CHAPTER NO.

1. INTRODUCTION

 HISTORY:
 The idea of outsourcing is not new. It started way back in the 1700s when
manufacturers started shifting the manufacture of goods to countries with
cheaper labor during the industrial revolution, following the precepts of Adam
smith in his book ‘The Wealth of Nations’. The history of outsourcing to India
is an interesting story. Even after over a decade of competitive global
outsourcing, most of it still goes to India. Reaching this pinnacle in
outsourcing has been a long journey. As land, sea, and later, air routes
developed between the 15th and 21st centuries ,more nations started to
outsource trade to other nation, eventually leading to outsourcing to India and
other nations.
 Why do companies actually outsource? In earlier times, cost and headcount
reductions were the most common reasons to outsource. Today, the drivers are
often more strategic, such as how a company can best utilize its own core
competencies. Though the outsourcing of manufacturing is an old story,
outsourcing to India started in the 1980s and rapidly accelerated in the ‘90s. In
today’s world where information technology has become critical to business,
the meaning of outsourcing has undergone a drastic change over the years.
Companies have started focusing on their core competencies and outsourcing
many non-core functions, for which they had no competence internally.
 The banking industry has witnessed an all-round expansion and growth
fundamentally driven by heightened competition, rapid technological
advancements, financial inclusions changing regulatory environment and
consolidation etc. This rapid expansion and the growth in the industry,
centralization and penetration of I.T. systems, the need to focus on core
services and introduction of new services have influenced the need of
outsourcing in the banking industry. Apart from cost saving and accessing
specialist expertise not available internally, for achieving strategy aims and
efficient delivery mechanism, outsourcing remains preferred destination for
enabling perfection in selective business processes.
1.1 Definition of Outsourcing

Outsourcing can be initial transfer of an activity (or a part of that activity) from a
regulated entity to a third party or the further transfer of an activity (or a part
thereof) one third party service provider to another, sometimes referred to as
“subcontracting.” In some jurisdictions, the initial outsourcing is also referred to
as subcontracting. Firms should consider several factors as they apply these
principles to activities that fall under the outsourcing definition. First, these
principles should be applied according to the degree of materiality of the
outsourced activity to the firm’s business. Even where the activity is not material,
the outsourcing entity should consider the appropriateness of applying the
principles. Second, firms should consider any affiliation or other relationship
between the outsourcing entity and the service provider. While it is necessary to
apply the outsourcing principles to affiliate entities, it may be appropriate to adopt
them with some modification to account for the potential for differing degrees of
risk with respect to intra-group outsourcing. Third, the firm may consider whether
the service provider is a regulated entity subject to independent supervision.
According to this definition, outsourcing would not cover purchasing contracts,
although as with outsourcing, firms should ensures that what they are buying is
appropriate for the intended purpose. Purchase is defined, inter alia, as the
acquisition from a vendor of services, goods or facilities without the transfer of
the purchasing firm' non-public proprietary information pertaining to its
customers or other information connected with its business activities. This paper
will refer to a regulated entity as the body that is authorized for a regulated
activity by a regulator. The principles set forth in this paper are targeted at such
entities. Third party or service provider refers to the entity that is undertaking the
outsourced activity on behalf of the regulated entity. The term regulator refers to
all supervisory and regulatory authorities that authorize firms to undertake any
regulated activity and supervise that activity.
 1.2 Indicative List of Activities That Can Be Outsourced.

Financial services that can be outsourced by the bank may include

application processing (loan origination, credit card), document processing,
marketing and research, supervision of loans, data processing and back office
related activities. An indicative list of activities that may be considered for
outsourcing shall be as under:
 Opening, settlement and closing of account.
 Issue and processing of cheques.
 Managing of customer queries ( call centers )
 Recruitment, selection and training of personnel.
 Administration of payroll and taxation.
 Marketing of bank products.
 Cross celling of bank products like insurance and mutual funds.
 Credit card and debit card customer acquisition / queries.

The Above list is indicative only and not exclusive. Additional activities within the
definition of outsourcing can also be outsourced by the ban

1.3 Activities that should not be outsourced

Core management function including internal audit, compliance function and

Decision-making functions like determining compliance with KYC norms for opening
deposit accounts, according sanctions for loans (including retail loans) and
management of investment portfolio shall not be outsourced by the bank.
1.4Theory of Outsourcing

International trade theory is based different factorial endowments and

Their international immobility across nations. It is possible that factors like
technology are mobile and similarly knowledge based services and intellectual
property rights are patented in one country are transferrable. Patents and copy rights
are usable across borders, although their origin is national. Generic forms of drugs,
patented in one country transferable for a fee or royalty.

Some factors are thus national in origin but transferable in their usage
Services across borders. MNCs are Multinational Corporation and their goods and
services are originating in one country or more than one country but are used in many
other countries. Thus, factoral services are mobile and these services are transferable
across borders due to advanced technology and telecommunications and IT related
services. There are many companies, including banks which are using the services of
skilled person, specific technology, and software programs of another country other
than that of the outsourcing country.
There are strong grounds and visible advantages of saving in time and
Cost by Outsourcing some services from another company outside the country of the
outsourcing company. The server company doing outsourcing business is specializing
in this business or processes and has the expertise and experience in providing quality
services and at lower costs than that of outsourcing company. The MNC for example
can use the services of research and development, market penetration through
relating, clinical tests etc. in china or India, although its home country is USA or UK.
Both outsourcing MNC and server company stand to gain by specialization and cost
saving.
1.5Outsourcing by Banks

Banks have a lot of routine work of a repetitive nature, which can be

outsourced inside the country. Here outsourcing refers to the use of a third party to
perform certain activities on a continuing basis that would normally be undertaken by
the Bank itself. There are many areas where outsourcing by banks are feasible and
advisable, like the door to door of the customer, data processing on cheques/drafts for
collection –in station or outstation, TT, MTs, and Bills etc. Sent for collection and
attending to customer enquiries, collection of receivables, recovery of loans, etc.

