The global banking industry has a market capitalization of over USD 8 trillion. As more banking firms enter the market, the industry’s size will grow exponentially. Banks offer new services, like digital banking, to attract new customers. In today’s digital era, financial institutions provide loans, funds, and other services online. Banks have a lot on their hands, from loan processing to accounting. They often feel the need to outsource a few processes for improved efficiency.
Outsourcing is a boon, but it comes with several challenges. By outsourcing banking services, banks may have hired a third party to carry out repetitive tasks, but quality remains a major concern. Another challenge is ensuring financial security and protection from fraud/corruption. Let’s delve deeper to understand how to ensure quality and security while outsourcing banking processes to third parties.
Choose a Reliable Outsourcing Service Provider
The first step is to choose a reputed outsourcing partner for banking services. Compare different outsourcing service providers and choose one with the required expertise, experience, and reputation. The best way to determine the credibility of an outsourcing partner is to look for accreditations and certifications. You can also look at the existing clients of the outsourcing firm to get an idea of its service quality. Outsourcing partners with international certifications or accreditations usually implement security measures for their client’s financial data. Banks need a reliable outsourcing partner, and it might take some time. Consider all the available options before choosing an outsourcing partner for a bank.
Define Service Expectations
While meeting an outsourcing partner, clearly define the requirements and service standards. By doing so, the service provider cannot say it wasn’t told so. Business owners or senior management personnel cannot depend on a verbal agreement with the outsourcing partner. In the corporate world, SLAs (Service-Level Agreements) are used to specify the requirements. An SLA will include the service standards and expectations of the bank from the outsourcing partner. Availability, turnaround time, and other terms will be mentioned in the SLA. Since the outsourcing partner will be under contractual obligations as mentioned in the SLA, it will ensure the quality and security of services provided.
Consider the Security Measures/Controls
Security is one of the biggest challenges for banks when they consider outsourcing banking services. When a bank outsources its loan approval process to a third party, the third party will have access to the data of loan applicants. If the outsourcing partner does not have robust security controls, customer data can be compromised and might be at risk.
Similarly, banks provide different types of financial data to outsourcing partners for operations. While doing so, banks must check for the security measures followed by the outsourcing firm. The outsourcing firm must have intrusion detection systems, monitoring systems, firewalls, encrypted platforms, and security experts.
The outsourcing partner must conduct frequent inspections and audits to ensure security controls are up to the mark. A bank will transfer the financial data into safe hands by choosing an outsourcing partner with robust security controls. The bank will be protected from data breaches, fraud, corruption, and money laundering.
Consider the Compliance Status of the Outsourcing Firm
Before outsourcing banking services, it is essential to consider the compliance status of the service provider. There are multiple compliance norms for outsourcing partners to ensure the security of clients’ financial data. If the outsourcing firm complies, it must follow the security measures mentioned. It will implement the minimum level of data security required according to the law. Also, a compliant outsourcing partner will keep you away from legal hassles.
Communication is the best way to clear confusion related to outsourcing banking services. Banks must monitor the performance of their outsourcing partner at all times. If any issue occurs, it must be communicated to the partner in real-time. When the outsourcing partner knows the quality and security concerns, it can work to mitigate them. One can even ask the outsourcing partners to send weekly, or monthly progress reports to the bank.
In a Nutshell
When a bank chooses the right outsourcing partner, productivity and efficiency increase. Things might go wrong when the outsourcing partner is not registered. Similarly, problems might arise with outsourcing partners when they overlook to implement security controls. Consider the security and quality of outsourcing services before choosing a partner!