Unlock Growth Opportunities this Year with Finance Outsourcing

January 4, 2016
|By Garegin Hakobyan

How will 2016 be for Accounting Outsourcing, Finance Outsourcing and Banking BPO? A key trend is the increased and intense reliance on technology which will inform outsourcing decisions in 2016 for the finance, accounting and financial services sectors. These industries will witness even bigger innovations in the coming years.

For businesses considering outsourcing as a strategy, here are more insights and trends in Banking BPO, Accounting and Finance Outsourcing that can help uncover more opportunities for growth in 2016. 

Finance and Accounting Outsourcing (FAO)

The finance and accounting vertical is one of the fastest growing segments of outsourcing. FAO will continue to mature in 2016. Buyers of FAO services, both experienced and inexperienced, are expected to remain focused on cost reduction initiatives through the use of automation, smart devices and sophisticated software. A study by Gartner showed that demand for smart machines and automation will grow faster than demand for business process-as-a-service and full ERP services. Outsourcing decisions will also be driven by the pressure on department leaders to demonstrate value beyond productivity improvements.

According to a survey conducted recently, more and more CFOs are outsourcing accounting services to consultants and specialists, a trend that is expected to continue next year. The survey showed that 61 percent of CFOs outsourced business systems and performance improvement to consultants to ensure effectiveness. CFOs are also outsourcing finance optimization and risk, governance and compliance because of new regulations.

On the vendor side, Everest Group predicts that slower than expected growth in 2015 will push FAO vendors to look for new differentiators to capture market share in 2016. FAO vendors can no longer differentiate themselves using conventional technology and geographic scope; they need to offer specialized services and new technology solutions such as outcome-based pricing models and robotic process automation (RPA).

OtherTrends Affecting Banking BPO in 2016

More automation and cloud services. Consulting and analytics firm Gartner predicts that 2016 will see more companies using automation. Cloud-based finance and accounting software will continue to be popular next year as an alternative platform. Because there are no expensive licenses to purchase, software-as-a-service allows organizations to reduce cost and streamline processes without skimping on output quality.

Increased complexity. The industry should expect more multifunction FAO contracts in 2016. Instead of sending just one or two transactional services like accounts payable/receivable to a third party, CFOs today are more comfortable with outsourcing complex, knowledge-driven services like management reporting, financial planning and analysis, and risk management.

Consistent demand. All verticals show consistent demand for F&A outsourcing, especially from the Americas and Europe. The size of outsourcing contracts will also grow due to an increase in global rather than regional deals.

Focus on process improvement. Like last year, buyers of FAO services in 2016 will continue to demand more value from outsourcing engagements. There will be renewed focus on business transformation and process improvement, and vendor selection criteria will reflect this.

Variable cost structure. Companies will continue to move from fixed to variable cost structures, not only in terms of cost savings but also with headcount. This means a growing demand for pricing models that allow business to reduce back office costs as business volumes decline.

Gain sharing. CFOs will be more open to sharing gains with service providers in 2016 and beyond if the provider is able to deliver outstanding service. For example, if the vendor is able to lower cost beyond targets, the client is willing to share the savings benefits with the vendor. Service providers are thus more motivated to implement improvement and transformation programs.

Business process utility. Business process utility (BPU), a comprehensive managed services offering, will gain traction in 2016. This high-level solution is expected to be the next wave in BPO not only in the F&A segment but across all verticals. Business process utility combines sophisticated technology with skilled talent/labor and best-in-class processes. Unlike traditional FAO deals where the vendor provides a single service like chartered accountants to augment in-house teams, BPU also provides applications, systems and processes. Certain FAO services like invoice processing and reconciliation are ideal candidates for BPU.

Client process analysis. In 2016, vendors will leverage client process analysis to uncover opportunities and create better training programs to improve the skills of staff absorbed by BPO companies. Technology will also help vendors deliver products that meet client specifications.

