Sir Christopher Bland came under intense pressure at BT”s recent AGM for a number of reasons but mainly because of the company”s decision to outsource work to India in the hunt for lower costs. Nevertheless, given that it is becoming commonplace for big companies to outsource certain aspects of standard work overseas, does this mean that the mortgage industry is going to follow suit and that service levels may be lowered in the pursuit of lower costs?
Firms that have already made the move, such as GUS, Eagle Star, Reuters, and more recently BT are doing so to make the most of a skilled workforce that are paid much lower salaries than their English counterparts. The logic is clear but will it catch on in the mortgage market?
A matter of time
Tony Swift, partner and director of conveyancing at Barnetts Solicitors, thinks it is only a matter of time before a whole host of mortgage related companies will take the plunge. “We looked at operations in India where it would be quite easy for them to handle certain aspects of work. In conveyancing there are approximately 20 administrative functions, perhaps ten or 14 of which could quite easily be outsourced,” says Swift.
But Swift claims the level of service offered by operations abroad raised eyebrows at Barnetts and led to the decision not to go ahead with a move. “Although staff salaries would be far cheaper (approximately £4,000 pa in India), we thought the investment in time and training required to attain good service levels cancelled out any cost savings,” says Swift. However, Hammonds Direct, the remortgaging arm of commercial law firm Hammonds, which employs approximately 300 people in England, has opted for this approach and is thought to be in the middle of transferring some of its operations to India. But if some conveyancers are hesitant about outsourcing would lenders dare to try and realise the commercial benefits and join the long list of companies boarding the outsourcing ship?
Kent Reliance Building Society (KRBS), whose website promises an “ethical and socially responsible approach” is also on the verge of initiating a pilot scheme in India. Robert Proctor, head of lending at KRBS, explains the society has grown by 50% in the last twelve months and is hoping that outsourcing will aid further growth. “The Financial Services Authority (FSA) has approved a scheme in India which will see a back office function established, processing internal indexing work. When a business grows as fast as this, we need a facility that can help accommodate the current rate of growth without necessarily having to acquire new premises and office equipment.”
Nevertheless, Proctor was keen to point out that the pilot scheme, which is to be monitored externally over a period of three months, will not mean a transfer or reduction in jobs and will help KRBS to continue to offer competitive products.
However, not all outsourcing is sent to far away shores. Homeloan Management Ltd (HML), which is a wholly owned subsidiary of the Skipton Building Society (SBS), was established in 1988 and is now one of the country”s specialist providers of outsourcing services. With a client list including banks and building societies, it regards outsourcing as key to future growth of many organisations. Michael Hildred, communications manager at HML, agrees with Swift: “The SBS has a strong policy of employing a workforce in local areas. We certainly would not consider locations abroad because we feel service levels will be sacrificed for short-term profit gain.”
Nevertheless, in a recent announcement HML admitted that due to expansion it is now looking further afield at places like Northern Ireland and wherever there is a high quality labour force, speculatively built office space and Government grant aid.
Cost benefits
However, Hildred also feels that some institutions or businesses are becoming cost obsessed, arguing that achieving quick cost benefits is prioritised before establishing good service levels. He concludes: “Nowadays, businesses can operate anywhere in the world because most people can be contacted by phone, email or via the internet, but we prefer to be remain in the UK as clients still prefer face-to-face contact.”
Mark Howell, marketing manager at distributor Pink Home Loans, shares the same view as Hildred: “It is unlikely that Pink will outsource work but you never say never. I can understand why some lenders see it as an attractive proposition as there are some functions that can easily be outsourced such as backroom processes or a one off transaction. Although overseas locations use highly skilled staff – service levels could still be sacrificed in the pursuit for lower costs and that”s something that we do not want to see happen.” Howell also ventures that because of the way Pink”s operations are based outsourcing would not work due to preference for face-to-face contact.
Of course there is always the power of the media spotlight to take into consideration. Businesses in all sectors now realise their actions can come under intense scrutiny and in some cases cause problems. Some service providers in the mortgage industry feel that several major financial institutions are now thinking twice about outsourcing abroad because it might cause large-scale redundancies resulting in negative publicity. And redundancies mean less people around to buy mortgages.
key points
Outsourcing key tasks overseas can bring cost efficiencies, as skilled labour is cheaper abroad.
The internet, email and phones make outsourcing a possibility but people still prefer face-to-face contact.
Many will be put off setting up outsourcing operations by negative press in the wake of large-scale redundancies.
