Big Surge Expected In Offshore Outsourcing By Banks, Study Says

Banks worldwide will be sending more of their information technology budget dollars offshore in the next three years, according to a study by Deloitte & Touche USA LLP.  The study estimated that as much as 30% of the banking industry's IT budget dollars would go to offshore services by 2010, up from 6% currently.

'Among larger institutions in particular, offshoring is not one available cost-cutting strategy, it's become a basic necessity,' says the study, which was released Wednesday.  Banks are moving well beyond outsourcing low-level application maintenance work and are increasingly relying on offshore service providers for help with more sophisticated technology projects, the study says.

Offshoring tech work offers big savings as programmers in India, for example, are paid anywhere from 40% to 80% less than their U.S. counterparts.  Deloitte says banks can save 40% on most IT projects by moving them to an offshore service provider.  The study also claims that media reports of rampant wage inflation eating into the cost savings offered by offshore outsourcing are overblown.  Deloitte says 55% of the banking IT executives it interviewed for the study expect their offshoring costs to rise by less than 10% this year, while 36% expect the costs to remain flat or decline.

The increasing tendency by U.S. banks to outsource tech work to offshore service providers is helping to boost revenue at major outsourcing vendors, particularly those based in India.  In its most recent financial year, Wipro reported that sales to the banking sector accounted for 21% of its total revenue of $2.39bn.  Rival TCS said sales to the financial services industry accounted for 38% of its $2.97bn total revenue for 2006.

Despite the advantages offered by outsourcing to low-cost countries, most banks aren't getting full bang for their offshore dollar, Deloitte says.  They need to do a better job developing the internal management skills and business processes needed to make offshoring as cost efficient as possible.  'If processes are not streamlined, more substantial savings will be lost, and it will be difficult to scale up offshore operations over the long term,' says the study.

With our partners PRLG, Baroni Limited are the only independent organisation able to fill this significant gap in the market, and the only one with the skills, experience, and knowledge to support banks and other organisations looking to explore or implement off-shoring.  If your organisation is interested in knowing more, then please feel free in contacting us.

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