Despite these straightened economic times, compliance issues are still driving offshoring in the financial services sector and enterprises need to be sure they have the most efficient, and cost-effective, outsourcing strategy. For many this is a new opportunity to examine how the business works and improve it, to get it into a position where it can best take advantage of the upturn when it comes. But where are the top destinations, the most effective people and the greatest value for money?
The UK financial services sector sees itself as a mature market, because of the high levels of competition and international knowledge collected together in the City of London. Outsourcing for these firms is often just seen as procuring cheap people, rather than experienced knowledge workers who augment the local team. This attitude does not allow banks to get the best from their outsourcing deals. Although it may surprise many UK banks, Spain is emerging as a new, cost-effective and yet highly knowledgeable centre for skilled financial sector consultants. Perhaps large UK banks should now be asking themselves whether they have something to gain from the Spanish experience.
Once derided as an over-cautious approach to retail banking, the Spanish strategy has embraced the challenges of compliance, risk and IT investment which the UK has been guilty of putting off until the proverbial tomorrow. This over-caution may have stood the banks in good stead when it came to weathering the recent economic storm.
The system’s experience of complying with strict regulation has its origins in the Spanish government’s response to the fallout from reckless industry loans in the 1980s. These included tighter central bank control, a ban on off-balance vehicles and an insistence on making extra provision during boom times. Rather than being seen as an obligation, compliance was instead viewed as providing significant benefits with respect to financial performance, operational excellence and business relationships with partners.
Although the smaller banks suffered considerably from bad loans to the property sector, in terms of risk management the larger Spanish banks took a strategic approach, creating well-remunerated and long-term risk committees. As Emilio Botín (Chairman of Banco Santander) commented last year, “[risk management] consumes a lot of our directors’ time. But we find it essential. And it is never too much.”
In addition, and in stark contrast to the UK, real-time banking, rather than next day (mañana) reconciliation has already arrived in Spain. Strategic investment in modern platforms means that the consumer has access to real time reconciliation of their personal financial information, via multiple channels, including the ATM.
The experience of the last twenty years has created a knowledgeable workforce in the Spanish financial sector. One which Forrester identified in its Spotlight on Spain[1] report, where it recommends the country’s “large, well-qualified IT labor pool [and] world-class vertically-focussed services resources”. Noting the rise of Spain as an outsourcing destination, Forrester goes on to suggest that the country is an ideal nearshore complement for European firms outsourcing to India, or a first step for those new to outsourcing.
As the outsourcing sector in India increasingly suffers from attrition, wage inflation and skills shortages, its cost advantages are beginning to narrow against European rates. For the financial sector, Spain’s banking experience and strong cultural and linguistic ties with Latin America allow the potential to scale. This makes Barcelona, plus somewhere like São Paulo in Brazil, an effective alternative to India or Eastern Europe.
Successful outsourcers know that the so-called soft costs, such as travel time to the offshore destination, the impact of distant time zones and cultural differences, can have a significant effect on budgets. Correspondingly, close proximity and real-time collaboration can generate cost-efficiencies, reducing management overheads, travel costs and the need for repeated internal change requirements.
Forrester does not see outsourcing going away, claiming “there is no doubt that interest in remote IT delivery is on the rise”. So perhaps UK banks could benefit from tapping into the Spanish outsourcing solution and considering a new approach to compliance, risk management and investment in technology platforms? UK financial institutions need not adopt Spanish practices wholesale, but it’s time to face these issues, which the sector has postponed for years. City financial institutions could finally shake off their mañana approach to efficient banking and, during this difficult economic period, take advantage of the expertise and knowledge of their Spanish counterparts, through outsourcing.