Upscaling Offshoring Can Revitalize Investment Banking Operations

Upscaling Offshoring Can Revitalize Investment Banking Operations

Over the past decade, large and medium-sized banks have offshored many key services to cut costs by several billion US dollars, increase efficiency and improve client focus. Many progressive institutions have reduced their headcounts by up to 15%, while other late-starters are taking steps to exploit such opportunities. As the next round of offshoring takes place, we expect such firms to begin offloading more complex projects and focus more on increasing the number and size of transactions they conclude. During this process, banks will redefine how they conduct operations by business unit, division and geographical region. Today, they offshore key corporate functions designed to re-engineer operating models and processes including those capable of being industrialized or housed in shared-services centers. However, they still retain responsibility onshore/nearshore for tasks essential for service-quality differentiation and regulatory compliance.

“Why” banks will continue to focus more aggressively on offshoring

Despite recent efforts of investment banks to cut costs by restructuring businesses and improving operational efficiencies, they have struggled to cope with additional demands made by new regulations, markets and technologies. These include higher capital requirements, increased operating costs and lower revenues caused by decreasing prices for products and services. Moreover, no substantial changes have yet taken place in the banking industry’s business and operations models. Currently, demand for investment banking services is increasing but at ever-lower prices, driven by more aggressive uses of technology and greater intermediation. While technological advances are radically transforming how investment banks conduct business and cutting transaction costs, differentiation of delivery between banks both large and small is diminishing, threatening pricing power. To remain competitive with larger banks that have already achieved high offshoring levels, their medium-sized counterparts must follow suit, particularly to offset differences in productivity and scale of technology investments by more globalized peers.

“What” banks are doing to redefine the next round of offshoring

In the mid-term, banks aim to double their offshoring headcount level to 25-30%. Slow starters are now aggressively catching up. Medium-sized banks face greater pressure to offshore key functions, due to increasing compliance costs and the need to optimize economies of scale and ensure their products and services remain competitive with those provided by their larger peers.
Today, even front office operations once considered ‘un-offshorable’ are increasingly being offshored. These include sales, trading and structuring, but exclude middle office compliance-related and COO/CFO functions


“How” new offshoring helps banks transform their operations and results

Nowadays, offshoring companies provide a much wider range of products and services than their original core vanilla portfolio, helping them conceptualize new strategic agendas. Offshorers enable banks to identify divisions ready for transformation, plan re-engineering processes, migrate businesses to new models and chart all changes. Working closely with their clients, they identify constituent costs and value of each activity, to map the most efficient and profitable onsite, nearshore and offshore distribution of the bank’s commercial activities. Business process re-engineering is vital in helping banks transform their operations.
Today, their offshore partners are highly experienced in providing 24/7 services, including support and migration facilities, that enable them to divisionalize and industrialize corporate functions to service the entire bank. Offshorers help devise solutions that make full use of their integrated delivery models, shared services platforms and talented management.

At Phronesis Partners, we understand client needs and strive to provide an experience that is different from a typical offshoring relationship – one that is more often than not transactional and process based. Our differential approach is closer to insourcing than outsourcing where we work as an extension of client’s team.

Author: Prateek Gupta – Financial and Private Equity Research Services

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