More Outsourcing for Banks. (Snap Shot)
Gursel, Ozan, Joseph, John, Krishna, Malay, The McKinsey Quarterly
Midsize banks often outsource such IT-intensive operations as credit card and mortgage processing. Now bankers are ready to up the ante. Our recent interviews (1) and analysis suggest that nearly three-quarters of these banks are willing to outsource broader processes, such as loan documentation and servicing, that cost them $5.5 billion a year. By doing so, banks that lack scale could capture savings of 25 to 35 percent, which they would be hard-pressed to realize on their own. So what is holding them back? Concern about the vendors' lack of experience as well as a loss of control and flexibility. Experience is crucial in this nascent market because the outsourcing of business processes involves more than squeezing costs; real value will come from redesigning processes and reducing labor costs, generally by moving operations offshore. As the market for integrated services to banks heats up, look for entrants to emerge from the IT-outsourcing, financial-software, and financial-services sectors--and even from the banks themselves.
Consumer-lending costs addressable by outsourcing business processesn Integrated processes most likely to be outsourced Application entry 170 underwriting 0 Documentation Document prepartion, closing 1,860 Quality assurance, funding 300 Booking 190 Servicing Document processing 910 Payment processing 1,250 Research, customer care 710 Payoff, collateral release 260 Collections, recovery 940 Total 6,590 likely savings as share of total documentation and servicing costs Application entry underwriting Documentation Document prepartion, closing 6-8% Quality assurance, funding 2% Booking 1-2% Servicing Document processing 4-6% Payment processing 7-9% Research, customer care 3-5% Payoff, collateral release 2-3% Collections, recovery Total Total process savings = 25-35% Note: Table made from bar graph