Banking has been a very traditional and conservative sector in any country. For ages, generations after generations, have been loyal to a particular bank that their families have been associated with. Whether it is the Royal Bank of Scotland and Lloyds TSB in the UK or American Express and Capital One in the US, people stay loyal to their banking partners.

The banking industry in the west took a huge risk in the last decade by using countries like India, China and the Philippines to outsource their banking and financial services. For banks, it was a step in the right direction to reduce the number of customers walking into their branches, the number of calls taken by banking executives at the branch and reduce the work load on their existing call centres.

They wanted to reduce costs of employing more people to cater to their ever increasing base of customers and provide better services to their customers besides gaining a competitive edge. For customers who have been used to traditional methods of banking such as visiting their nearest branch, were exposed to new and state of the art technologies. IT and IT enabled banking services were the new age success mantra for most banks in Europe and the Americas.

The focus of banks that outsourced parts of their business to other countries was to reduce costs and increase profits. Though their approach was cautious, there were loop holes in their strategy. AMEX was one of the first banks to set shop in India in the late 90’s. Theirs was a captive centre. However over the years, more and more BPOs have shown their capability in handling banking and financial services with greater efficiency and effectiveness.

For customers of these banks, the challenge was conquering their fears of a stranger in a distant country having access to their account information and the mistrust in their ability to provide solutions. Besides, there were language and accent issues.

Some customers generally called their banks and surpassed the IVR to speak to an agent as they were not very comfortable dealing with a machine and others demanded speaking to their branch in their own country. Such issues lead to delays in service. This led to dissatisfaction amongst customers and forced many to choose banks that hadn’t outsourced their work and catered to their needs from within the country.

Data security was also one the major concerns for banks. More than customers, banks have found themselves living on the edge with account details made accessible to BPOs in other countries. With data theft being a reality in countries like India, China and Japan, it was a proven fact that banking outsourcing wasn’t foolproof.

For banks it may result in large law suits and a decrease in their customer base. Banks also had their reputation at stake. The third party vendors may follow practices that may be inconsistent with the policies and practices of the bank. Besides the political, social, legal and physical climate of the outsourcing country may impact banking services.

For example, the floods in Mumbai during the monsoons put a complete stop to all business activities for almost 3 days. Such issues do affect the level of services delivered to customers.

Here are some statistics that reveal why banks in spite of all the challenges surrounding banking outsourcing, still prefer to outsource. The National Association of Software and Services Companies (NASSCOM) revealed that companies outsourcing back-office work to India save as much as 60% of their cost every year.

In addition to this, they perceive Indian call centre agents to be more productive than agents of both the UK and the US. It has been observed that an Indian agent makes on an average 98 correct transactions compared to 95 by an agent from the UK in a day. It has also been seen that Indian call centre agents make approximately 120 transactions an hour while an agent from the UK makes only 100 calls. Moreover, the average speed of answer by an Indian call centre agent is about 8 seconds while compared to the US agent’s speed of 20 seconds.

The overall focus of banks wanting to outsource, needs to be of using IT and IT enabled services to provide newer and better channels for banking. Banks need to adopt means to identify alternate banking trends and be open to partnering and collaborating with existing players rather than build their own networks to meet the competitive challenges.

Banking at the branch needs to be replaced with virtual decentralized banking models. This can be achieved only through technology advancements that help customers to experience better services with a shorter turnaround time. Its time banks thought of giving excellent customer experience preference over just cost effectiveness.