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Part - V

Business Drivers

There are two sub-segments of companies providing finance BPO. For both cost saving is the natural driver. The first comprises companies in banking, financial services and insurance (BFSI). If they outsource finance, it is their core business that they are outsourcing. In fact, finance has been at the forefront of outsourcing - General Electric, American Express and Citibank led the initiative in India. The reason is that their customer-facing front office is in highcost locations. But there are functions, which, if delivered at low costs, would have a major impact on their balance sheets.

US companies are metric driven. They are concerned about the expense-to-revenue ratio. Banks and financial firms are trying to reach an 80% expense-to-revenue ratio and the resultant 15-20% net margin. An insurance company looks at the total cost index. This is the cost of providing service plus the claims payout. They achieve 98-99% expense-to-revenue ratio as the premium is paid in advance (on which the company earns interest) while the claims are paid later. Insurance companies look at reducing the cost of servicing a policy that is about 15-20% of the total cost .So savings accruing are vital.

The other sub-segment of finance BPO originates in non-BFSI companies. For them, the finance function is important as it helps the rest of the organisation run smoothly. So such a company will outsource functions like sales order processing, accounts payable, receivables management, balance-sheet management and cash management. For instance, a US-based industrial major currently evaluating finance BPO companies in India has 850 employees looking at finance at a total annual cost of $110 million. It can easily save upward of 70% of that by outsourcing to India. Global airlines also, under cost pressures, are looking at India to outsource revenue accounting and sales audit functions. These include British Airways, Austrian Airlines, Malaysian Airlines and Qatar Airways.

Financial BPO processes being outsourced

Most of the work being outsourced to India in finance and accounting vertical consists of clerical low-grade work. Almost 60% to 70% of the work includes processes like transaction, accounting, fixed assets (depreciation calculation etc.), account receivable, account payable, travel & living, cash application (goes into making ledger entries) and account reconciliation. Billing rates in this low end are $30,000 per person per year.

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*Contributed by -
Pankhuri Jain,
PGP I,
IIM Kozhikode.