More Outsourcing for Banks. (Snap Shot)

By Gursel, Ozan; Joseph, John et al. | The McKinsey Quarterly, Winter 2002 | Go to article overview

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 

(1. …

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