In an interview with Euromoney, Ed Ho, president and
COO of Fundtech – a payments and cash-management
technology provider to financial institutions and corporates
– says he expects this to happen in the next couple of
"When this cycle of operating efficiencies has been maxed
out, I actually think large, top-tier banking institutions will
want to offload their back-office operations into a
business-processing outsourcer or into a cloud environment,"
says Ho. "Many large banks still maintain in-house control
of mission-critical applications.
"It will eventually get to a point within the next couple of
years where they’re going to realize that they
cannot differentiate their services through back-office
operations. It hasn't happened yet, at least not for
mission-critical applications. On non-mission-critical
applications, such as ERMs, we’re starting to see
it more and more."
Ho says information technology outsourcing companies Infosys
and Tata Consultancy Services, among others, would be in a
prime position to take on the back-office operations, as they
are embedded among financial institutions. Accenture, ISS and
HCL Technologies would be well-positioned to secure some of
this business too.
|Ed Ho, president and
COO of Fundtech
Such a move is not isolated to corporate or transaction
banking either, as the investment banking back-office
operations related to securities servicing and securities
trading could be outsourced too, and to some extent is
In January, UBS said it was outsourcing most of its
fixed-income trading platform to two French software companies,
Murex and Ion Trading, to cut costs and simplify complexities
in its trading infrastructure.
French bank Société Générale
took a bolder decision last year by
outsourcing its fixed-income post-trade processing to
a partnership between Accenture and Broadridge Financial
Driving this development in the banking sector is a
combination of tighter regulatory capital requirements, lower
leverage and falling revenues, together with rising costs in
banks’ back-office functions around risk
management and information technology.
Indeed, in March, Bank of America Merrill Lynch, Citi,
Commerzbank, JPMorgan, Société
Générale and Standard Chartered were among a
group of banks to join forces with Swift to develop and use
due-diligence system designed to reduce the burden of
compliance and the rising regulatory costs associated with
By doing this, the banks effectively mutualize the cost of
compliance, where in offloading back-office operations the bank
doing so is the main beneficiary.
For Ho, he says many of the large global transaction banks
remain committed to "mission-critical" or core businesses
– such as payments, cash management, supply-chain
financing and retail banking – but that this is
"Swift messaging is an example of something that was core,
but now we are seeing many banks and corporates going to
third-party service bureaux instead of owning a licence and
maintaining/supporting systems in-house," he says.
"Processing is becoming more standardized and less of a
differentiator for banks. They may decide in the future to
outsource the processing aspects. There is activity going on