By Sam Boggs
There are two schools of thought on why banks are trending toward outsourcing their core processing to an application service provider:
Adoption from a solely cost-benefit perspective.
Looking at outsourcing as an enabler to grow business and enhance customer support.
The more progressive viewpoint is that outsourcing allows a bank to reallocate the resources of its technology team to focus on its customers, and reducing the strain of building out and supporting a big IT infrastructure to support its core application. Outsourcing enables banks’ information and technology officers to become real business leaders, rather than having to worry about keeping the lights on in their branches. It frees them up to focus on how to use technology to enable business growth to meet and exceed business objectives and, most importantly, customer expectations.
Surprisingly, many of the larger banks that have big IT organizations with hearty infrastructures already in place are looking to get away from that space. Why? It frees up resourc es, and frees up their management teams to focus on what is really important –
the customer experience, which drives growth of market share.
Smaller banks tend to walk their own path; they end up at the same outsourcing decision as the larger institutions, but for different reasons. Smaller institutions tend to shift to outsourcing to upgrade their IT infrastructure. From a human and an infrastructure standpoint, a small bank with two or three people in its IT department and a server room set-up has several points of possible failure that have nothing to do with the application. It is solely dependent on the application that sits on the hardware being managed by people. If any of those things fail, the bank is in trouble.
By outsourcing to a top-core processor, a bank gets best-of-breed technology, best-of-breed infrastructure, and almost as important, best-of-breed processes and people to host that critical application. Outsourcing buys the bank an upgrade in talent, an upgrade in infrastructure and best-of-breed technology. It’s a clear win for many
community-based financial institutions.
The right outsourcing provider brings great technology, a robust infrastructure, disaster recovery and business continuity right out of the box. The provider is responsible for maintaining compliance with federal regulations. More important, the right provider brings world-class process and world-class people to the table
The three most important things any financial institution, large or small, should consider when choosing an outsourcing provider are process, people and
Technology is at the base of the pyramid because, for world-class data centers, technology is the table stakes to get in the game. There are data centers all over the world, and a world-class data center can be set up in a lot of different ways. However, the infrastructure that supports them is fairly standard. They all have fire suppression systems (preferably FM-200), power backup systems including uninterruptible power sources and generator systems, and they also have data circuits to eliminate single points of failure in the data networks. It is also important to consider the flexibility of a data center’s core processing application itself when determining which core processing system to choose, and
this clearly should be tied in to the selection process. Obviously, the legacy mainframe applications are at a disadvantage in this
Any world-class provider should be able to keep the lights on in a data center, so the differentiators are more about bringing the right resources to bear in order to get the most out of technology, freeing up internal staff to focus on business growth and customer service. The only way an outsource provider can do that is by understanding its customers’ business objectives, understanding their growth requirements, and understanding their needs around regulatory
This is why “people” and “process” are the top two tiers of the outsourcing pyramid. People are in the middle because great people can do a great job, as long as they really understand the space, understand what the bank’s business needs are, and can translate technical requirements into operational activities that support their customers’ needs. To accomplish this, the team of the outsourcing partner must have a high degree of flexibility, a great depth of experience in banking regulation and process, as well as a high degree of technical competency; those are the kinds of things a bank should look for when choosing an outsourcing partner.
Why put process in the top spot? It allows a great team to become even greater. Having a very strong focus on process makes a great outsource provider even better, because it enables consistency. Our goal as an outsource partner is to make sure we are consistently bringing the A-team to the table, consistently pushing the limits of our application, and that it is hosted on the best technology. This enables us to ensure we are supporting our customers’ goals and business objectives. When you have great technology, great people, and a focus on process improvement, you have banks that can achieve tremendous success and high customer satisfaction.
Sam Boggs is executive vice president of group operations for Open Solutions, Inc. The company provides state-of-the-art technology and services to banks, insurance providers, retailers and wealth management companies worldwide. Open Solutions operates two data centers in North America. For more information, visit them online at www.opensolutions.com.