Ian Dennis, business development director at Five Arrows Outsourcing Solutions, explains how the need for business process outsourcing has changed since 2008.
Over the last several years, Business Process Outsourcing (BPO) has continued its evolution to becoming a core offering to support the growth of the asset finance and leasing sector. In 2008, many considered the role of the BPO in the UK market to be focused on the companies exiting the market place and the continued run out of portfolios. BPO’s had provided this service in the previous recession and many viewed it as a cornerstone of their business models.
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Whilst many companies did chose to exit the market and the BPO was used to run out the remaining portfolios, the core of the asset finance and leasing sector chose to "batten down the hatches and ride out the storm" arguing that market size would see them through the worst of times or retrenching from the SME sector would be a prudent business decision.
The big portfolio run-outs, ING, Fortis etc., have now happened and many companies revised their market focus or sought to develop a more niche approach. This has led to fundamental change in the sector, with new companies entering the market and the market share of more traditional asset funders being encroached upon from all sides – challenger banks, brokers, captives and peer to peer lenders. This has led to increased competition between all types of funders and a renewed focus on the ability of the BPO to provide a cost effective outsourced solution.
As the market has changed, so too has the role of the BPO, especially for the new entrants to the market. The desire to reduce the barriers to entry – infrastructure, staff and administration costs, drive the decision to use the services of a BPO as a supporting pillar to the new business.
Fundamentally the single most important criteria are the communication between the parties involved, as this builds the foundation for the on-going relationship, the ground rules for how the business will use the BPO and the standard the BPO has to deliver. The client is entrusting their portfolio and their brand to the BPO with all the associated concerns surrounding data integrity, business continuity and disaster recovery. The BPO must be able to demonstrate not only that it has the experience and the knowledge to manage the portfolio but also the technology to meet more demanding client requirements. Technology drives the world today, in the retail world the expectation is the availability of data on a 24/7 basis.
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By GlobalDataWhilst asset finance and leasing has not demonstrated this level of resource and data requirement, clients today would expect to be able to log into their database or data warehouse and integrate the system for updates on portfolio performance, arrears or new business. Europe looms large on the horizon for many international funders, especially as both market share and margin are under pressure in the UK.
From a BPO perspective, this presents certain challenges, providing not only the in-house day to day functionality but also meeting the changing needs of the client.
Today’s asset finance providers need to be able to react quickly and to provide mobile connectivity to customer data in remote locations.
The BPO must work with the client to look at the technological requirements and establish whether the BPO or the client provides the lease administration software platform. In today’s business world many clients have substantially different requirements, depending on the jurisdictions in which they seek to operate and it is essential to define the role of the BPO in supporting these operations.
As a business solution, there is an argument that a three way arrangement, using the client requirements, a software house solution and the administration skills of the BPO provides a perfect foundation for future growth. A BPO that is also a software provider blurs these lines of distinction and the responsibility for delivering the service requirements, leaving the client to ask "am I dealing with a software house or a BPO"?
However the BPO becoming software agnostic also presents problems with training, systems access and costs. Additionally there is the problem of who provides the hosting of the system and who has responsibility. There are different jurisdictional needs in Europe for hosting, although the use of the "cloud" may impact upon such requirements. By defining responsibilities, the client benefits from clear lines of demarcation, relevant experience and expertise and the ability to engage with independent up to date technology which enables remote access, front end functionality and upgradability.
Therefore the role of the BPO is becoming well defined, i.e. providing the people, knowledge and experience to effectively manage the client’s portfolio on a cost effective basis through defined efficient processes. The use of expert providers for dedicated services, whilst potentially more time consuming at the start of a business relationship, does enable greater flexibility for future growth. By keeping up to date with different software platforms and market developments, the BPO can offer a greater level of service, especially in Europe. From example, the client may have a requirement for a country specific system, using the local language for both documentation and systems processing.
A possible solution here could be for the BPO to provide not only native speaking staff but also the experience of working within the required local regulatory framework, which would clearly be beneficial to the client. This can rapidly reduce the timescale for clients to be up and running on their new portfolios and also provide a truly effective pan European solution.
Today’s client is far more focused on the ability to procure a solution which incorporates the ability to grow into new markets across Europe, typically to provide the required scale to support portfolio growth and funding. Any BPO which cannot provide truly European coverage is severely limiting its own ability to support future client growth.
BPO’s client needs have not yet reached the levels enjoyed by the retail market, however the tide is turning and many clients now wish to see an increase in the functionality of a provider to meet their expectations.
Having opened Pandora’s Box with apps on the iPhone and androids, the asset finance market will continue to evolve and seek increasing demanding technological and service solutions. In meeting these requirements, the BPO must ensure that is has not only the core business functionality of staff, experience and infrastructure but also sufficient knowledge of the future market developments and availability of technological solutions.
By clearly defining its own role, and providing the services required by that role, the BPO can assist the client with ensuring a sound foundation for future growth, using the relevant expertise from dedicated providers to meet the clients aspirations.
Ian Dennis, business development director, Five Arrows Outsourcing Solutions
