The Power of Peer Pressure

Do you remember that kid that always had the newest gadgets and gizmos first? Everyone had one in their circle of friends in school – they were the first ones to be in the know about the latest innovations, the first ones to have a smartphone and the first ones to tweet. The rest of the gang stood back, eyeing the new technology suspiciously and leaving it to the early adopter to figure out the peculiarities. Only when the new technology seemed safe and peer pressure deemed it necessary, did they join in. Does this sound familiar? Well, it should, because the same is happening with financial services outsourcing in continental Europe today.

The UK, of course, has always been that kid in the playground - a mature market for financial services outsourcing. So, what made the rest of Europe follow its lead? The answer lies in much the same situation as above. Outsourcing feels safer now and the pressure to join in has increased to tipping point.

Historically, European financial services companies have always erred on the side of conservatism and caution when it came to embracing new, innovative IT services. Understandably so, when you consider that the industry is highly reliant on safety and trust when it comes to operations. At the same time there are always those early adopters taking calculated risks on new technologies. They are the ones to be the field leaders as soon as the technology becomes mainstream.

The ‘peers’ in the European playground are consumer demand, regulatory changes and economic uncertainties, all of which have played a large role in pressuring financial services organisations in Europe into embracing outsourcing. The financial industry has always been under immense pressure to cut costs and at the same time increase revenues. After the economic downturn, financial services companies were forced to downsize and create more efficient operating environments at lower costs to keep their margins up in uncertain times. As the economy recovers and companies start to grow again, they are keen to retain lean cost structures. Hence, the capability to flexibly scale up business volume and infrastructure and, simultaneously, keep operating costs down has become one of the principle business imperatives in order to stay ahead of the game.

The second member of the pack are substantial regulatory changes the industry is facing in order to prevent another financial crisis. The sheer number and complicated nature of newly introduced regulations strip financial services companies of their ability to focus on consumer demand and grow their business. Instead, resources and costs are sacrificed in order to meet regulatory demand. As a result, businesses face the prospect of losing their competitive advantage. In order to stay competitive and still adhere to regulatory demand, taking on board third party experts is now becoming inevitable.

Consumer demand completes the peer-group. It’s crucial to stress the word ‘consumer’ instead of ‘customer’ as it is important to remember that this group is leading the revolution in IT usage. They were the ones to get the latest gadgets, with IT occupying an ever-growing part of their lives – the increase in electronic payments and mobile banking underlines this shift. As a consequence of this consumerisation of IT, consumers expect their financial services provider to adapt to their increasingly mobile and flexible lifestyles. Outsourcing not only helps financial institutions to provide new customer services but also improve the quality of their services, largely independent from internal resources.

The benefits of IT outsourcing are clear, so why has continental Europe hesitated for so long to join in? As I’ve already indicated, the financial services industry has not yet been able to fully shed its conservative nature and therefore fears the risks and challenges associated with outsourcing. Loss of control, dependency and potential violations of confidentiality and security rank highest amongst those fears. Therefore, the European financial services industry chose to rest on the excuse of language, culture and workers councils and watch the early-adopters sorting out the specifics. By now, the initial worries around outsourcing seem to have been largely resolved, IT is more and more becoming a part of every day life and the success stories are rolling in. This gives confidence to even the most reserved companies to venture a step into the outsourcing business.

Despite this newfound confidence, the change will be gradual and European financial institutions will need further reassurance before fully embracing outsourcing. While they do, one thing’s for sure: the early adopter kid will be tinkering with the next big thing to come.