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Outsourcing enables competitiveness and efficiency
In an era of rapid digitalisation, technological advancements, and increasing regulatory demands, outsourcing remains a crucial practice for financial institutions to maintain their competitiveness. Outsourcing tasks and business processes allows banks and insurance companies to focus on their core competencies whilst benefiting from efficiency gains.
“Outsourcing is no longer just an option but a strategic necessity in the financial sector. It provides institutions with the flexibility to respond swiftly to market changes and leverage innovative technologies.”
Our latest study, Outsourcing in Financial Services, sheds light on the most recent developments and challenges in this dynamic field.
Study overview
The financial sector continues to view outsourcing as a key lever for achieving strategic objectives. Efficiency gains and cost savings rank as the second most important reason for outsourcing activities. However, our study reveals a discrepancy between aspiration and reality: 57% of respondents admit that they achieve their targeted cost savings through outsourcing only minimally or partially. This gap underscores a fundamental issue: a lack of transparency in cost drivers within the outsourcing process.
Only 21% of participants reported having full transparency of the cost drivers of their outsourced processes. Over 79% do not conduct a comprehensive assessment of outsourcing costs. A similarly sobering picture emerges for outsourcing projects: only 31% of respondents state that their approach ‘fully’ or ‘mostly’ evaluates all costs associated with new or existing outsourcing projects. At a time when outsourcing costs are expected to rise, it becomes increasingly crucial for financial institutions to adopt a more rigorous approach to cost management. The current situation suggests that many players in the financial sector are inadequately prepared for these challenges. Only 28% of respondents indicated that they regularly review their service providers’ performance against savings targets.
Cloud computing gains importance
Although generative artificial intelligence (GenAI) dominated technology discussions last year and overshadowed most other trends, our respondents rate cloud computing as more relevant.
Despite their assessment, about 65% of respondents still operate their applications almost exclusively on-premises, while the remaining 35% have already migrated certain functions to a hybrid or public cloud environment. The degree of (partial) cloud outsourcing is particularly high for central IT functions (55%) and notably low for contract management (22%) and back-office functions, such as securities settlement and payment processing, about 27%.
In the future, respondents intend to shift more business functions and processes to hybrid or public cloud environments. Over the next two years, they plan to increase their use of cloud-based applications, with an average of 45% of their applications expected to be sourced from the cloud. Despite this trend, most respondents plan to keep contract management on-premise, primarily due to concerns about client and employee data confidentiality.
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Outsourcing in Financial Services
Dynamic regulatory environment shapes outsourcing
As expected, regulatory requirements have the greatest impact on the respondents’ outsourcing management. Over 95% state that regulatory requirements significantly or extremely affect their outsourcing management. To address the importance of regulatory compliance in outsourcing, over 80% of respondents have implemented (at least to some extent) appropriate frameworks to meet the requirements for regulatory-compliant outsourcing management.
About one-fifth of respondents underwent a special supervisory audit of outsourcing management in the last 12 months. Of these, 23% reported F4 findings. This indicates an overall solid level of regulatory preparedness in the financial sector. Nevertheless, institutions should continuously develop their outsourcing management and remain vigilant as regulations evolve.
Regulatory compliance is also a factor driving sustainability requirements and standards. Over 80% of survey participants expect sustainability criteria to become more relevant when outsourcing to service providers over the next 1-2 years. Almost 60% of respondents consider their service providers ‘very important’ in achieving their sustainability goals. These findings underscore the significance of outsourcing management in advancing sustainability initiatives in the financial sector.
“In today’s financial sector, successful outsourcing requires – more than ever – a balanced interplay of cost control, technological innovation, and regulatory compliance. Only in this way can institutions remain sustainably competitive.”
Dr. Torsten Eistert,Partner at Strategy& GermanyDownload now
PwC- and Strategy&-study: Outsourcing in Financial Services
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Methodology
A total of 161 financial and credit institutions and service providers participated in our survey. The study comprised 44 questions divided into eight categories covering a broad spectrum of aspects of outsourcing management. Our analysis considered all responses to each question, regardless of whether a respondent completed the survey. However, participants who did not answer a particular question were not included in our evaluation of that question. For questions with multiple-choice options, we analysed each response individually to obtain a detailed picture of industry trends.
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Partner, Head of Financial Services Management Consulting, PwC Germany
Tel: +49 151 65071547
