Banks are re-shoring talent — here’s why.

Over the last 20 years, Banks have delivered significant cost savings by off-shoring headcount to low-cost locations, also known as “Centres of Excellence”. Many established Banks now have the distinction of employing more people in India than they do in their home markets, attracted there by lower costs and educated, English-speaking local talent. While shifting work to places where labour is cheaper is one way to improve productivity, companies are now finding that technology is a far more reliable path to higher profitability. We think the future for large Banks is maintaining experienced human capital in high cost locations, augmented by intelligent technology.

For global Banks, innovative automated software processes (Artificial Intelligence (AI) and Robotic Process Automation (RPA)) have quickly replaced critical manual and transactional tasks, traditionally carried out by people, while facilitating more interesting work. Data collection, data reconciliation and robo-advising are all being streamlined by technology. Robo-advisory alone is expected to represent $2.5 trillion of assets under management, growing 47% annually by 2023, all managed without human intervention. Furthermore, the RPA market was valued at $1.5bn in 2019 and is expected to reach $7.1bn by 2025, at a CAGR of 28% over the forecast period 2020–2025. Similarly, the global “AI in Fintech” market will also grow, from an estimated $7.9bn in 2020 to $26.7bn expected by 2026. The market is also expected to witness a CAGR of 23% over the forecast period (2021–2026).

The future of the outsourcing industry remains uncertain. It is already subject to a host of issues including political risks, COVID restrictions and rapidly changing client requirements. In 2020, there was a 9% decline in the Business Process Outsourcing (BPO) market in India as a result of disruptions, despite a prior growth rate of around 8% in recent years. The BPO market now also has to face competition from new automation technologies. A recent study from PwC estimates that more than 50% of activities that people are paid to perform can be replaced by adopting RPA and AI technology, saving companies $2 trillion. Furthermore, KPMG states that RPA can cut costs for financial services firms by up to 75%. This influx of technologies is likely to lead to a wave of re-shoring, as firms realise this approach is not only cheaper and more time-efficient, but also more secure.

The cost benefits of automation technology are clear. For example, Sutherland Global Services, an outsourcing company in the US, says that while it can reduce costs for its clients in the range of 20 and 40 percent by shifting IT work to a developing economy, this rises to 70 percent if automation software is used. In a survey by Forrester Consulting, 83% of respondents said that they are using automation to build agility, diversity and resilience into their supply chain operations and 80% said that they use it to address cost pressures with rapid automation of back-office tasks.

Another issue that financial institutions face in outsourcing processes is regulatory compliance, with failure to meet requirements leading to heavy fines and penalties. For example, The US Bank Secrecy Act requires financial institutions to make financial transaction documents and reports available to regulating government agencies upon request, even if those documents are maintained overseas. The gap between core operations and geographically distanced processes poses a major problem in relation to the offshoring model. Due to these gaps, it becomes even more difficult to have strong oversight of processes, creating a high potential for error. This was the case in 2014 when an established Bank faced a ₤56m fine after an outage caused by someone in their Indian operation pressing the wrong button.

It’s not just large Banks that will benefit from new technology. Smaller organisations have typically been unable to realise the cost benefits of offshoring, but new technologies will place them on a level playing field with incumbents. With the right technology, every business problem or process becomes easily solvable. Low capital investment costs for new technology unlocks cost improvements across finance, while agile platforms allow for improved security and rapid scalability. Banks have a unique opportunity to reduce reliance on off-shoring, while improving the quality of decision-making in key hubs.

At Scribe, we’re taking a research-led approach to artificial intelligence, bringing cutting edge technology into the industry, accelerating lending and investment decisions. We think every Bank has the opportunity to innovate and grow into one of the world’s largest companies, while unlocking growth for their clients, which we wrote about here. We see the huge potential of this technology and are working to deliver real, tangible AI-driven solutions.

Header Image by Danilo Bueno from Pixabay