By Dan Berthiaume
Banking is a notoriously conservative and custom-bound industry. Change does not happen quickly, and once a precedent is set most practitioners will follow it without much question. Yet when it comes to sourcing BPO, ITO and shared services from nearshore locations, US banking organizations are starting to loosen up and defy convention, helped along by changes in the nearshore outsourcing landscape.
“Outsourcing services from Latin American providers has become a trend in the banking industry in the past five to 10 years,” Andrew Efstathiou, director of the banking sourcing program at BPO analyst firm NelsonHall, said during a recent phone interview. “There was little in the way of outsourced business processes for banks 10 years ago. ITO contracts were mostly going to providers in India and the Philippines.”
One main historical stumbling block preventing US banks from adopting nearshore BPO has been limited English language capabilities among Latin American workers, especially compared to that available among Indian and Filipino workers. However, as the Spanish- and Portuguese-speaking populations of the US have grown considerably in the past decade, Latin American call center providers with native speakers of these languages have become popular with banks.
“They were already outsourcing English-speaking call center operations,” said Efstathiou. “Now they are using Spanish- and Portuguese-speaking call centers in Latin America.
The Colombian Connection
Another factor driving increased demand for nearshore banking services is the shift of Colombia, a major Latin American country with a large population, from an unstable and risky place to do business to a smoothly functioning democracy. “If you go to Costa Rica you find excellent workers, but there are only so many of them,” said Efstathiou. “It was an inhibitor.”
According to Efstathiou, in the last several years Colombia has become a more accessible place for outsourcing providers to set up delivery centers. “Colombia has a larger population than the Caribbean countries,” he said. “The government is providing opportunities to establish large-scale delivery centers and is particularly seeking to attract ITO. There is a large population available to work – companies are expanding the scope of the services they receive as their Colombian outsourcing operations mature. The stability of the Colombian government has increased in our time and there is a longtime educated workforce.”
Legal process outsourcing (LPO) is a practice that barely existed 10 years ago but is starting to take off. And some Latin American countries have an edge even on global outsourcing behemoths like India in this niche. “The issue with LPO is not language but the structure of the service provider country’s legal system,” explained Efstathiou.
This means a nearshore nation such as Panama, which uses a US-based legal system and has many lawyers trained in the US, is a better source of LPO than India, which uses a British-based legal system “similar to the legal system in the US, but not exactly the same,” in the words of Efstathiou.
According to Efstathiou, banks are discovering that certain processes are more suited to the nearshore outsourcing model than others. One factor affecting consideration is the time zone advantage Latin America offers US companies compared to “farshore” locations in Asia and Europe. “Time zone similarity is helpful for processes like error correction, where if it’s in the middle of the night on the provider end it’s not useful for real-time response. It’s expensive to maintain a third shift.”
Efstathiou said banks are also starting to move “early stage, scripted” collections processes “you can clear by dispute resolution” using a finance and accounting rubric to nearshore providers. And banks are also opening regional shared services delivery centers in Latin America. However, he cautioned that “heavily regulated” processes, such as mortgage processing, will usually be outsourced within the US to a lower-cost domestic city or region.
Finally, Efstathious said English proficiency in Latin America is improving, particularly in the area of ITO. “The international language of IT is English,” he said. “There is a growth in English at the mid-manager level. For internal IT processes, you don’t need accent neutrality.”
(A panel discussion examining Bank and Financial Industry Outsourcing will be held during Nearshore Nexus 2013, April 24 at the Jersey City Hyatt, New Jersey. Registration is now open.)