Q: My bank is considering moving from in-house to outsourced core processing for several reasons, but mainly because of capacity issues as we rapidly grow. How do we determine if the outsourced model is truly right for us at this point in time?
A: Moving to an outsourced processing model is a big decision, so you’re smart to carefully weigh your options. And one of the best ways to do that is to look at your institution’s needs from all angles.
As recently as five years ago, the in-house model of core system data centers was the option of choice for many financial institutions. However, accelerating technological advances in the financial services industry, along with increasing regulatory pressures, are changing the way banks view their current business models and ongoing needs. And for many, outsourced core processing is making a lot of sense.
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Further, as digital channels multiply, it’s become increasingly expensive — yet critical — to maintain constant, uninterrupted service from these various touch points. Outsourced processing deployment, however, is ideally suited to handle this challenge while keeping costs to a minimum.
In point of fact, according to a Bank Systems and Technology report, about 80 percent of new core system contracts in 2010 featured outsourced deployment.
As you evaluate your choices for managing back-office operations, consider these advantages of outsourced data centers:
- Ability to Focus On Profitable Activities: The race to keep up with today’s technology, as well as rising regulatory burdens, consume increasing resources—both human and financial. This comes at the expense of the primary activities that have made your bank successful, like making loans, providing individualized customer service, and analyzing profitable customer relationships. Outsourced processing allows you to refocus on those customer-centric business activities that are most important for growth, without sacrificing quality or service in the back office.
- Reduced Costs/Greater Efficiencies: Back-office functions are complicated in nature, and many banks find difficulty in performing those functions at a consistent and reasonable cost. Small banks are hit hardest by this problem, since back office employees don’t generate revenue, yet costs are often the same as they are for larger banks. Plus, institutions using an outsourced delivery mode tend to see fewer surprise expenditures popping up.
- Disaster Recovery/Regulatory Compliance: You have a bank to run, so make this your core processor’s problem. Outsourced core deployment provides the support you need to streamline disaster recovery, regulatory compliance processes and business continuity planning, and does so without additional in-house expenditures.
- Staffing Flexibility: Outsourcing allows institutions that have seasonal or cyclical demands to bring in extra resources only when needed. In addition, as competition for experienced IT professionals grows ever fierce, your reliance on full-time IT employees decreases.
- On-demand Scalability: An outsourced core environment grows along with your bank, eliminating concerns of capacity limitations, infrastructure adjustments, and additional IT staff and system hardware. Because of this, implementing new products and services is easily accomplished.
- Competitive Advantages: Armed with increased scalability, your bank can be first to market with new solutions. Further, the right core banking system can help your bank deploy and maximize the effectiveness of these solutions, relieving your staff from owning all the burden.
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