Why is back office outsourcing significant for banks and the financial sector

Why Is Back Office Outsourcing Significant Why Is Back Office for Banks andOutsourcing the Financial Sector?

Significant for Banks and the Financial Sector?

Banks and the financial sector overallutilizeback office outsourcing to improve productivity, cut costs and generate profits.

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Just like any other industry, the banking sector is also undergoing a significant change with a number of banks seeking innovative solutions to cut costs and generate profits.

Banks are still struggling to deal with the hangover left by the recession, and have come to understand that there are many economic benefits they can gain via back office outsourcing. In fact, outsourced solutions are considered a major driver of growth for banks. The Global Back Office Outsourcing Market in the Financial Sector is projected to grow at a CAGR of 7.4 percent during the period 2016 to 2020, according to market research by Absolute Reports.

The “Back Office Outsourcing Market in the Financial Service Sector Market” report covers the present scenario and growth prospects of this market through the year 2020.

The report considers both the direct revenue and indirect revenue of the vendors to calculate the market size. It highlights greater efficiency and productivity ensured by outsourcing back office tasks as the main market driver. The market trend is identified as increased use of mobile technology and digital solutions.

Why do banks prefer the outsourcing model? 

Access to skilled personnel and advanced technology: Banks deal with a massive amount of data on a daily basis which can be handled better by skilled personnel from an outsourcing firm, and they can also minimize the chances of risk. Wide-ranging transactional processes that are carried out frequently such as order fulfillment, transaction processing, application processing, and billing and customized services can be better managed. Outsourcing firms utilizeinnovative tools and solutions and keep them updated on a more frequent basis. This allows banks to keep pace with technological developments, meet the evolving needs of the customer as well as compete against competitors and fintech companies that are entering the banking space.

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Generates growth: As mentioned earlier, outsourcing back office activities is an essential driver of growth for banks and it has also helped banks enjoy a competitive edge compared to those banks that opt for in-house back office teams. Hiring such services helps to generate growth by delivering competitive returns to stakeholders as well as competing products and services to clients. By effectively identifying hurdles on the way, and allowing specialistback office teams to handle the processes, banks are able to focus more effectively on the areas in which they can deliver a more competitive edge. These services also offer customized tools and services that match the needs of the client.

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Reduce risk of error: Accuracy is very important in financial data. With specialist expertise, back office outsourcing teams can provide improved data

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quality and accuracy. They ensure tailor made, secure methods designed to process relevant data in and out of data systems as required to minimize expensive costs.

The

key factor in

outsourcing

back

office

activities is

transparency and customer control, and it is the responsibility of the vendor to provide regular reporting and ensure provision of frequent updates. These providers also offer round-the-clock service that helps banks enhance their productivity. 

Prevents regulatory failure: Regulation has been a driver in adopting back office outsourcing services over the past three years. The banking sector experiences a tougher regulatory environment. This necessitates more control of individual departments and strict distinction of certain processes and services.

Outsourcing back office activities provides strength and flexibility in this area of operational exposure, and offers effective back office administration processed to meet tight regulations, and ensures compliance with quality as well as security standards.

For banks and other financial institutions, what matters is how to structure the outsourcing management i.e. which vendor to choose and other contract-based decisions. Banks should clearly identify the particular processes that could be outsourced to gain maximum advantages. The larger the bank, the larger are its needs. It is evident that back office outsourcing offers many advantages for banks and ensures improved revenue and efficiency. It is an important driver of growth because it helps banks keep up with regulatory changes as well as competitors. The partnering outsourcing firm must offer customized services fine tuned to meet the bank’s specific requirements.

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