There are many risk in outsourcing, such as strategic risk, reputation risk,
compliance risk, operational risk, exit policy risk, counterparty risk, country risk,
contractual risk, access risk and systematic risk. Both the outsourcer and the service
provider have to ensure the effective management of these risks. Inter-country
systems and privacy maintenance are the other aspects to be taken care by both the
parties to the outsourcing contracts.

Any failure or lapses on the part of either party may have serious
repercussions on the outsourcing bank and the whole banking system in the country.
So the board of Directors and Management have to provide strict rules and guidelines
to outsourcing process and to the service provider. They have to take care of all the
above risks and avoid any lapses.

The bank has to analyses how the arrangement will fit into its organization
and reporting structure; and conduct appropriate due diligence of the service
provider’s financial soundness, integrity, quality of services, and its past experience
and expertise. When performing due diligence, the bank has to consider laws,
regulations and guidelines of the top management, of the government or the central
bank and its regulatory risks and privacy risks. Care has to be taken in the original
contract itself to provide for all such risks and contingencies and course of action left
for the aggrieved party.

The Bank planning to outsource any activity has to check whether it is

“material outsourcing”, which will promote, quality and efficiency of service and
reduce the cost and increase profits. In other words, outsourcing should have material
benefits to the outsourcer, whether it is a bank or any other company. LIC and post
offices have a wide network of agents who extend their services to far off places,
remote villages and towns. Such Internet sales companies are planning to use these
agencies for outsourcing their door to door delivery work.so is the case with banks.
Already banks like Kotak Mahindra have been outsourcing the work of customer
service, home delivery service and other banking services, particularly for cash
pickup and cash delivery, etc.

1.6 Activities Outsourced By Bank:

Presently the following services activities have been outsources by the bank
Credit card acquisition issuance and the reconciliation
The bank has an agreement with venture Info Tech Global Pvt. LTD. Mumbai
now M/S ATOS world line. The outsourced activities debit card, credit card insurance
management function and managing outsource business process in our card section.

Engagement of business correspondence for financial inclusion

For implementation of financial inclusion plan for 1260 unbanked villages

approved by the B.O.D’s on 28th February 2011 through B.C model engaging VLE’s
as CCS’s as BC’s

Engagement of FINO for transaction management for smart cards

The services covered are creations of Smart Cards, supply of POT machines
maintain transactions generated through the operations of the smart cards at the FINO
server and then redirecting these transaction technical support team of FID for upload
of finacle. The bank has an agreement with FINO for the above service functions. The
concerned Department monitoring and managing outsourced function B & C is our
financial inclusion Department.

Asset management & salvage solutions (ATMA)

The bank has an agreement with M/S asset Management & salvage solutions
(ATMA) for recovery and resolution of NPA and stressed assets for the state of
Jammu and Kashmir. Asset Monitoring and Information Department (AMID) is
monitoring and managing this business process.
1.7Outsourcing as Extension of Foreign Trade:

Outsourcing refers to raising value additions through the help of outside

agency inside or outside the country of origin. This can be Business process outside
the country for reason of availability of necessary skilled manpower and cheaper costs
of such value addition. IT based professional service have been the starting point of
outsourcing. Many US firms and UK firms started the use of this facility of the work
of skilled manpower in India in the fields, amenable to outsourcing, namely, IT
computer software programs, Data processing etc. these fields have been added to
printing medical transcription, clinical tests, Accounting and Auditing and so on down
the line.

Some Indian companies are also outsourcing abroad, such as Wipro,

Ranbaxy etc. Mortgage business in respect of real estate, housing etc. involve a lot of
paper work, which is being outsourced by many US firms. Some companies specialize
in this job of undertaking outsourcing work in various fields both in the US and India.
Servicing Housing loans is a full time job in the mortgage business in the US,
undertaken as BPO by some specialized business firms or independent BPO, like
Clear to Close (CTC), Visio net Systems (VS) and String Information Services (SIS).

The majority of US firms are reported to be happy with the BPOs in India.
But there are some other among US, IT firms who are unhappy with the quality of the
work being done in India. The hassles include the safety and security or privacy of the
data in the IT based industry. Nasscom wants to create a global Regulatory Body – an
SRO which will help the IT and BPO industry to create and inforce a code of conduct
and to maintain certain standards of privacy and security.

BPO industry has grown in gigantic proportions recently in the service

industry and has become an extension of foreign trade through movement of service
of factors immobile across borders. There are both advantages and disadvantages of
the growing field of BPO.

1.8New Trends in Outsourcing

New Trends are emerging in outsourcing. One is the increasing competition

because of new entrants into this business. Secondly is the quality consciousness
among the outsourcers and the outsourcing companies, as quality standards have been
reported to have fallen as per the companies, feedback from outsourcers. Thirdly, with
increasing volumes of data, the question of compatibility of systems and processes
has increased. Lastly, there are reports of piracy and misuse of data inputs for the
purpose of divesting funds or swindling or cheating in the BPO industry in India.

HERO-ITES is one of the Indian business process outsourcing companies

which has a large American client base, particularly in Finance and Telecom sectors,
due to its joint venture partner with the American customer service company
“Livebridge”. As at mid-2006, it was reported that HERO-ITES, has entered into a
partnership with the Australia’s largest call Centre, “Sales Force”, which will bring
in with at about 70 Australian clients. This partnership may flower and grow into a
joint venture in the near future and HERO-ITES will have first Indian presence in
Australian BPO market, with an advantages of expertise and experience.