Banking, Financial Services and Insurance (BFSI)

2015 has been a year of new challenges for the BFSI sector. Rapidly changing technology, data analytics requirements, evolving customer expectations, channel integration, increased competition and security issues are developments that are expected to influence BFSI outsourcing decisions in 2016. Analysts look ahead to what clients and vendors can expect in 2016:

New Payment Solutions

As banking and financial services continue to improve next year, executives will leverage mobile technology to capture market share and opportunities. More people will adopt new card and payment technologies such as device-based wallets; however, these methods will become new sources of transaction fraud.

Channel Strategy

Instead of multiple digital wallets, consumers are looking for single platforms for a more convenient banking experience. Channel convergence will be big in 2016, as financial institutions aim to provide better consolidated digital account systems to meet consumer needs. One competitive solution is the use of account-as-a-service platforms. Traditional banks will continue to integrate with digital channels through the use of applications that streamline processes. For example, centralized enterprise platforms allow front-line employees to accomplish what were once complicated tasks with a single click.

Data Analytics

Like last year, data analytics tools will continue to improve financial services processes. Analytics tools are now the norm instead of the exception, and companies that use sophisticated systems will be ahead of the pack. For example, the use of analytics in call centers allows executives to improve efficiency, call handling and responsiveness.

Customer Service

Technology will continue to improve every aspect of customer service in the BFSI sector. Consumers demand faster response and resolution times. Banks and lenders will open new communication channels to address this need, improve their reputation and enhance customer retention.

Security

The rate of change of technological innovation is paralleled by the growth of security threats. To mitigate risks, banks will adopt comprehensive solutions that guard against system loss and data theft. New guidelines will also force financial institutions to implement more thorough documentation of incidence and test responses.

Global BFSI Outsourcing Forecast

In 2016, analysts expect that more banks will turn to outsourcing to address challenges. Technavio analysts predict that global BFSI outsourcing will grow at a CAGR of 6 percent from 2015 to 2019 driven by the growing need for analytics and customer segmentation models. The cost of operations in the BFSI industry is also rising due to tighter regulations that financial institutions have to follow.

Organizations are sending both regulated and non-regulated activities to external providers to reduce costs and redirect capital to core business areas.Everest Group research shows that cost savings on lower-value administrative services are no longer enough for the BFSI industry. Companies now require a mix of innovative technology and services to support the business and drive differentiation.

Information Technology Outsourcing (ITO)

The BFSI vertical has traditionally been a pioneer in terms of IT outsourcing, and IT will continue to be the most outsourced service in 2016. The ITO segment will be defined by the cloud-based solutions like software-as-a-service, which allows banks to minimize capital outlays by eliminating the need for infrastructure development, support and maintenance. Other IT services that companies outsource include IT personnel (staffing), software, hardware, telecommunications, networks, IT support and ancillary IT services. Banks will continue to invest aggressively in technology in 2016 to foster expansion and win market share against new entrants. IT spending is also expected to rise to improve mobile channels processes and core banking platforms.

Business Process Outsourcing (BPO)

While IT continues to make up the bulk of outsourced services in this sector, companies will continue to outsource business processes to third parties. According to the Technavio report, the BPO segment will continue to grow in terms of the number of outsourcing deals as banks focus on  improving customer service and process efficiency. Back office services outsourcing also allows banks to share risks with their providers (including data and systems security risks) and improve transparency and regulatory compliance.

Commonly outsourced services include back office operations such as payment processing, administration, document management, accounting, payroll, staffing and human resources as well as midlevel services like settlement and trade support in the capital market segment. The industry will also witness the outsourcing of higher-value services. Consultancy, risk management, procurement and compliance will be popular among large enterprises.

Mature Outsourcing Destinations

In 2016, the outsourcing of BFSI services to multiple vendors in different locations will continue. Companies will leverage mature and emerging locations to drive business transformation. It’s no longer about sending work to a single low-cost country. In the post-reshoring era, banks, lenders and financial institutions are adopting unique delivery models that suit their needs. A U.S. based lending institution, for example, may send IT work like software and app development to a local firm, while employing customer support staff in Mexico, India and the Philippines. Traditional outsourcing centers like the Philippines, China and India will continue to be popular destinations.

Getting Started on Finance and Accounting Outsourcing in the Philippines

Learn more about outsourced staff leasing and the Philippines as an outsourcing destination. 

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