Seek Outside Help to Accelerate Growth and Improve Efficiency in Commercial Banking

As banks transform their middle- and front-office operations, they are increasingly focused on strategies that positively impact their bottom lines. Approaching 2025, banks will encounter numerous challenges, including fluctuating interest rates, inflationary pressures, technology adoption and expense management. Balancing profitability with regulatory compliance will be crucial to maintaining competitiveness. The rapid pace of digitalization has significantly altered customer expectations, compelling banks to adapt to a new landscape.

According to a 2024 survey by Acuity Knowledge Partners, the primary challenge for bankers involves monitoring the credit quality of clients, followed closely by adding new business and managing credit risk more efficiently. Bank operations are becoming more complex due to expanding regulations and heightened expectations for improved risk management and compliance practices. The evolution of artificial intelligence (AI) has reimagined all aspects of banking, optimizing efficiency and effectiveness.

Forming strategic partnerships with third-party offshore service providers can significantly enhance a bank’s efficiency and expense metrics while addressing many of the new risks. Strategic offshoring adds substantial value to desk-based tasks, including client onboarding, credit portfolio monitoring, collateral and covenant monitoring and Bank Secrecy Act and anti-money laundering activities. Key lending and risk decisions remain in-house, while many support functions are managed by the partner.

Access to specialized talent who understand bank processes is a critical criterion for selecting a strategic offshore partner. Other significant factors include the partner’s ability to source talent across multiple locations, experience in change management, best practices and the ability to deliver innovation.

India accounts for 57% of global offshoring, making it a leading destination for North American banks. Driven by its extensive talent pool, cost advantages and robust infrastructure, India boasts a vast talent pool — 146 million people hold graduate degrees or higher.

Outcomes and Benefits of Strategic Offshoring:

• Access to specialized talent to fast-track strategic resource augmentation.
• Operational flexibility to manage regulatory projects, automation initiatives, data-quality improvements and other compliance-related tasks.
• More time for in-house resources to focus on value-added activities and client-facing work.
• Competitive edge through a follow-the-sun service delivery model.
• Optimized processes and embedded best practices, leveraging the knowledge of an experienced strategic partner.
• Significant cost savings, with up to 40% to 60% savings via multi-year strategic programs.

How to Offshore — Choosing the Right Operating Model
Once a decision to offshore is made and tasks are identified, it is essential to define the roles of the onshore and offshore teams. A governance framework with measurable key performance indicators should be established. Based on over two decades of experience in commercial bank offshoring, we recommend adopting one or more of the following operating models:

1. Extension model. The onshore team is supported by dedicated staff from the strategic partner, primarily outsourcing repetitive tasks to the offshore team.

2. Co-working model. The client and offshore teams work together, assuming joint ownership of the project.

3. Carve-out model. The offshore team has full ownership of the task and is responsible for end-to-end project planning, while the client team reviews the deliverable.

Each operating model has its advantages, and different models may be advisable in different scenarios. As banks recognize the value of a strategic offshoring partner’s distinctive expertise, they can more effectively scale innovation and digitalization initiatives to address complex and critical functions. More time with clients, reduced expense and a better opportunity to focus resources are all key reasons why banks elect to work with strategic offshoring partners.