In the Indian IT Infrastructure outsourcing, two emerging features are

noticed, namely multiple sourcing and shift to short term from long term contracts.
New comers like HCL Coment, Infosys, Wipro and TCS are challenging ventures like
EDS, CSC and IBM in infrastructure outsourcing. Multiple outsourcing to many
players is fast replacing contracts awarded to single players before. Besides, the long
term deals have become outdated and short term selective outsourcing has become the
order of the day. Remote Infrastructure outsourcing (RIM) model is the fastest
growing segment of BPO industry and is expected to hit $7 billion mark by 2010.
Infrastructure outsourcing will continue to grow as an on – shore cum off – shore mix
model with global delivery system and disaster recovery management.

1.9 Strength of Business Process Outsourcing (BPO):

The years 2004 was a boom time for the Indian Business process and
outsourcing sector. The impetus for this boom came from the strong fundamentals of
the economy with a GDP growth rate of 7 to 8% and exports crossing a growth rate of
20%. The boom in the economy is reflected in the fastest growth of the Sensex of
BSE, which is a window of the economy. The BSC Sensex (Base 1978-79=100) rose
from a low of 2,924 in 2003-04 to an all time high of above 12,000 in May 2006
(12,671 on May11,2006). Many foreign countries have evinced increasing confidence
in the ability of BPO sector in India to deliver quality services. The companies the
world over are today looking at the ways to increase efficiency lower the costs by any
possible method. The Business process outside India has come in handy with skilled
manpower and lower wage returns relative to the US, UK and all countries covered by
EU.

Outsourcing business in India has captured just about 10% of the world’s
market in this regard, which is estimated at around US $ 300 billion. The IT services
go alongwith BPO services. The business professional services in the form of IT is
estimated at around $ 150 billion and the BPO services at around another $ 150
billion. This outsourcing business is expected to grow, in the years ahead, as it has
proved its worth both to the giver and the taker (namely the exporter and importer).
The BPO sector will surely expand in India, but the main road block, are the shortage
of skilled persons, and the rapid turnover of these persons on the job, after being
trained for this purpose. BPO is taking place in many service industries like banking,
hotels, travel and tourism not to speak of customer service and IT software.

Knowledge Process Outsourcing (KPO):

Outsourcing of job that require knowledge, skill, expertise. The work in KPO
involves process like:

 Research & Development

 Financial Consultancy and services
(Nurture Academy is going to train part of this services)
 Advanced Web Applications
 Business and Technical Analysis
 Learning Solutions
 Animation & Design
 Business & Market Research
 Pharmaceuticals and Biotechnology
  Medical Services
 Writing and Content Development
 Legal Services.
 Intellectual Property (IP) Research
 Data Analytics
 Network Management
 Training and Consultancy

Reasons behind KPO include an increase in specialized knowledge and expertise,

additional value creation, the potential for cost reductions, and a shortage of skilled
labor in respective countries. Regions which are particularly prominent in knowledge
process outsourcing include India, Sri Lanka, and Eastern Europe, especially Poland,
Romania, and the Baltic states.

India, with its large pool of talented professional and specialized domain workers, is
quickly becoming the central hub for what is known as knowledge process
outsourcing (KPO).The Indian KPO sector offers global customers with a wide range
of services among various industry verticals

CHAPTER NO. 2

2. CONCEPT
2.1 TYPES OF OUTSOURCING
Outsourcing is the process by which an organization contracts with another
individual company to get some of its work done. Viewed this way. Most
organizations go for some kind or other kind of outsourcing. Generally it is non-core
aspects of the business that are outsourced

The firms that offer the services thus required are called service providers or
third-party providers. Business may thus tie up with service providers for either
individual processes or whole project or operations. Outsourcing can be divided into
the following categories.

 BPO (Business Processes Outsourcing)

 KPO(knowledge Processes Outsourcing)
 Data entry Outsourcing
 IT Sector Outsourcing
 Health Sector Outsourcing
 Financial Sector Outsourcing
 Engineering Service Outsourcing.

1. Business Processes Outsourcing:

Typically, BPO service include:

Inbound call center services - These typically include answering service that are
available 24*7. Call center agents can also be trained to up-sell and cross sell
services, take orders, and provide information on the benefits and features of
product/services

Outbound call center services – these include services like telemarketing service, lead
generation services, and market intelligence service

Technical helpdesk services – This includes technical after-sales support for products
and services

2. Knowledge Process Outsourcing (KPO):

A KPO typically provides domain-based processes and employs advanced analytical
skills and business expertise, rather than just process expertise. Some research service
include:

Market research and analysis –these service help the business extract useful
information that reveals current trends and provides inputs for decision-making.

Web-based market research – This services help collect information from different
website, as compared to primary research where data is directly collected from
respondents, data is collected from secondary sources like government publications
and newsgroups.

3. Data entry outsourcing:

All organizations, whether big or small, have data entry requirements. Data entry
outsourcing can be divided into:

Online data entry – These includes services such as compilation of from websites and
e-books, updating online catalogs, and creation of databases

Offline data entry- These include services such as offline data capture, fillings of
forms, forms processing, and data entry from one format/ version to another, MS
Word document data entry, etc.

4. IT sector outsourcing:

IT outsourcing typically includes outsourcing of software development. This may take

the form of end-to-end outsourcing where all activities related to design,
development, and testing are outsourced. In other cases, only a part or portion of the
overall system is outsourced for development. This is in cases where the client does
not have the requisite skills or technology for the development work.

