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BPO on the rise, but banks remain sceptical

12 August 2002  |  1465 views  |  0 computers

Worldwide financial services business process outsourcing (BPO) revenue will total $41.3 billion in 2002, a 9.3 percent increase from 2001 revenue of $37.8 billion, according to research by Gartner Dataquest.

The increased spending is driven by demand for improved service levels and cost containment, says the analyst group, as the economic downturn and increased forces companies to optimise their back-office processing capabilities.

The research, however, indicates that financial institutions perceive outsourcing services as too costly and that quality of services is not as good as expected. Fear of losing control and cultural opposition to outsourcing constitutes two other important obstacles, particularly in the insurance industry, which has traditionally been more conservative with regard to outsourcing than the banking industry.

Outsourcers need to explain to financial services providers that BPO is not a quick fix to their problems says Rebecca Scholl, senior analyst for Gartner Dataquest's IT services programme. "Questions about the staying power of the BPO business model must be addressed, given the multiyear nature of BPO contracts," she says. "BPO requires a long-term outlook by buyers and suppliers of BPO services, given the investment suppliers must make to provide a strong offering."

Gartner Dataquest analysts recommend that companies look to benchmark quality of service, conduct due diligence regarding BPO providers and contingency plans for unexpected interruption or termination of service, focus on defining core competencies and keep the cost discussion open.

"Keeping the discussion about costs on the table benefits both buyers and sellers. BPO providers are right to justify their costs by citing investments in business process improvements. Nevertheless, over time, buyers should expect innovation to keep costs in line," adds Scholl.

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