Covid-19 is accelerating reshoring and nearshoring plans of banks

13 January 2021 Consultancy.eu

Following years of increasing outsourcing activity in the banking sector, the corona crisis is likely to rewind some of this movement, especially in the back office, according to Andrea Hoffmann, Aniello Bove and Ingo Rauser from Capco.

The three partners of the global consulting firm are involved in various digitisation and outsourcing efforts of financial services providers, and have over the past nine months first hand seen that outsourcing shifts to low-wage destinations are now increasingly being reshored or nearshored back to Europe. 

Lessons derived from the corona crisis are accelerating this development. “The lockdowns and the digitalisation surge during corona have shown that the outsourcing of operations to other countries makes banks vulnerable,” says Hoffmann. Due to protective and social distancing measures, outsourced services were in some cases no longer available to institutions.

Covid-19 is accelerating reshoring and nearshoring plans of banks

Knowing what local customers want

At the same time, banks had to react quickly to serve their customer across all facets of their portfolio through online channels. This has made geographical and cultural proximity to the customer more important, says Bove, “and this is more difficult to achieve from India, for example.”

Internal delivery

Meanwhile, internally within banks, proximity in development teams has been another factor driving reshoring. When developing digital services in a ‘pressure cooker’ environment, banks have found out that it is beneficial to have their consultants, designers and digital specialists as close together as possible. This enhances collaboration, agility, and the transition from business requirements to IT delivery. 

The adoption of emerging technologies is one such example. Banks are more and more turning to robots to automate their processes, and implementing such novel solutions can be a delicate task. Experts in the industry suggest that while back office or repetitive work is well suited for outsourcing constructions, more strategic or innovative work is delivered more effectively under internal ownership and with team proximity. 

Reshoring and nearshoring

As a result, outsourcing to low-wage destinations, which has become a mainstream strategy for practically every bank around, is facing a countermovement. Onshoring (bringing back activities to the bank’s country of origin) and nearshoring (bringing back activities from far destinations to closer lower-wage destinations) are gaining popularity. For European banks, the focus of nearshoring is on destinations such as Central Europe, the Balkans and Portugal.

According to Hoffmann, Bove and Rauser, 2021 could witness a profound change in the make-up of the outsourcing job market. While outsourcing will in their view always be part of the mix for banks to remain competitive from a cost perspective, a portion of jobs are expected to return to Europe, “which obviously is favourable for domestic production,” notes Rauser.