5. Healthcare sector outsourcing:

Medical outsourcing includes a diverse range of HIPAA compliant services. These

include:

Medical transcription services –These include services to transcribe information from

a variety of audio sources and file formats such as MP3, MPG, MOV, etc.

Medical coding and billing services – These services are delivered using popular
billing software like medic and Lytec
Teleradiology services – These services provide 24*7 access to qualified radiologists.
6. Financial sector outsourcing:
Accounts outsourcing services include:

Accounting services – These include preparation of financial statements for the

statutory annual audit, cash forecasting services, and payroll services.
Bookkeeping services – These include preparation and maintenance of both day-to-
day books as well as monthly and quarterly accounts. It also includes preparation of
different kinds of reports like sales reports.

Financial analysis services – These include analysis of financial information such as

financial statements, portfolio structures, and offer documents.

7. Engineering services outsourcing:

These include a range of mechanical, civil, structural, and architectural engineering
services:
Computer aided design (CAD) services to develop prototypes.
2D drafting services.
Conversation of paper drawings into a digitized format.
Design and analysis for residential and industrial buildings.
Architectural visualization services (3D rendering 3D animations).
Services for evaluation and deteriorating structure.

2.2. SERVICES OF OUTSOURCING

Services:

Indian BPO providers provide this service for banking and financial industries
at the best competitive price. We are a leading BPO service provider for the banking
& financial industries in India. We have been providing banking & finance BPO
service globally for more than 5 years. Our BPO service are cost effective, enlarging
banking scope and optimizing the respective revenue within a short span of time. We
offer following BPO services for banking and finance Industries

1. Retail Banking

We offer back – office and front office services for small, mid-sized to large
enterprise bank as we have large team of trained and smart software professionals.
Our banking & finance BPO service include new account set up, checks and returns
processing, payments and transactions processing, query handling via phone and e-
mail, collections and client report.

2. Commercial Banking
 As we have a team of proficient business analysts, we offer full range of
services to support the loans & advances value chain, from package review and
underwriter to booking, insurance, taxes, cash applications, customer servicing,
portfolio servicing, collections through final pay off. We also offer service in risk
operations such as agency & branch payments, offset posting and moreover check
fraud research posting.

3. Mortgage Services
Indian BPO’s offer an end –to-end mortgage BPO solutions that help lenders
address challenges. Our mortgage service integrates our innovative business analytics
and solutions to reduce costs and enhance efficiency. Our mortgage service include
support sales, processing, underwriting, closing and funding, post close and quality
control as well as servicing.

4. Credit Cards
We have rich experience in the credit card industry. Our credit card finance
BPO service cover activities such as lead & campaign management, support
document management, data verifications, account maintenance, static data/card type,
status changing process maintaining sweep accounts/debit authorization, payments
and settlement activities etc.

5. Investment Services

As we have vast experience in the banking and finance industry, we

understand the importance of quality & accuracy and strives to meet the most
stringent demands. Our emphasis are not only to concentrate in supplying the right
analytics and technology to drive efficient processes, but also on supplying the right
people at the right time.

Administrative cost. Can be a great way to get quality results, without paying high
prices. You can achieve quality results by outsourcing firms who are expert in the
certain areas of your business. This allows you to easily capitalize on their expertise
and abundant knowledge. Furthermore, it allows you the flexibility to focus more on
your core business operations, while cutting down on

2.3 FUNCTIONS OF OUTSOURCING

Outsourcing can be a great way to get quality results, without paying high prices. You
can achieve quality results by outsourcing firms who are experts in the certain areas of
your business. This allows you to easily capitalize on their expertise and abundant
knowledge. Furthermore, it allows you the flexibility to focus more on your core
business operations, while cutting down on administrative cost.

There are several basic business functions that can easily save you time and
money by outsourcing. They are:

1. Manufacturing:

Manufacturing is the business of producing industrial good, and can

encompass anything from embroidered has to drill parts to car stereos. Manufacturing
is capital intensive, meaning that it involves a lot of money and specialized machinery
and operation who know how to work them, and modern manufacturing often
involves frequent changes to machinery and production.

2. Human Resources

Keeping up with benefit packages, employee law standards, and wage issues
are functions that should not be taken lightly. The human resources department needs
continuous training and education as laws, benefits and protocols change frequently.
Therefore if you are concerned about the high cost that accompanies hiring employees
and providing consistent training, then you probably can achieve the same goal by
hiring a great reputable human resources firm to perform these functions for you.

3. Legal Services

This is a controversial issue, but it demands some discussion. Many

companies are outsourcing their basic legal needs to companies that are located in
places such as India.

Some American companies are requiring that their basic legal task to be performed by
legal documents, searching legal codes or drafting contracts. If that is not enough to
convince you, companies such as DuPont, Morgan Stanley and Cisco systems were
said to have successfully outsourced their 14 legal departments to an outsourcing firm
permanently. Not to mention, these firms are located in India.
4. Accounting or Book Keeping Services.
There are many accounting firms that offer outsourcing capabilities that are
both convenient and economical. These firms can do everything from pay vendors,
invoice clients, pay employees, prepare quarterly payrolls/sales tax reports and
provide online access to all of your information. You are also assigned a
representative to your account, in which you can contact if you have any questions.

5. Information Technology

It outsourcing needs is a great way to save on cost and office space. Instead of
hiring an IT department, you can hire an IT firm who would be able to perform the
same services as your employees would. Now with the advancement of technology it
makes it even easier to perform and manage IT issues remotely. Most outsourcing
firms provide both onsite and remote monitoring, desktop support services,
hardware/software updates, training and technical support.

