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The advantages of outsourcing payment services

Global Trends
6 Mins.

When significant changes to a business need to be made, partnering with a specialist outsourcer can offer a range of operational advantages. Access to new technology and expert personnel are two advantages in the field of card issuance services

As incumbent banks reassess their business and operating models in light of the COVID-19 pandemic, managers are exploring or revisiting the potential that business process outsourcing (BPO) could offer.

In common with other industries, banks have been hard hit as the ramifications of the coronavirus have played out around the globe. The STOXX® Europe 600 Banks Index, for example, was down 36% between January and September 2020 as consumers stopped spending and businesses shuttered operations.

Lockdowns and their financial implications have also accelerated many of the pressures that the financial services industry was already facing. Trust in banks across mainland Europe fell below pre-COVID levels, according to a McKinsey survey in June, while legacy infrastructure hindered the ability of many to deliver digital services to the levels required as branches remained closed.1

Add in increased regulatory compliance, near-zero interest rates, cybersecurity fears, and continued competition from challenger banks, and it’s understandable why incumbents are urgently looking at how to make business and operating models more efficient, improve the customer experience, and enable innovation.

BPO is booming

A bank building with columns consisting of a digital matrix in a 3D banner symbolizes outsourcing payment services.
There are numerous advantages to business process outsourcing payment services.

The good news is that there are a number of concrete steps that banks can take to successfully transform themselves. BPO, the act of subcontracting non-core operations to a specialized third-party provider, is one of them.

The global BPO market was valued at US$221.5 billion in 2019 and is forecast to grow to reach US$405.6 billion by 2027, according to a Grand View Research study.2

Banks, financial service organizations, and insurance companies, already the second-largest users of BPO, are expected to increase usage faster than any other sector over the same period.

While customer-service-related functions are predicted to be the main driver of banks’ use of BPO, they’re far from the only focus, as PwC’s Retail Banking Report 2020 noted.3 “If customer and risk skills are the core of future banking, then the entire manufacturing process is a candidate for outsourcing,” it said.
 

Rising interest in payment outsourcing

BPO comes in different shapes and sizes, but the overriding aim is the same – to provide a solution that delivers cost savings, operational efficiencies, and service improvements that in the end lead to customer advocacy. For banks, the reasons to consider BPO and the areas to which it could be applied are manifold. Saving on real estate and staffing expenditure associated with a call center is one obvious example. But BPO opportunities exist beyond this tried-and-tested area.

“BPO comes in different shapes and sizes, but the overriding aim is the same – to provide a solution that delivers cost savings, operational efficiencies, and service improvements“

One growing area of interest is card issuance and associated services. The process of delivering credit and debit cards to consumers has evolved rapidly over the past few years to incorporate issuance using biometric identification, personalization options, and the ability to add physical card credentials to a digital wallet.

As customer expectations – driven by their experience of other digital service providers – continue to evolve rapidly, it can be difficult for incumbent banks to keep up. Outsourcing the card issuance process to a specialist vendor has obvious advantages: it enables banks to get access to people, expertise, and technology solutions that are not available in-house, and to refocus on core activities.

Cost reduction is another benefit, but one that isn’t always understood. When analyzing the financial ramifications of BPO, it is important to compare like with like. Comparing the direct costs of an existing card issuance unit with the costs of an outsourced solution does not take into account things such as the time a manager has to dedicate to overseeing the operation or HR-related costs such as holidays and pension contributions.

When outsourcing any process, a bank also outsources the associated risks. This requires a strong trusted partner. Furthermore, with clear SLAs and performance management tools, service delivery can be monitored closely and any remedies administered quickly and easily. As such, the bank maintains ultimate control.

BPO also offers an alternative to the narrative that companies need to reduce headcount as a result of the current macroeconomic environment. Hybrid models that see existing employees transfer over to the outsourcing company are common, while in some cases the outsourcing company can acquire its own relevant staff, machines, and buildings. A managed service approach whereby an outsourcer takes over an existing operation and brings in supplementary staff or technology as required is another option.

Sourcing the right ingredients

Making a success of BPO is dependent on selecting the right outsourcing partner. Table stakes include financial strength, company culture, expertise in the area being outsourced, clear SLA and reporting lines, and security capabilities. It is also important to consider whether the outsourcer is based in the same jurisdiction as your company.

Global, family-owned companies like G+D have many years of experience in safeguarding payment processes, identities, connectivity, and data. They also manage to blend operational excellence with emotional intelligence to offer cutting-edge technology alongside the ability to understand customer requirements.

As banks confront some of the most serious challenges they have faced in the last century, BPO is one of the tools at their disposal to help them emerge in a more efficient, financially stable, and future-proofed manner – in payments and beyond.

  1. McKinsey, Reshaping retail banking for the next normal, 2020

  2. Grand View Research, Business Process Outsourcing Market Size, Share & Trends Analysis Report by Service, 2020

  3. PWC, Retail Banking 2020, 2014

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