The Complete Guide To Financial Services Outsourcing

Abby Chua

24 Mar at 4:15 am

In today’s fast-paced business environment, financial services firms are increasingly turning to outsourcing to help them stay competitive. Outsourcing financial services, also known as fintech outsourcing, involves hiring a third-party provider to handle tasks that would normally be handled in-house. In this blog, we’ll explore financial services outsourcing, why businesses choose to outsource, its benefits, the most common financial services outsourced roles, how to know if outsourcing is right for your business, and the top financial services companies that are outsourcing.

What is Fintech Outsourcing?

Fintech outsourcing or financial services outsourcing refers to the practice of hiring a third-party provider to perform financial services tasks. This could include everything from accounting and bookkeeping to investment management and risk analysis. Outsourcing allows financial services firms to focus on their core business functions while leaving non-core tasks to outside experts.

Outsourcing in the financial services industry dates back to the 1970s, when banks began outsourcing back-office functions like data entry and record keeping. In the 1980s and 1990s, outsourcing expanded to include more complex functions like accounting, financial analysis, and software development. With the rise of the internet and the global economy in the 2000s, the practice became even more prevalent, and today, financial services firms outsource a wide range of functions, from customer service to compliance and risk management.

Outsourcing financial services comes with its own set of challenges, including data security and privacy concerns, regulatory compliance risks, and communication and cultural differences. But essentially, it’s all going to be a matter of choosing the right outsourcing partner for your business. Amidst its challenges, outsourcing also presents opportunities for financial firms to access specialised expertise, scale operations more efficiently, and focus on core competencies.

Why do financial services businesses choose to outsource?

Financial services firms outsource for a variety of reasons, with cost reduction being the most commonly cited motivation. According to a survey by Deloitte, 59% of financial services firms outsource to reduce costs, while 57% do so to improve operational efficiency. Other reasons cited for outsourcing include accessing specialised expertise (44%), enhancing service quality (41%), and gaining access to new technology (36%).

What are the benefits of outsourcing to financial services businesses?

The benefits of outsourcing financial services have been widely studied and documented. Here are some statistics and survey results that highlight these benefits:

Cost Savings: One of the primary reasons why financial services businesses choose to outsource is to reduce costs. According to a survey by Deloitte, 59% of businesses cited cost reduction as the main driver for outsourcing financial services. By outsourcing, businesses can save on overhead costs, such as salaries and benefits for in-house employees, as well as on operational costs such as office space, equipment, and technology.
Improved Quality: Another benefit of outsourcing financial functions is the potential for improved quality. According to a survey by the Hackett Group, 85% of businesses reported that outsourcing led to improved service quality. This is because outsourcing providers like Vault Outsourcing specialise in specific financial services, and have the expertise and technology needed to deliver high-quality services.
Increased Flexibility: Outsourcing financial roles can also provide businesses with increased flexibility. According to a survey by PwC, 70% of businesses cited the ability to focus on core business activities as a key benefit of outsourcing. By outsourcing non-core financial services, businesses can free up time and resources to focus on their core competencies.
Access to Technology and Expertise: Outsourcing financial services can also provide businesses with access to the latest technology and expertise. According to a survey by Accenture, 63% of businesses cited access to technology and expertise as a key benefit of outsourcing. Outsourcing providers often invest heavily in technology and have the expertise needed to stay up-to-date on the latest trends and developments in the industry.

What are the most commonly outsourced roles for financial services businesses?

According to a survey by Deloitte, the most commonly outsourced functions in the financial services industry are:

Information technology: 70%
Finance and accounting: 54%
Human resources: 50%
Compliance: 43%
Risk management: 40%

Another survey by the Hackett Group found that the top five most frequently outsourced roles in the finance function are:

Accounts Payable: 87%
Accounts Receivable: 86%
General Accounting: 83%
Payroll: 76%
Travel and Expense: 67%

The top financial companies that are outsourcing

According to a report by Statista, some of the top financial services companies that outsource include:

JPMorgan Chase: In 2020, JPMorgan Chase spent over $5 billion on outsourcing services, representing 9% of their total expenses.
Goldman Sachs: In 2020, Goldman Sachs outsourced over 3,000 jobs to reduce costs.
Citigroup: In 2020, Citigroup outsourced several IT and support roles to reduce costs and improve efficiency.
Wells Fargo: In 2020, Wells Fargo outsourced several IT and support roles to reduce costs and improve efficiency.

These companies are just a few examples of how outsourcing can be beneficial to those in the industry looking to reduce costs and improve efficiency. By outsourcing non-core functions, these firms can focus on their core competencies and improve their bottom line.

How do you know if outsourcing is right for your financial service business?

Determining if outsourcing is the right decision for a financial firm requires careful consideration and evaluation of the potential benefits and drawbacks. Outsourcing may be a good fit for financial services businesses that:

Have non-core functions that are not a strategic priority
Need to reduce costs or improve operational efficiency
Require specialised expertise that is difficult or costly to acquire in-house
Are expanding rapidly and need to scale operations quickly

It’s worth noting that outsourcing can also present risks, such as loss of control over critical business functions and potential breaches of sensitive data. Therefore, firms should undertake a thorough vendor selection process and establish strong communication and performance monitoring practices with their outsourcing partners.

Overall, outsourcing can be a strategic decision that can deliver significant cost savings and operational efficiency improvements for financial firms. However, it’s important to approach outsourcing with caution and select the right partners to mitigate risks and ensure success.

How do you ensure outsourcing success?

Choosing an ISO-certified outsourcing partner who specialises in financial services outsourcing can provide several benefits for businesses looking to outsource and can essentially ensure outsourcing success.

ISO certification ensures that the outsourcing partner adheres to international standards for quality management and service delivery, which means that they have proven systems and processes in place to ensure quality service delivery to their partners.

Finally, partnering with a specialised outsourcing provider can provide specific industry knowledge, expertise, and experience. This can lead to improved efficiencies, better service delivery, and ultimately, better outcomes for the business.

If you’re looking for an ISO-certified outsourcing partner that specialises in financial services, talk to us today.