Outsourcing is an inevitable development in the industry, a simple function of the labor market and the way
economics develops.

The subject of outsourcing is a key focus for the financial industry. In addition to the issue of cost reduction, there are two main issues to address: regulation and industry convergence. Changing business models have given rise to a new breed of financial products and services, and new expert service providers are joining the industry on a wave of industry consolidation and expanded product lines.

Financial service providers that are exploring outsourcing as an option have typically been making a distinction between:

• commoditized activities (like transaction processing),which are perceived as suitable for outsourcing, and
• core competencies, that are perceived as critical to the success of the business and therefore assumed
  historically to be best kept in-house.

However, as players explore wider outsourcing options, the shape of the industry is changing. Businesses are no longer simply looking for a quick fix to plug a resource gap, but thinking about strategic partnerships which may take their business in a new direction. The characteristics of the outsourcing relationship are shifting: from ownership to shared leadership, from contractual obligation to proactive service. External agencies are becoming more closely involved with providing what have been viewed as core business functions, once believed not to be capable of being outsourced. The net result is much greater dependency between supplier and customer: more of a true partnershiprather than an arm’s length supplier-customer relationship,
as in the past. Contracts, and especially the service level agreements that regulate them, are becoming much morecomplex as they need to delineate a relationship whose edges can become blurred through mutual dependencies.

Companies which have set up shared service centers to manage business processes on a central basis and obtain economies of scale could take the logical next step: make the center into an external corporate structure, perhaps supported by corporate finance, which could then generate significant revenue by providing outsourced services to other financial organizations. This could work well, providing the equity stake of the founder is diluted to allay customer concerns about loss of confidentiality.