Swiss banks are outsourcing more and more services

Which services do Swiss banks outsource, how does the sourcing market work and how will it develop? Where is there still potential, where are the problems? The Institute of Financial Services Zug IFZ of the Lucerne University of Applied Sciences and Arts answers these questions with the Sourcing Study 2019; it is based on an online survey of 43 Swiss banks and on expert interviews with responsible representatives of providers and banks.

Nine out of ten Swiss retail banks outsource services. The market volume amounts to a projected CHF 2.2 billion. IT services account for CHF 1.75 billion (80 %) of this total. Around CHF 350 million (16 %) is spent on processing services, especially for securities and payment transactions.

Outsourcing means that a company commissions a service provider to perform independently and on a permanent basis a function that is essential to the company's business activities, in whole or in part, as defined by Finma. It is also possible for a bank to outsource IT services (out-sourcing), for example, but to provide credit processing services for third parties itself (in-sourcing).

Forecast: The market will grow, supply will improve
The authors of the study assume that the market will continue to grow and that the performance of sourcing providers will improve. "Those responsible at the banks are planning further outsourcing in all areas in the future," says study leader Urs Blattmann. Almost all of them would opt for outsourcing again with their previous partner, only a few are satisfied with the
Services dissatisfied.

Satisfaction is primarily related to day-to-day operations, rather than the agility and innovation of their sourcing providers. That will change in the future: The relationship between banks and providers will evolve more towards partnership and agility, the study authors predict.

Outsourcing does not necessarily lead to greater efficiency
As a result, the previously predominant interest in minimising costs with outsourcing is likely to lose importance on both sides. In addition to the knowledge of the providers, the price-performance ratio is the most important criterion for the banks when making their selection.

"But banks know that it is not realistic to demand the highest quality at the lowest price," says Blattmann. Moreover, banks that tend to outsource more than those that outsource less or not at all are no more or less efficient than their competitors.

A bank's cost efficiency is obviously shaped by other factors. But sourcing can become a strategic opportunity because it can make banks more flexible. At present, however, sourcing relationships are far too static, and there is a lack of dynamism, particularly in the rapid identification of needs.

"We consider this a serious deficiency that may hinder the banks' future development," Blattmann said.

You can find the study here for download