In the retail banking BPS market assessment I am currently undertaking, several key trends are emerging regarding which processes are being outsourced and why. Banks do not outsource all processes at once, and selecting the highest priority processes to outsource can be reduced to an analysis of two key dimensions:

• Margin: where profit margins are highest, usually with new processes or products where competition has not yet developed, speed to market is critical and cost is not a challenge
• Scale: cost can be reduced by applying operational techniques (automation, centers of excellence, or sharing of overhead) which leverage economies of scale.

Where margins have been thinnest and scale largest, BPS has flourished. Since banking regulations vary by country, banks have adopted outsourcing in the largest countries first. Recently, aggressive changes in regulations have spurred banks to focus BPS efforts on outsourcing compliance-related activities, which have a negative margin (cost, but no associated revenue).

Today, retail banks, the largest-scale adopters of BPS in financial services, are on the verge of a sustained increase in BPS adoption, as margins have aggressively contracted across product lines and standardization (driven by regulatory requirements which have been coordinated cross-country) has increased, and will continue to increase, significantly.

Each process in banking is unique and the degree of scale and margin varies significantly across processes. The three primary processes in retail banking are:

• Deposits: low margin, limited scale, multiple sub-products
• Lending: high margin, limited scale, standardization of syndicated/securitized products, high customization of retained loans
• Payments: low margin, very high scale, standardization across countries.

Based on the margin/scale characteristics, one would expect the earliest adoption of BPS to be in payments, which it is. Next we would expect sub-processes with the largest scale to be outsourced. Again, customer contact and account opening have been largest scale (with applicability across all processes). These sub-processes have been outsourced for deposits and lending. Loan administration in standardized loans (consumer mortgages underwritten by government programs) were the next processes to be outsourced. In the last three years banks have focused on outsourcing compliance processing, which has the lowest margins (negative), and largest scale (across all products).

The next stage in the journey

Bank offerings at a macro level are well established and will not gain new processing scale. However, reengineering of processes can develop increasing scale, as banks restructure their operations from a vertical (product-oriented) approach to a horizontal (customer-centric) approach. This is allowing banks to focus on standardizing customer interaction processes (which increased regulations encourage), which can then be delivered by third-party vendors.

Key technologies supporting this include:

• Customer analytics, which support bringing the ‘right’ product to a customer at the right time
• Robotic process automation, which supports highly standardized delivery of processes
• Mobile services, which support centralized service delivery, since mobile services are not delivered in person.

This focus on customer delivery will improve C-SAT and allow banks to deliver a much larger array of offerings to their customers, while keeping complexity of multi-product delivery low.