The idea that financial services will be completely different "after" - the recession, the crisis, the fall of banking as we know it - is oft repeated. "Already the industry has changed fundamentally, and forever," says Tom Warsop, financial services group president at Fiserv.
"After" surely will involve more of some things, like regulations and risk management. For many banks it will involve a return to banking fundamentals - you know, underwriting standards, profits based on spread and not fees, holding loans on the books.
But the heralded transformation, and the critical technology infrastructure necessary to make it happen, will land in a counter-cyclical tech-spending environment when outsourcing is the go-to expense management strategy. In other words, lines and departments will be desperate for technology to keep up with the demands that "after" has placed on them, but calling on an IT department that's been radically downsized and outsourced.
Need some proof of the momentum behind business process outsourcing? Fiserv, Fidelity National Information Services/Metavante and Jack Henry and Associates executives have all gone on record in recent weeks saying that bigger banks, and more banks, are clamoring to outsource. Fidelity's deal to acquire Metavante was based on the pair's belief that their banking clients are looking to outsource everything. "There's probably more outsourcing going on today, more bids going out, than has gone on in the last four-to-five years," said Fidelity CEO Lee Kennedy, in a conference call with investors announcing the Metavante deal. And Fiserv's reorganization of its far-flung units under the single brand also aims solidly at this trend.
Some examples: JPMorgan Chase recently said it would increase its Indian outsourcing contracts by 25 percent, to $400 million. And though certainly due to extenuating circumstances, Citi recently sold two of its India-based tech units to Indian outsourcing vendors, and then contracted to buy services back from them.
The upside of outsourcing should be cost savings. The downside can be a loss of flexibility; customization as the tradeoff for price. "When you outsource something and you want something special, you are 100 percent at the mercy of the outsourcer," says Bart Narter, svp of Celent's banking group. "That makes business people cranky. At least when they are at the mercy of the IT department, they fund the IT department 100 percent."
So when the tsunami of outsourcing meets the avalanche of new business technology requirements - how's that for mixing weather metaphors?-the business people and IT folks are all likely to be cranky for awhile. And just as we learned it's not possible to completely suppress natural economic cycles, and despite the proclamations of a dramatic new landscape in "after," the outsourcing push may also prove cyclical. "The grass is always greener," Narter says "When banks don't get what they need from providers, they'll say, 'We need to bring this back in.'"