Outsourcing to Boost Liquidity
The global financial crisis is having a major impact on banks’ liquidity. Outsourcing provides a cost-effective and flexible alternative at a time of major competition for investment capital. Nadeem Shaikh, Head of Financial Institutions in First Data’s international business, discusses.
The financial crisis has cost banks $1.025 trillion in asset write-downs, bad debts and new capital since January 2007*. It has also had a very negative impact on the liquidity of the global banking system.
Despite government bailouts and other regulatory interventions in many countries, the drastic reduction in liquidity has led to an enormous lack of confidence across the whole financial sector and a significant decline in the funds available for banks to lend to personal and business clients, as lending requirements have tightened.
This has been matched by a decline in funds available for banks to invest in technology, at a time when the demands on banks’ technology budgets—especially in relation to the burden of compliance— are increasing. PSE Consulting estimates that up to 70 percent of banks’ IT spend in Europe is now on compliance—national, multi-national and system updates mandated by the international card schemes.
Increasingly, the financial crisis can be seen to act as a catalyst for outsourcing, with more banks considering the full range of options that outsourcing makes available. This is particularly relevant for retail banks that have made significant investments in branch networks, electronic payments infrastructure such as ATMs and other service delivery channels.
The financial crisis is not the only reason for banks to consider outsourcing—a Deloitte study showed that from 2003 to 2007 banks generated savings of 37 percent per process outsourced**—but it is certainly helping to focus their attention.
*Source: Bloomberg, data relates to period between 1 January 2007 and 19 September 2008
**Deloitte Research, figures relate to 2003-2007, quoted in an article by Geeta Sankappanavar, VP of Strategic Global Outsourcing at Cam Bank Technology News (July 2007)