6. Website services

This is another great way to effectively outsource a much needed function.

Website design and development is not a job that needs to be conducted at your
office. Outsourcing allows you the option of selecting form a local firm, or one that is
miles away from your business. Most firms can assist you with many internet related
activities such as website design/development, email marketing, search engine
optimizing and e-commerce. Therefore, by creating an informative and quality driven
website, you can rest assured that your web presence will give you a “leg up” on the
competition, without the added cost.

7. Knowledge process outsourcing

Companies can decide to outsource some of the high value and high skill
requiring jobs to places where they can have access to some of the best talent in that
particular field. People working in a KPO are highly skilled and qualified individuals
such as lawyers, doctors, engineers, MBA’s Chartered Accountant, Company
Secretaries etc. Experts in market research, investment banking and research, medical
research, patent management and research, legal research, engineering and
construction specialist etc.
 The list of functions that can be outsourced can be endless. What should of
course be kept in mind is the nature of your business and the demand of your
customer. Outsourcing can help increase your profit

2.4ADVANTAGES OF OUTSOURCING:

Following are the advantages of outsourcing:

1. Reduced Operational and recruitment costs

Outsourcing eludes the need to hire individuals in – house hence recruitment

and operational costs can be minimized to a great extent. This is one of the prime
advantages of offshore outsourcing.

2. Risk-Sharing

One of the most crucial factors determine the outcome of a campaign is risk
analysis. Outsourcing certain components of your business process helps organization
to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor
is a specialist, they plan you are risk – mitigating factors better.

3. Concentrating on the core process rather than the supporting once

Outsourcing the supporting processes gives the organization more time to

strengthen their core business process.

4. Swiftness and expertise

Most of the times tasks are outsourced to vendors who specialize in their field.
The outsourced vendors also have specific equipment and technical expertise, most of
the times better than the once at the outsourcing organization. Effectively the tasks
can be completed faster and with better quality output.

5. Lower personnel costs

Some businesses choose to take their outsourcing one step further but
choosing a vendor, located in another part of the world. Doing so typically saves them
more money because they end up paying a much lower wage than would be necessary
in their home country by outsourcing job duties to non –employees, a business does
not have to pay consistent wages or offer additional employee benefits.

The company may pay lower taxes because independent contractors, the
people who complete the outsourced projects, pay their own withholding, social
security and other taxes. This can add up to substantial savings.

Outsourcing gives a business the flexibility to change third-party vendors

whenever necessary. This process is not as a time consuming as the normal employee
hiring process, because they are not screening individuals, they are considering
established with proven track record.

2.5DISADVANTAGES OF OUTSOURCING
Some of the major disadvantages to outsourcing include poor quality control,
decrease company loyalty, a lengthy bid process, and a loss of strategic alignment,
etc. Following are the disadvantages of outsourcing.

1. Risk of exposing confidential data

When an organization outsources HR, payroll and recruitment services, it
involves a risk if exposing confidential company information to a third-party.

2. Hidden costs

Although outsourcing most of the times is cost effective at times the hidden
costs involved in signing a contract while signing a contract across international
boundaries may pose. A serious threat.

3. Lack of customer focus

An outsourced vendor may be catering to the expertise needs if multiple

organization at a time. In such situation vendors may lack complete focus on your
organizations tasks.

4. Synchronizing the deliverables

 In case you do not choose a right partner for outsourcing, some of the common
problem area include stretched delivery time frames, sub-standard quality output and
regulate these factors inside an organization rather than with an outsourced partner.

5. Undesirable results

One of the biggest disadvantages of outsourcing is desirable results. This is

especially true when a company hires a third-party vendor to mass produce a product.
In the event that the finished product do not meet quality standards, the manufacturing
process must be repeated be a different vendor. Not only is this a waste of time and
materials, it can also be very costly for the company who outsourced the project. They
are essentially paying twice for the same job. In addition there is always the
possibility that the company may lose sales, during this some period because of the
lack of available product.

6. Unemployment
Another disadvantages of outsourcing is a loss of jobs. Many times work is
outsourced simply as a means to save money. Outsourcing to a foreign country
typically saves a company a great deal in wages. So the choice is made to reduce their
local workforce at the expense of the laid-off employees. In turn, it can cause
community uproar and even a decrease in business and profits. This happens when
local consumers make the decision to shop elsewhere, as a way to voice their disdain.

2.6PROCESS AND ACTIVITIES IN BANKING AND FINANCIAL

SECTOR

2.6.1. Process-specific outsourcing trends that will drive growth in banking and
financial sector:-

1. Mortgage market

This will be an area of intense outsourcing focus over the next couple of years, with
mortgage volumes continuing to rise because of HARP (Home affordable refinance
program) and HARP II. Many mortgage companies liquidated assets during the
financial crisis; they terminated leases on space and eliminated staff. The market has
since seen a huge spike resulting in the HARP-related origination for refinancing.
Buyers are thinking about ways to handle the new volume while hedging against
future volumes vulnerability. The ability to support certain business activities from
domestic markets will also be an important differentiator, especially to remain
onshore. The secure and fair enforcement (SAFE) at requires standards and licensing
at a state level for mortgage loan originators. SAFE also mandates that many
organization elements need to remain onshore.

2. Credit card business

This activities remain a hot area for outsourcing because of scale (especially in
customer service) and many of the card processes are standard. What is becoming a
key provider differentiator is location the ability to offer clients location in North
America and to support language requirement around the world. Canada has therefore
become a very popular location for credit and processing. According to numerous
studies, Toronto is the most culturally diverse city in the world, Followed closely by
New York, fraud is another significance area of interest, driven by providers’ ability
to support related processes with new and better technology. US based providers are
making a strong play in this market.

