Feb 27, 2015

Confronted with the economic pressures of the recent recession, offshoring still remains a key area for banks to reduce their cost base. However, with political pressures intensifying against offshoring banking operations, there is a shift to explore whether there are any alternatives closer to home for cost conscious banks. A trend has emerged among banks in the US to move operations from their primary site to other US locations (near-shoring) rather than offshoring. And further some US banks are even “re-shoring” bringing offshore operations back to the US.

Why the shift away from offshoring?

Many banks struggle with the processing quality and operational control of offshoring. Laden with hidden cost and management pressures, the advantages associated with switching to offshore operations have become somewhat diminished, with it no longer being as advantageous due to the rising costs and risks involved. This offshoring practice will leave those formerly in stable employment feeling in threat of losing their positions, and risk alienation of a customer base who were comfortable with the former US support network.

In the last few years, middle office and back office banking roles in the US have been seen to drift away from financial hubs such as New York and Chicago, and relocated to less expensive US locations, notably near-shore locations such as Delaware, North Carolina, and Utah. Moreover, the continued falling revenue and more onerous regulatory requirements make relocation to near-shore centres more tempting than ever.

 Moreover, the US has been offering incentives to stimulate investment that makes near-shoring an attractive prospect:

  • Statutory tax credits and economic incentives to expand operations in specific jurisdictions
  • Cost reductions from operations by negotiating with local governments as well as utility providers
  • Regulatory pressures, e.g. the ‘Call Center Worker and Consumer Protection Act of 2013’

The five key benefits of near-shoring

  • Faster project migration due to closer proximity between locations
  • Improved process management due to greater number of controls and oversight
  • Improved customer service due to language and time zone similarities
  • Greater ability to source and move resources flexibly between locations
  • Favorable commercial environment

Are we seeing a long-term trend?

 It would seem the benefits of near-shoring outweigh those associated with relocating further afield. These coupled with regulatory legislation make near-shoring a more than credible alternative to offshoring. This view is clear given the tremendous progress that has been made to date. In an environment where there is constant pressure to meet regulations and manage cost objectives, near-shoring is a unique alternative to offshoring.