to improve earnings performance.
Business process outsourcing involves any activity that actually produces a result, such as a sales or procurement process, and how you manage it from beginning to end, says Richard Dole, national partner in charge of business process solutions at KPMG Peat Marwick. The growing interest in business process outsourcing is being fueled by global competition, deregulation of the banking industry and the implications of technology innovation.
But it's also the result of increasing pressure on banks to provide more value to customers by reducing the cost of product and services. "Banks can outsource their employee benefits or other traditional staff areas like property management and internal audit, putting it into the hands of experts at less cost," says Christopher Formant, partner and chairman of Coopers & Lybrand's national banking industry group. As long as the bank retains control, the outsourcing possibilities are endless, he says.
Traditional outsourcing of routine back-office functions like check processing and loan facilitation has been part of American banking for years. A more recent development has been a trend toward forming alliances with high-tech consultants with IT solutions who can take over and manage a bank's back office.
Swiss Bank Corp.'s precedent-setting contract with Perot Systems to perform the bank's IT operations was just the beginning of outsourcing's present evolution. That deal was shortly followed by J.P. Morgan's decision to outsource one-third of its IT operations to a four-company alliance. Recently, Mellon Bank formed a joint venture with MCI Systemhouse to do its accounts payable and accounts receivable. But the use of modern business process outsourcing by banks is still relatively new.
A recent KPMG study listed Bank of America, Bank of Boston, Barnett Bank, First Bank and NationsBank among the companies taking the lead in successfully forging business process outsourcing relationships. Many of the business processes outsourced remain proprietary since they involve each bank's core competencies.
Banks will soon be outsourcing their whole financial planning and insurance programs and even certain marketing activities. Some are doing so already. "We can provide a bank's customers with services that they would otherwise be unable to provide, such as tax planning. We can take information about a customer's financial situation and help him think through his options. The service can be seamless or the bank can use our name as a marketing tool," says Dole.