3. Commercial lending

An emerging area in the outsourcing business, commercial lending had long been
considerate too complex to outsource, falling into the KPO category. To development
are new making it possible to look at outsourcing commercial lending. First, the
number of experienced individuals in India in this line of business has grown
substantially in recent years. Second, more providers are offering hybrid models, with
domestic US teams working jointly with offshore teams to bring business acumen to
the program. The effectiveness levels have grown as result, creating options for
buyers.

4. Mobile Banking

Mobile banking is a primary tool financial institution use to interact with different
customer groups. Outsourcing opportunities will began with the platforms, than move
into service support and analytics. Finally, there will be in increase in support
required by either the buyer or provider for the new areas to ensure that they are
meeting all regulatory requirements for these emerging areas.

5. Payments

As the new product enter into the market other are declining in volume. Take check
payments. They continue to drop every year not disappears completely for many more
years, creating a big opportunity for strong aggregation play. Financial institution
reluctant to invest in new technology or talent development in a declining area that is
nevertheless a core business process substantial technology and labor. For providers
to aggregate these volumes from multiple customers payment processing is a long
term cash cow. At the Knowledge Community for Global Business & IT service the
sometime, providers to would be wise to look at the electronic payments to
understand the future of payments and support critical relation exception and
reporting.

6. Risk and compliance

Reluctant to outsource this area before the recession, most financial services
companies have seen this operations double in size, and half the new regulations have
yet to be implemented. These is a labor shortage in experienced risk analysts in the
United States, has not yet been adapted to the new risk-related requirements. Because
of this, expect to see more work around reporting area outsourced. US-based
providers and some private-label players will have a significant competitive
advantage with their ability to leverage an extensive domestic presence and
experience. Much risk and compliance work would fit well in offshore model. The
challenge is to identify what regulators will allow offshore and to secure enough
experienced resources to support the work.

2.6.2 Risk arising out of outsourcing:-

Outsourcing of financial services expose a bank to a number of risks which need to be

evaluated and effectively managed and mitigated. The key risks that may arise due to
outsourcing are:-

Strategic Risks -
 The service provider may conduct business on its behalf, which is inconsistent
with the overall strategic goals of the bank.

Reputation Risks -

Poor service from service provider, its customer interaction may not be
consistent with the overall standards of the bank.

Compliance Risk -

Privacy, consumer and prudential laws may not be adequately complied with
by the service provider.

Operational Risk -

Arising due to technology failure, fraud, error, inadequate financial capacity of

service provider to fulfill obligations and/or provide remedies.

Legal Risk -

Includes, but is not limited to, exposure to fines, penalties or punitive damages
resulting from supervisory actions, as well as private settlements due to omission and
commission of the service provide.

Exit Strategy Risk -

This could arise from over-reliance on one firm, the loss of relevant skills in the bank
itself preventing it from bringing the activity back in –house and contracts entered
into wherein speedy exits would be prohibitively expensive.

Counter party risk -

Due to inappropriate underwriting or credit assessments.

Country risk -

Due to political, social or legal climate of country where the service provider is
located

Contractual risk -
This risk arise from inability or degree of the ability of the bank to enforce the
contract with the service provider. Concentration and Systemic Risk – due to lack of
control in the bank over service provider, more so when overall banking industry has
considerable exposure to one service provider. The failure of the service provider
providing the desired services covered by the terms of agreement or any non-
compliance of any legal/regulatory requirement by the service provider can lead to
reputational or financial loss for the bank which can be trigger a systematic risk in the
banking system as such.

The imperative therefore will be securing effective management by the bank for the
mitigation of this risk.

Access Risk -

Outsourcing arrangement hinders ability of regulated entity to provide timely data and
other information to regulators. Additional layer of difficulty in regulator activities of
the outsource provide.

Systematic Risk -

Overall industry has significant exposure to outsource provider. This concentration

risk has number of facets, including:

Lack of control of individual firms over provider,

Systematic risk is to industry as a whole.

2.6.3 Outsourcing Solutions for Banking & Finance Industry

Our secure and accurate solutions for clients such as lending firms and
investment banks include:

Providing advanced software applications.

Maximizing the productivity of internal processes.

Reducing the risks related to banking and financing.

Ensuring back-end support for new acquisitions.

Profit-driven initiatives to improve scope of business.

Implementing effective strategies in a competitive market place.

Regulating services with latest computing aids for business continuity.

Reflecting technological standards in the field of banking and insurance.

Valuable outsourcing services:

HI-Tech Export (HTE) increases the value of financial activities carried out in
the retail banking sector with features such as:

Increasing the operational efficiencies of financial institutions.

Establishing proven methodologies for transforming business process.

Remaining in compliance with the banking sector reforms the best quality.

Depicting international standards even while concentrating on local businesses.

Providing maximum customers as well as technical support reflecting timely needs.

Assisting clients whenever there is a need of more sophistication in banking sector.

Creating maximum scope for business enrichment with latest computer software.

We are known for delivery global business solution whenever our customers
require them the most. Having several years of experience in churning out strategies,
we show the right path for companies in achieving the desired target in accordance
with the banking and financial sectors.

Our list of clients include fortune 500 companies that are known for
bringing in phenomenal changes in the way banking transaction are carried out in any
situation. At THE, our experts are known for facilitating workflow according to the
latest business requirements in fields of banking, insurance and investments.

Benefits:

We provide the below mentioned benefits satisfying all the norms related to banking
and finance;

Creating efficient strategies for clients dealing with investment banking

Providing cost-effective solutions that can be considerate under any given solutions

Offering round-the-clock assistant as part of a resolving the issues related to banking

Making best use of available expertise to offer solutions related to financial issues

Enhancing the scope of clients in dealing with asset management aspect

Complete outsourcing service for a various needs such as offshore banking.

