The Ins and Outs of Outsourcing

For self-described "control freaks," what was the tipping point that led AmericanWest Bank to move from in-house to outsourced processing?

It started as a way to address disaster recovery planning, but the Spokane, Wash., bank soon decided that other considerations, namely mounting regulatory considerations and a need for on-demand scalability, were just as important. AmericanWest Bank has more than doubled in size since its move to outsourced processing in 2009, and a hosted environment eliminated capacity issues and infrastructure adjustments as road blocks to the $4 billion bank's rapid expansion. 

AmericanWest Bank is part of a surge in outsourced processing. According to the 2012 Automation in Banking report, 82 percent of all new U.S. core systems agreements in 2011 included outsourced core processing – compared to just 38 percent 15 years earlier.

Whether it's a new agreement or a migration of existing solutions, more and more financial institutions are weighing their delivery mode options. What are the key questions to ask to determine if outsourced processing is right for your financial institution?

  • How will outsourced processing impact compliance and business continuity? Of course, financial institutions remain responsible for risk management and mitigation, but outsourced processing services offer structure and support that can streamline regulatory compliance processes and simplify disaster recovery. AmericanWest Bank moved to outsourced processing because it realized − short of making a huge capital investment − that it could no longer support a comprehensive disaster recovery system.
  • What about flexibility and scalability? Outsourced processing enables financial institutions to respond to market demands as needed by quickly and cost-effectively implementing new solutions and services. If your organization is growing through acquisition, a hosted environment can make it easier to absorb rapid growth, in part because there is no need for additional hardware and IT staff.  Financial institutions can often retain 24x7 system access and control over many daily processing steps.
  • What are the cost implications? Budgets can be trimmed when a financial institution transfers the cost of owning and operating hardware and physical assets – and redirects back-office IT staff to revenue-enhancing activities. Financial institutions that manage technology in-house see spending fluctuations from year-to-year due in part to large and sometimes unplanned IT expenditures. Organizations using an outsourced delivery mode typically find costs to be more stable.
  • Are there staffing and support considerations? With outsourced processing, financial institutions can assign resources to more profitable, service-oriented tasks and gain access to Fiserv expertise. Utilizing outsourcing services enables financial institutions to turn their focus from managing technology to serving customers and driving profit.

Whether or not migrating to outsourced processing is a good decision for an individual bank or credit union depends on the unique circumstances of each organization. While asset size was once a determining factor, financial institutions of all sizes are now considering a hosted environment. A typical U.S. bank selecting a hosted core deployment has between $500 million and $1 billion in assets, while a credit union doing so has $250 -$750 million in assets, according to the Aite Group, and those numbers are expected to rise.

"The principal reason we started looking at outsourced processing was disaster recovery, but now we're reaping the scalability benefit thanks to a change in our strategic direction," said Wade Griffith, Director of Technology Strategy and Infrastructure, AmericanWest Bank. "Now we can quickly take on acquisitions. We can convert a small bank acquisition in as little as 120 days, because we don't have to make hardware adjustments or think about capacity issues in our core, teller and COLD platforms."

It's not uncommon to hear financial professionals say they wish they could spend more time and effort doing what they do best – serving customers and building relationships. Financial institutions that carefully weigh delivery mode options in light of potential impact to operations, staffing, costs and compliance issues will often choose outsourced processing as a way to better focus on the business of banking.

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