You are here

Risk Considerations for Outsourcing, Nearshoring, and Offshoring in the Banking Industry

Master's Thesis
Corporate Partner: 
Date Published: 
January 29, 2016

The aim of this thesis is to provide an overview of current and future outsourcing, nearshoring, and offshoring activities in the banking sector and of the related risks. A comprehensive review of the literature, company profiles, press articles, and studies reveals that sourcing strategies have become increasingly popular. However, the main reasons to outsource are changing from mere cost-reduction motives to qualitative considerations. Since pursuing a new sourcing strategy implies additional risks for a bank and its stakeholders, it is of crucial importance that the bank manages these risks adequately and implements risk-mitigation measures. Business process and IT outsourcing are common strategies since it is efficient to outsource tasks that cannot be executed at an optimal level in-house. Larger banks often use offshoring centers in low-wage countries, allowing them to centrally pool tasks that were previously executed separately by different divisions. It can be expected that firms will try to change their offshore cost centers into value-adding centers, more frequently apply multi-sourcing strategies, and consider the proximity of a location to be more important. As new risks are emerging due to the speed of technological change, regulation is expected to become stricter in the foreseeable future.