Why banks outsource

BofA's Moynihan Lets Slip That Processing Costs Are 90% Lower via Mobile

From Bank Innovation –

“So now we know.

Brian Moynihan, the chairman and chief executive of Bank of America, disclosed yesterday the rate of savings the megabank is getting from its customers shifting to mobile banking for services: 90%.”

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Banks still reel from compliance costs

From The Australian Business Review –

” The tide might not be turning. Hopes that regulatory and compliance costs at the biggest US banks might begin to retreat after years of rising may be premature.

As several recent stumbles make clear, banks still have more work to do to get right with regulators. Examples abound. The Office of the Comptroller of the Currency recently determined that six US banks, including JPMorgan Chase and Wells Fargo, had ­failed to satisfy a 2011 order to fix foreclosure practices. As a consequence, the banks face ­restrictions on purchases of mortgage-servicing rights.

Bank of America, which got a passing grade from the OCC on its foreclosure fix, was told by the Federal Reserve this year that its “stress test” performance had showed that management wasn’t forward looking enough. BofA has said it will spend $US100 million ($128.7m) to improve its stress-test abilities.

The fact big banks still are running afoul of regulators raises doubts about the idea lenders can quickly cut back on the billions of dollars of additional costs they have incurred since the financial crisis.”

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The bank cost problem technology hasn't solved – yet

From Financial Review –

“The banking sector's headwinds were laid bare during the dramatic interim reporting season last week: margins have been squeezed to a record low, return on equity is contracting and capital levels are moving higher.

The big banks are also feeling their "jaws" [the gap between revenue and costs] narrow. Revenue grew, but remains under pressure from a sluggish economy struggling to find its next gear after the mining boom faltered. Meanwhile, operating costs notched upwards during the half; according to PwC, IT expenses across the big four banks rose 6.8 per cent over the half, while total staff expenses were up 3 per cent.

With their share prices under pressure and the outlook for credit growth looking benign, the current operating environment will force the banks to search for productivity improvements. Each of the big banks spends around $1 billion a year on various technology initiatives; but when will these big investments in IT start to yield quantifiable results in terms of reducing operating costs?

Australia's banks are great big technology companies. They employ tens of thousands of computer engineers and maintain close relationships with IT giants like Oracle, IBM and SAP. Big banks headquarters swarm with management consultants and their directors and senior managers flock to Silicon Valley to pick up digital wisdom. Innovation labs are de rigueur.”

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