Banks Will Accelerate Disposal of Captive Operations While Continuing to Leverage KPO
by Andy Efstathiou
The credit problems banks have faced in 2007 will not subside in 2008. The range of issues that this phenomenon impacts is wide. We believe, based on our interviews with banks and vendors that credit problems will make the following significant changes in banking operations in 2008......
1. Banks will aggressively implement and promote payment services, which are credit independent. Specifically, mobile payments, debit card payments, cross border, and stored value payments.
2008 will be the year that credit cards get hit with large scale credit losses. Decoupling a bank's payment revenues from its credit revenues (i.e., turning payments into a service fee generator, rather than a credit spread generator) will become a priority. Debt cards and cross border payments have been around for years, and will be marketed much more aggressively. Stored value payments are a newer product that is gaining widespread adoption in the market, but has significant growth left in it. Mobile payments are very new as a service. Expect to see banks pursue this opportunity aggressively. Finding the right mix of features to offer in a mobile payments offering could propel a bank to significant market share gains, especially with younger customers.
2. Banks will sell off/close their captive operations
The crushing costs of credit losses, reduced revenue opportunities (fewer loans can be made) and declining pricing power in the marketplace, means operational cost takeouts are an immediate necessity. Banks will accelerate the consolidation of their global operations. Most captives have never hit the cost reduction goals they were set up to achieve. Today, those captives are unlikely to ever achieve the volumes necessary to achieve scale economies. Increasing workforce turnover in captives (and the Indian BPO market in general) means that even the ones operating at scale are becoming difficult to manage. Increasing labor rates and the declining dollar means this trend will continue. Displacing the captive workforce with 3rd party outsourcing will mitigate much of the management time and cost distraction.
3. Banks will increase the level of KPO contracting they are doing.
KPO will become a key focus in 2008, as banks seek to cost effectively increase visibility (for both management and regulators), increase consistency (one bank, one operational method), and reduce cost further.
4. Banks will drive into new geographies, especially emerging markets.
In an attempt to drive revenues and claim market share in underbanked markets, banks will be pushing here aggressively. The advent of SEPA, will make Eastern European countries particularly attractive markets for multi-national banks to enter this year. This will bolster banks income statements and balance sheets in 2008, but given the intensity with which every bank is going after this opportunity, it is likely that banks will over commit to this expansion, and in a few years banks will be reducing their operations in those countries to more modest proportions.