One third of financial institutions now offshore processes to China with the UK and US leading the way

Offshoring is saving the financial services industry an estimated £4.5bn a year, up from around £2.5bn a year ago, propelled by an 1800% increase in headcount over the last four years, according research by Deloitte.

The UK financial services industry alone now saves up to £1.5bn per year from offshoring.

According to the research:

The average number of staff employed offshore has increased from 150 to 2700 in four years.

Over 75% of major financial institutions now have operations offshore, compared to less than 10% in 2001.

UK and US banking and capital market institutions are leading this shift, but mainland Europe is showing increasing interest.

More than half of all financial institutions are now saving more than 40% against their onshore costs for every business process offshored.

Chris Gentle, associate partner, financial services, at Deloitte and author of the study, said: “Offshoring is maturing at a rapid pace but, in future, the best offshoring strategies will not, and cannot, be based on labour arbitrage alone. Financial institutions need to re-engineer business processes, or risk simply transferring offshore the legacy inefficiencies of older, onshore processes.”

Gentle added: “The industry’s star performers have successfully deployed aggressive offshoring strategies, transferring more than 5% of group headcount offshore and achieving bottom line savings of over 40%. In some cases, the savings are equivalent to 3% of the total cost base. However, at the other end of the spectrum, institutions that have failed to adopt best practices are experiencing a decline in operational performance.

Deloitte said that while India remains the prime location for offshoring, with around two-thirds of global offshored staff employed in the sub-continent, it is in danger of losing its crown to China.