Banks increase outsourcing but slash use of consultants

There will be an increase in the use of IT outsourcing in the global banking sector over the next 12 months but the use of consultants will fall

There will be an increase in the use of IT outsourcing in the global banking sector over the next 12 months, but the use of expensive consultants will drop, according to research by Finextra.

The CSC-sponsored research, which surveyed more than 50 global banks at the end of 2014, showed banks are cautious over what they spend on IT.

It also revealed that 49% of banks plan to increase the use of IT outsourcing over the next 12 months, while only 9% of the banks said they will reduce IT outsourcing. 

Some 42% said they will reduce their use of consultants, while 22% are set to increase their use. Contractors will be increasingly used by 40% of banks, but 37% will reduce the number they use. The research also showed that internal IT headcounts will increase at 35% of banks, but reduce at 32%.

The numbers suggest banks are eager to develop IT but are conscious of the need to keep costs down, with consultants notoriously expensive resources.

“Often [consultants] are twice the daily rate of contractors, so it’s a quick way to shed costs. The results indicate more judicious usage of consultants mainly for advisory and design activity, leaving the implementation to the bank themselves or through outsourced parties,” said the research report.

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Outsourced IT is the fastest growing resource. The flexibility and cost advantages of suppliers that can tap resources in low-cost regions are increasingly popular for banks. “A wide range of flexible models incorporating outsourcing, offshoring and even insource-offshoring deals are being pursued,” said the report.

Allied Irish Bank and ABM Amro are examples of banks that have recently increased IT outsourcing.

But banks may be taking risks by outsourcing and offshoring some of their legacy operations, as well as their security. For example, although not mentioned in the Financial Conduct Authority report into the massive IT failure at the Royal Bank of Scotland in 2012, a software upgrade ended up leaving customers unable to access accounts a week. 

The CA-7 batch process scheduler froze, meaning customers of RBS, NatWest and Ulster Bank could not access funds as the banks manually updated account balances. RBS was subsequently fined £56m by the UK finance regulators.

Multiple sources said the problems were caused by a lack of understanding of the software at a captive centre in India. But Computer Weekly revealed in November 2014 that RBS was still seeking staff in India to work on its CA-7 batch process scheduler.

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