2.6.4Outsourcing of Accounting & Bookkeeping Banking Services

Bookkeeping is a tedious but a necessary process with any company or

financial institution. Maintain accounts of financial transactions can put huge burden
on your operating and administrative costs especially if the volume of transaction is
high. Outsourcing has come as a breather to banks-cutting down operational costs and
saving time that can be invested in strategic functions.

Bookkeeping Processes at Outsource to India:

Based on nature of a bookkeeping project and your preference you can choose
from among three processes that we employ for our banking services:

Server Based Bookkeeping

In this process you can scan and upload your documents to a secure FTP
server. Once this is done we will downloads, update your books and then re-upload
them back to the server. You can also e-mail us the documents which open updating
can be either e-mailed back to you or uploaded to a FTP server.

Remote access bookkeeping

You can also grant us remote access or VPN (Virtual private network) access
to your computer or to a server that you choose. We can work directly on your
machines directly on your machines without worrying about the security of the data.

Application Service Provider (ASP) Bookkeeping

 If you use an online accounting software service such as Quick Books
online. Com, then either you can e-mail or upload the documents that need to be
updated. We will login through to the online accounting software and update the
books. Once completed, we will contact you and you can login to the application to
check the status.

Can banks outsource bookkeeping services?

Banks, unlike other organization, need to be engage in daily bookkeeping

tasks because of nature of their operations. This poses a greater risk and challenge in
having accurate records of your accounts. Even a slide error in the books might result
in disastrous consequences.

Outsource to India’s bookkeeping services for the banking industry

Outsource2india can handle the entire gamut of bookkeeping and accounting

activities that banks have to deal with. These cover

Daily ledger and journal entries

Maintenance of Accounts Receivables and Accounts Payables

Preparing and updating Profit and Loss (P&L) Statements

Preparation of Balance sheets and Income Statements

Updating Bank reconciliation Statement

Ageing Reports and Summaries

Preparation of tax Statement

Maintenance of Assets and Liabilities books

Generating quarterly, monthly and yearly Cash Flow Statement

We use the latest accounting software tools such as:

Quick books

Peachtree

Quicken
Creative Solutions Accounting

Master Builder

Microsoft Dynamics

Oracle Financials 11

2.6.5Why should your bank outsource bookkeeping

Additional banking services by outsource to India

Apart from bookkeeping services, we also provide a range of banking services

covering specific business area like:

Credit card and loan processing

Payroll processing

Mortgage processing

Securities processing

Check collections

Accounts analysis

Check imaging and conversation

Payment verification

Financial analysis

Tax preparation

Outsourcing to India – your bookkeeping services and baking

services

Partner:
Outsource to understand that your needs are unique and immediate. We have always
emphasized on understanding your business objective as much as your project
requirements. This has allowed us to build long standing relationship with our
customers. Some more reasons way we can be your partner in bookkeeping service &
financial service:

Faster closure of books every time-means you can invest this time in strategic tasks
such as growing customers relationship

Specific operational focus on US based banking and financial institution

We are proficient with the bookkeeping standards of different countries and can meet
your exact needs

We can offer other lateral financial services-you can save on finding multiple vendors
if you decide to outsource more than one service

Our banking services support team is made up of highly skilled professionals with
experience in handling bookkeeping for banks

Open and short channels of communication – lets you to quickly and clearly exchange
information among people involved in a project

Reduced operating and administrative costs.

Role of Banking BPO in India

Answering the needs of time, companies in India are providing many BPO
banking services their main focus is on speed of implementation and process
advancement with quality control. Banking BPO in India is providing various services
like loan mortgage, consumer finance and financial market and credit cards. Banking
is no more than just a place for financial transaction but involves many vertical
functions of Banking BPO in India.

The major solution Banking BPO in India provides is as follows:

Recording

Verification
Paying off Loans

Collections

Telemarking services

Processing addresses

Request customers services

Resolving queries

Responding to client via email or chat

The major challenges faced by Banking BPO in India Companies are as follows:

Apparent lack of management

Service agreement disagreement

Efficient management

Risk management

Privacy ownership of client

Incorporation of outsourced processes with business processes

Effectual control

Mortgage lending

The need for outsourcing and factors of success – a literature review

Outsourcing, most often, is understood as the contracting out of a business process to

a third-party, with participation in a separate organizational unit, or without
participation. There have been many reasons for outsourcing selected in the literature,
but the first position extends to striving to reduce operating costs. When a range of
activities are outsourced, organizational problems can be gotten rid, and the core
business can be concentrated on. It is significant that, at least in some jurisdictions,
like in Poland, when business is outsourced, the vendor is commissioned, and also the
legal services, and there is no interest in social issues in the outsourced spheres. Using
outsourcing, additional labor costs can be reduced, such as social services. Cost
savings are made in some cases by reducing both direct and indirect remuneration of
persons who ultimately perform outsourced tasks. Furthermore, the vendor assumes
much of the risk associated with the ongoing maintenance and management of
employees. The principal act of payment and possible consequences of problems with
the staff, etc. focus on the vendor. Sometimes an outsourcing vendor is a big player
with special equipment or experience that cannot be afforded by a small client,
possessing a technological advantage. A. A. Gokhale asses that: "…offshore
providers, who are at work while U.S. workers are sleeping, enable faster turnarounds
during crunch time, quicker than most firms can deliver internally" [A. A. Gokhale, p.
11]. It can be concluded that the main reasons for outsourcing are: cost reduction, risk
reduction, striving for elasticity of resources, growing of the quality of resources, and
access to resources.

