Financial institutions are seeking to deepen their operational capital in order to drive down cost of operations, increasing fixed cost and reducing variable cost (non-linear cost reduction). Here we look at two examples of how institutions are achieving this by partnering with third party operations vendors.

Capital Markets Client with Broadridge

In this example, Broadridge is providing a post-trade utility for a global institution looking to become a primary dealer in the U.S. market, something which requires the creation of large operational delivery scale in fixed income. Provision of operational services is on a multi-tenant platform with support from U.S. fixed income domain experts.

Benefits achieved from this arrangement include:

• 35% lower TCO
• Increased STP
• Adaptability to remain current: new product offerings and reporting required for primary dealers
• Simplified connectivity to 70+ data feeds and global custodians/depositories.

Retail Banking Client with Infosys

In this example, Infosys is supporting platform renovation and providing BPS services to a major Canadian bank. The client’s challenge was three-fold:

• To identify savings from increased automation and BPS
• To transform their platform and train employees on new processes
• To reduce costs and improve process efficiency and accuracy.

Processes requiring improvement included deposit services, mortgage lending, virtual banking, wealth management, and investment services.

Benefits achieved from this arrangement include:

• Upfront cost reductions of 40% to 80% across most processes, primarily from use of tools and automation
• Significant cross-training during the transition phase
• Enhanced tracking of SLAs to provide the client with visibility into process quality
• Vendor committed to 25% improvement in process efficiency over three years.

Conclusions

In both cases, BPS vendors are supporting capital investment with technology they are using across multiple institutions. The technology is modern with an emphasis on increased automation of manual processes and STP. The multi-tenant environment ensures currency will be maintained because of demand from many tenants, and lowest cost of change due to shared overheads. The domain expertise of the vendors’ employees is enhanced by exposure to multiple clients addressing the same set of industry challenges.

The shape of operational workforces in this platform-driven approach to service delivery shifts from a pyramid shape (with the largest number of workers in the lowest skill jobs) to a diamond shape (with the largest number of workers in mid-level tasks, managing technology and robotic processing tools). Bots can scale transactions at a negligible marginal cost, allowing clients to achieve a lower TCO over an entire cycle (both seasonal and secular cycles). Cost savings are running at between 40% and 80% using this type of approach, as compared to the typical labor arbitrage cost savings of between 20% and 30%.