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As banks in Hong Kong have been returning to normal post pandemic, it seems that the benefits of outsourcing have become more widely accepted. With the threat largely passed, banks have had an opportunity to review the impact of disruption, consider how markets have changed and review their business models. For example, some have found inefficient cost structures, including large workforces that are no longer focused in the right areas for growth or with the right skills to take the business forward. Others that necessarily reduced investment during uncertain times have fallen behind, in particular in the area of technology and digital transformation. 

At the same time, post-pandemic economic growth has been muted, while costs have remained high, so there is a clear incentive to find more efficient ways of working. Such pressure on banks’ budgets ultimately reduces their ability to invest and innovate and could affect competitiveness over the longer term. 

Outsourcing can save costs and improve efficiency and accelerate change, while also freeing up organisational talent to focus on the most important aspects of a business. A recent KPMG report that surveyed hundreds of executives globally across a range of sectors found that 75% of organisations planned to increase spending on managed services in the next two years. 

Taking a strategic approach

While outsourcing can certainly reduce costs, the use of premium Managed Services can go much further helping add value to businesses, reduce risk and enhance outcomes. Banks that take a more strategic approach and work together with service providers that have deep subject matter expertise and transformation skills will be able to identify key challenges and find workable solutions amid an uncertain and rapidly evolving business environment.

Advisory Managed Services are focused on strategic and business outcomes, and can be used across a bank’s operations, including in complex and confidential areas, such as risk compliance and regulatory reporting as well as potentially sensitive areas such as customer and supplier engagement. Services can be adapted to the business’s changing needs and in response to market or regulatory conditions and can be scaled globally if required. This compares to a traditional view of outsourcing as business process outsourcing (BPO) model, which offers low-cost solutions for back-office or peripheral functions, often with limited technology and one-size-fits-all options.

Outsourcing has clear benefits in such technology transformation programmes, as automating processes reduces costs while also relieving pressure on manpower. Many banks and other large corporates have been carrying out major transformation projects in recent years and turning to strategic outsource service providers to deliver on those programmes. Banks that need to transform should consider how strategic outsourcing might help them in their journey and beyond in delivering sustainable outcomes. 

Complex areas

Besides the more obvious ‘traditional’ areas for outsourcing such as IT Services, there is now growing appreciation in the banking sector that many other areas that were previously kept in-house can also be outsourced. These range from payroll, HR and tax compliance -- including monthly returns, third-party risk management, regulatory returns and tax computations – to more directly regulated areas such as KYC and AML, and areas where having leading edge technology is increasingly important such as fraud risk monitoring. 

Whistle blower services, a regulatory requirement for companies listed in Hong Kong, is another area that is often outsourced and this can be broadened to include an employee ethics reporting line. A trusted independent third party running such a service is seen as best practice and if an investigation is subsequently required, it can also be carried out by the outsourcing firm that has the relevant expertise. 

As well as handling ongoing services, managed service providers may be a good choice for dealing with new developments, such as new regulatory demands. Rather than build the capability in-house from scratch, third party firms with the relevant expertise may be better placed to handle the relevant requirements. For example, the changing regulatory landscape around ESG reporting is a crucial topic that banks must keep on top of, but it is also an area where talent is scarce. So it may make sense to outsource aspects of ESG, such as assessments of borrowers or vendors to firms that have the sustainability experts and work with the right external data providers. 

Besides deciding what areas to outsource, banks will also need to consider the different types of firms in the market, and consider which best suits their needs for particular projects. These include niche providers that focus on a particular specialism, as well as larger firms that offer a more holistic approach and can form a broader relationship with the bank across different business areas.

Measuring success

Once an outsourcing programme is up and running, there are different ways that banks can measure its success. Cost savings are the most obvious metric. But perhaps even more important is on the regulatory side. Managed advisory services enable banks to meet the changing regulatory requirements in all the jurisdictions where they operate where they may not have the business scale to cover the cost of compliance.

Customer satisfaction is another area that can be measured, and banks will be able to assess whether the changes that have been put in place through an outsourcing project have improved the experience of dealing with the bank for customers and vendors. 

Talent is another crucial area where using advisory managed services can have a significant impact by offering a solution to the manpower shortage that has been a long-running problem not just for banks but also for many other sectors in Hong Kong. External service providers will have not only the technology and know-how in their particular area, but also the specialised and trained staff to more effectively carry out the work. 

Besides the many benefits for the banks in terms of reducing pressures related to manpower shortages, the results of a successful outsourcing programme also has the additional advantage of improving employee satisfaction with their job and working environment.

Proportion of organisations that plan to increase spending on managed services in the next two years, according to the KPMG report, Managed services: A new value proposition