HML. Homeloan Management Ltd

Outsourcing is arguably more relevant to financial institutions today, than it ever has been.

Why? Because financial institutions are starting to recognise that it’s neither practical nor desirable to try to do everything in-house any more. Outsourcing enables organisations to address issues that would be almost impossible for them to resolve under their own steam.

With limited resources, it makes sense for companies to consider those tasks that need to be managed in-house and those that may be better outsourced. One of the direct consequences of lenders’ cost cutting programmes is that resources can no longer be flexed to cover unforeseen events.

But it isn’t just unpredictable events where it makes more sense to consider outsourcing. Coping with the demands of new product launches and testing new markets can also impose strains and stresses on existing resources.

The big unknown with any product launch is understanding just what demand there may be and this is especially true when launching into new market sectors. Say, a lender wanting to break into the buy-to-let market.

Should they make expensive and time-consuming changes to computer systems to accommodate new products, as well as recruiting and training more staff? Or does it make more sense to outsource the task, until demand has been more accurately established?

It isn’t just a question of how best to optimise resources, but it’s also a question of timing and being able to capitalise on new market opportunities quickly. As every financial institution knows, major systems changes can take months, if not years, to implement and cost millions of pounds to complete; and that’s if existing systems are capable of accommodating changes.

Systems constraints may mean some changes are not possible at any cost and, if that’s the case, the only option is to make a significant financial commitment to develop new systems or, alternatively, outsource. If speed is of the essence, which is usually the case with new product launches, outsourcing provides a very practical solution.

Systems create a whole range of reasons for outsourcing. It isn’t just legacy systems that can cause headaches, but also logistical issues like migrating data across different technology platforms. Mergers and acquisitions can result in a single organisation having a number of different mortgage books running on different systems, and bringing them together on to a single, common platform can be a real headache.

Outsourcing the task not only avoids disruption to both staff and customers, but also ensures that data migration projects are completed within a set timeframe and budget, free from the danger of being constantly put on the back-burner because of more pressing priorities.  

Online trading has also opened-up a whole host of possibilities and given smaller lenders the opportunity to compete head-to-head with market leaders on a level playing field. But online trading involves much more than a slick website; essential support services from telephone response personnel to administration and customer service teams, also have to be put in place. For small lenders, that can be a tall order. Yet again, outsourcing provides a very practical solution.

And the benefits of outsourcing are not just confined to lending. Savings administration can also be successfully outsourced and with competition for retail deposits at an all-time high, it’s easy to see why some new market entrants have chosen to work with financial outsourcers, rather than develop expensive savings service centres of their own.

The services provided by outsourcers are, therefore, just as relevant today as they have been in the past. Indeed, the credit crunch has changed the lending market so radically that outsourcing should no longer be viewed as an optional support service, but a primary tool which enables financial institutions to flex their resources and respond quickly and cost-effectively to new opportunities.

This blog is based on an article written for Mortgage Finance Gazette in July 2011.