Financial institutions in Asia Pacific (APAC) are increasingly looking to improve the business value of their information technology (IT) investment, with many outsourcing to reduce the cost of owning technological assets
The region’s financial institutions also face a new, restrictive and evolving regulatory environment, which banks are still trying to fully adapt to. And many are increasingly seeking to automate to mitigate the rising cost of compliance.
Indeed, these continuing trends look set to make IT outsourcing a fast-growing and profitable sector in APAC’s financial technology business.
“Even though we see IT budgets rising, a large portion of the spend is being dedicated to regulatory compliance and adapting to increased reporting standards. This means resources have to be stretched to accomplish even more. The fragmentation across Asia adds even more cost pressures and administrative issues, creating real challenges for our customers,” says Gautam Verma at Thomson Reuters, a global provider of news and information for professional markets. “Customers are essentially looking to do more with less.”
Trimming the fat
With ever-increasing emphasis on costs, the majority of financial institutions in the region are undergoing a technology overhaul to move onto an agile financial platform that allows them to focus on core banking activities, while offloading non-core, back-office operations to third-party service providers. As banks increase IT budgets, they must also consider how to more efficiently manage their IT systems or financial technology (fintech) projects – that is, to do more for less.
“Technology is the enabler here. You can get substantial savings by outsourcing but you have to measure up against the risk that poses and actually take a realistic look at the capabilities and expertise of the providers,” says Paras Sidapara, Global Head of Managed Services at Thomson Reuters.
Some financial services vendors, he adds, are experts in their fields, and have a wider reach globally. Often, these vendors are able to address data security, ownership concerns and related issues better than financial institutions themselves. These vendors are also armed with banking expertise: they have employees who have direct banking experience and/or working knowledge of a banking system.
This can mean that as the financial institutions transact with the vendors, the outsourcing agencies can collate real-time data and analytics and interpret the information into workable insights for the banks, including new risk metrics, regulatory tools and benchmarks and even investment opportunities.
“Financial institutions in APAC also can gain cost saving through enhanced data management. One way to achieve this is by partnering with a trusted vendor that can efficiently deliver ‘right-sized’ data solutions that meet latency and timeliness requirements to meet customer’s workflow,” says Verma.
And financial institutions tend also to be very selective in outsourcing, with specifics involving their own clients’ data typically managed in-house. The institutions would outsource, for example, workflows involving market data, which are more commoditised services.
The types of offerings are also tailored and customizable; data as a service, infrastructure as a service, deployed management services and even hybrid-model data services, where institutions manage some aspects of the IT infrastructure in-house while other platforms are outsourced.
Institutions can save more money and improve efficiency by outsourcing rather than building such a platform themselves. Banks can enjoy better economies of scale through standardised technologies and the blending of content from various different sources into one platform.
A single platform, utilising standardised technologies from a global vendor, also gives region-based financial institutions the agility to access opportunities outside of their home base and move into new markets. “We continue to see growth in Asia, and globally, because our clients are moving towards a managed service model,” adds Verma.
Regulations coming into play
There’s little doubt the new reality of increased regulation in the financial services industry is changing the ways financial institutions operate. And banks can only adapt and move forward. In the current regulatory environment, many banks are shedding risky assets and scaling-back profitable businesses such as derivatives and proprietary trading. With dwindling revenues and increased capital-adequacy requirements, banks are finding they need to disrupt or be disrupted.
“The regulatory side is burying certain organisations, and when you then marry that with exiting certain types of business, the avenues of getting revenues and profits through the door have narrowed,” says Sidapara.
Financial institutions must optimise spending while allowing themselves to remain agile and able to meet customer demand. Some services that are being outsourced effectively include KYC [know-your-customer] processes, for which vendors are seeing an uptick in demand.
Cloud-based computing has also made inroads into banking services and the disruptive technology is certainly revolutionising the financial industry. Many technology companies are focused on financial services, and it’s no surprise banks are utilising public cloud technology and seeing cost benefits.
The technology companies that provide the infrastructure typically allocate far more resources to research and development, maintenance and strengthening the security of their data centres than a bank’s IT department could.
For a vendor that provides a private cloud network, the data system is within its management and control. Any data and tools will have been stress-tested by a team of analysts and coders as this is the vendor’s core business. Banks can take advantage of and benefit from the provider’s economies of scale.
The arguments against adoption of cloud technology relate to security of the data and evolving regulations on data usage. Market data, by nature, is only of value at that moment in time. Still, computing technology is constantly evolving and new ways are emerging to enable users to process data in a uniquely encrypted form, enabling users to continue to mine and model from the proprietary data.
Disruptive technology is no longer a novelty. And even as IT budgets are on the rise, financial institutions in APAC are increasingly seeing the cost benefits of outsourcing and allocating their resources to technological innovations to put in place solutions that can help them and their clients navigate today’s evolving market environment.
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