Today's blog comes from Peter Allen, Partner and Managing Director, TPI.
If you want to know what's next in the outsourcing industry look at deviations away from historical norms, typically exhibited by change in market volumes.
To wit: The popularity of credit card payments means that fewer and fewer American consumers write checks nowadays. To the outsourcing industry, trends like these create opportunity for more leveraged service models.
Around 49.5 billion checks were paid in the U.S. during 1995, with that number slumping to 36.6 billion checks in 2003, according to data from the Federal Reserve. Meanwhile, credit card transactions leapt from 15.6 billion in 2000 to 19 billion in 2003, while debit card transactions surged from 8.3 billion to 15.6 billion over that time period.
Based on anecdotal evidence, U.S. consumers find their credit cards to be more convenient than their checkbooks. Even when consumers do take out their checkbooks, the checks they write are increasingly being scanned and converted by merchants into electronic payments. And the provider community can offer to manage the payments processing by bringing to bear the people, know-how, technology and information that yields efficiency during a time of declining overall demand.
Now, consider the situation in mortgage processing. Financial services institutions of all sizes that play in the game of mortgage origination and servicing are thinking that same thing as their check processing brethren.
Most of the mortgage industry's top lenders developed their loan origination technology in-house. By the mid-1990s, lenders realized that this type of technology investment was actually tailored for delivery through third-party relationships, which led to a fairly significant demand for application-related work through outsourcing.
Interestingly, the trend lost momentum in the last decade. The use of offshore and outsourced relationships was focused on providing capacity to a growing market and was driven by the ever-increasing appetite for mortgages.
But what we've seen more recently is a striking change in direction. Driven by declining origination volumes and illiquid collateralized debt obligations (CDOs in banking parlance), the work of mortgage processing as a BPO is taking center stage. Even in an industry rocked by layoffs and bankruptcies, the science of mortgage-related processing is changing forever.
Most lenders hope for a return to the days of growth. If and when those days come, we will see a vastly different delivery model for origination and servicing built on the alignment of costs, capabilities and capacity.
