Research conducted by SIX Securities Services has revealed that as financial institutions become increasingly capital constrained, almost a third (32%) are looking to outsourcing as a way to reduce costs.
The research, conducted amongst global and domestic systemically important banks and clearing houses reveals that competitive pressure from disruptive business models is considered the second most significant driver for outsourcing.
Over half of respondents (52%) identify tax services as the function within their organisation that they can most successfully outsource. This is closely followed by clearing (44%), settlement (44%), reconciliation (34%), corporate actions (30%), and collateral management (28%).
Respondents based in Switzerland feel far more strongly about outsourcing tax services, with 80% believing that this is the service ripest for outsourcing, as opposed to only 55% of those based in the UK.
The research highlights ‘lack of differentiation’ as the primary driver for selection of those services ready to be outsourced - 72% point to this as the main motivator behind their choice, compared to just 53% who point to cost reduction.
Whilst institutions are clearly eager to address rising costs, their approach to outsourcing is not without caution. A fifth (20%) of those questioned said that they were concerned about losing ‘know how’ when outsourcing, with the same amount (20%) saying that they are committed to a long-term contract. However, only 16% are apprehensive about the loss of confidential data integrity.
Despite concerns, because of this new landscape, almost two thirds (62%) of respondents are considering new product and platform alliances, whilst 60% are exploring utility-based models and looking to invest in digital technologies.
Thomas Zeeb, Division CEO SIX Securities Services comments: “It is promising to see that whilst financial institutions have concerns over outsourcing, they are realising that this is a genuine way of reducing costs and becoming more efficient throughout different parts of the value chain. For us, we see outsourcing as an opportunity to add real value to our clients and to actively contribute to their bottom line. This explains our focus on developing new Services designed to alleviate customer pain points as well as our recently announced alliance with Clearstream.“
“I am pleased to see that the industry as a whole shares our view that outsourcing can establish partnerships where complementary capabilities enhance the benefit that our clients can derive.”