According to A. M. Porter’s studies, the tasks assigned to outsourcing

concentrated on three areas: information technology (30%), human resources (16%),
and marketing & sales (14%) [A. M. Porter, p. 47]. Many factors influence using
outsourcing – encouragement, or dealing with some trouble. Outsourcing can be
contracted-out to entities operating in the same country, or entities operating in
another country. India is one of the most notable countries that has established
vendors of outsourcing. The increased interest in Indian outsourcing services results
not only from the lower cost of providing such services, but also from satisfactory
quality of services, which is directly related to the increasing level of education in the
local society. Another, perhaps less well-known, but still growing, Business Process
Outsourcing (BPO) center is Central and Eastern Europe, including Poland. Polish
scholar ratios are one of the highest in the world, and Polish people, especially the
young, are generally well educated (although the quality of education is influenced by
demographic depression – a reduction in the population growth rate).
 Table 1. The reasons for implementation of outsourcing

NO Author Reason
1. S. Chatterjee, R.Chaudhuri Internal organizational stability and
flexibility in obtaining improved
satisfaction and better service with the
outsourcing project.
2. j. Harasim Willingness to get rid of burdensome
Administrative tasks.
3. Z. Shi et al. Assemble knowledge from suppliers
4. J.T.C Teng et al. Lack of resources
Resources gaps
Acquiring resources from outside the
firm boundaries by sourcing arrangement.
5. A. Vashista, A. Vashista Lower labor costs
Technological advances

Table 2. Factors influencing success of outsourcing 2

No. Author Factors

1. P. Babcock Growth of education in the developing.
Countries
2. S. Chatterjee, R. Chaudhuri Flexibility
3. A. Gurung, E. Prater Cultural factors
4. J. N. Lee Knowledge sharing by client and supplier

No. Author Factors 1. P. Babcock Growth of education in the developing

1 Source: S. Chatterjee, R. Chaudhuri, A System Theoretic Analysis of IT/IS

Outsourcing: A Case Based Approach, Journal of Modelling and Simulation of
Systems (Vol. 1-2010, Issue 2), p. 132; J. Harasim, Bankowość detaliczna w Polsce,
CeDeWu, Warszawa 2005, p. 264; Z. Shi, A. S. Kunnathurb, T. S. Ragu-Nathan, Is
outsourcing management competence dimensions: Instrument development and
relationship exploration. Information & Management 42, 2005, p. 901-919; J. T. C.
Teng, M. J. Cheon, V. Grover, Decisions to outsourcing information system function:
Testing a strategy-theoretic discrepancy model. Decision Science, 26(1), 1995, p. 75-
103; A. Vashista, A. Vashista, The Offshore Nation, New York, McGraw-Hill, 2006,
from S. Kumar, E. C. Aquino, E. Anderson, Application of a process methodology
and a strategic decision model for business process outsourcing, Information
Knowledge Systems Management 6 (2007), p. 325. 2 Source: P. Babcock, America's
newest export: white-collar jobs. HR Magazine, 49(4), 2004, p. 6; S. Chatterjee, R.
Chaudhuri, a System Theoretic Analysis of IT/IS. Outsourcing: A Case Based
Approach, Journal of Modelling and Simulation of Systems, Vol. 1-2010, Issue 2, p.
142; A. Gurung, E. Prater, A Research Framework for the Impact of Cultural
Differences on IT Outsourcing, Impact of Culture on IT Outsourcing, Journal of
Global Information Technology Management, 2006, Vol. 9, Issue 1, p. 24; J. N. Lee,
The impact of knowledge sharing, organizational capability and partnership quality on
is outsourcing success. Information & Management, 38(5), 2001, p. 323-335.

The IAFOR Journal of Politics, Economics and Law Volume I - Issue I - Fall 2014

Countries 2. S. Chatterjee, R. Chaudhuri Flexibility 3. A. Gurung, E. Prater Cultural

factors 4. J. N. Lee Knowledge sharing by client and supplier

However, while the history of outsourcing is short, this management tool is still
changing. As mentioned by A. Gurung, E. Prater, "…managing outsourcing
relationships is becoming increasingly complex. Contracts have moved from a focus
on cost savings to include value-based outsourcing, equity-based outsourcing, and
business process outsourcing" [A. Gurung, E. Prater, p. 29]. Both outsourcing vendors
and commissioners learn how to cooperate. The length of term of cooperation is at a
high level, dependent on the quality of that relationship [T. Kems].

The same characteristics, mentioned as an advantage of outsourcing, could be a

disadvantage, if they are not satisfactory. For example, growing educational levels in
the developing countries conducive to outsourcing implementation can be an
advantage, but when the same outsourcing vendor is not ready to anticipate new
technological changes, it can be a reason for a collapse in vendor and principal
cooperation. The same problems can occur in the field of language, with
communication barriers [T. Nolle]. All of them are connected to risk.

Table 3. Risks and challenges in outsourcing 3

NO Author Risk
1. R. Aron, E. Clemons, S. Reddi Long-term intrinsic risk of atrophy
2. B. A. Aubert, M. Patry, S. Cultural dissimilarity
Rivard
Delayed delivery of data
Slow implementation

3. R. Click, T. Duening Human capital risk

4. M. J. Earl Not enough edge expertise of providers
5. T. Herath, R. Kishore Knowledge hoarding
Loss of core capability
Disparity between what it negotiated
and what is delivered
Cost escalation

Vendors providing legacy technology

Operational risks due to vendor

locations
Risks due to environmental, cultural,
legal differences
Deliberate underperformance by vendor