IBM / MORI research polls 250 large and medium European companies (50 in the UK) to identify key areas for growth for banks.

An IBM survey, 'e-business and outsourcing - an opportunity for European banks?', reveals that more than half the companies polled will consider outsourcing some financial or administrative functions in the next two years. Eighteen per cent of those questioned in the UK already do.

These findings indicate that there is a significant opportunity and scope for both UK and European banks to offer an outsourcing service, as banks continue to find ways to strengthen and re-engineer their business customer relationships. Functions which could be outsourced to banks:

• 28% of those polled said they are likely to use a bank for payroll administration; 16% for invoicing; 24% for VAT documentation; 38% for chasing outstanding accounts; 43% for reconciliation of bank statements, and 29% for factoring.
• The survey also shows the functions most likely to be outsourced in the next two years. These are: credit ratings (53% of respondents), chasing outstanding accounts (27% of respondents), and payroll administration (24% of respondents).
• Only 5% of those with a turnover of less than 16349 million would contemplate outsourcing their invoicing, but 32% of firms with a turnover of 163100 - 163200 million would.

Willingness to outsource:

• UK, Italy and Sweden lead the way in willingness to outsource finance/accounting processes, while companies in France and Germany (where traditional, more conservative business practice prevails) are more cautious.

Using banks:

• 50% of UK respondents only use one bank for all business, contrasting to only 10% in France. Almost half of companies use two to five banks.
• In Italy, 50% of those polled expect to decrease the number of banks they use against just 6% in the UK (the Italian banking community has not realised the rationalisation experienced in the UK).

Types of financial transactions carried out online:

• Of those companies who do conduct financial transactions online, 82% in Europe (but only 64% in the UK) bank electronically - with little difference between medium and large companies.
• In all countries, with the exception of Denmark and Italy, where there is an equal likelihood, companies are more prepared to take orders online than to place them.
• Overall, familiarity with the Internet, e-commerce or online transactions has little impact on a company's willingness to outsource. However, this is more than likely to change as e-business gains currency.

Reasons for not conducting financial transactions electronically:

• In the UK, 27% had not got round to it, while 23% felt no need.

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• Security was seen as less of an issue in the UK (18%) compared to 27% of companies in Germany and 26% in France.

Main Benefit / Concerns of Outsourcing:

• Reduction of up-front costs was widely acknowledged as one of the main benefits of outsourcing. The larger the company, the stronger the sentiment.
• In the UK the overriding concern about outsourcing is loss of control (68%) compared to a European average of just 37%. Loss of proprietary information is generally a low concern among those polled, 20% in total and in the UK 18%.

Characteristics of an Outsource Supplier:

• 40% of those polled rate it "unimportant" that the outsource supplier is a global provider.
• Security of transaction (91%); confidentiality (91%) and a record of success (64%); offering services electronically (58%) and guaranteeing specific service levels (65%) are all rated more highly that global reach.

Functions which are currently outsourced:

• Of the companies polled, payroll is the most frequently outsourced function. All the Swedish companies surveyed, already outsourcing financial processes, outsource payroll, closely followed by 89% of UK companies currently outsourcing

Keith Gold, marketing manager, IBM Banking, Finance and Securities, Europe, Middle East and Africa comments:

"The potential for outsourcing is considerable and we believe it provides a key to future success. It is an area where banks have been losing out, but also where they have a clear opportunity to regain lost ground."

The report revealed that there are two key areas that customers are willing to outsource to banks; employee services, such as payroll administration and trade-unions services, such as credit rating checks and reconciliation of bank statements.

e-business will play an important role in strengthening business relationships, which is recognised by banks across European, as highlighted in a recent IBM survey.

Keith Gold added:

"E-business will enable banks to drastically improve key operations and reinforce customer relationships. The companies surveyed rated security and transaction (91%) and provision of electronic services (58%) as important characteristics of an outsourcing supplier."

He concluded:

"There is clearly a significant opportunity for banks to market e-business to its customers, the issues of cost and security are not the main obstacle. If companies were to adopt a secure e-business interaction with their banks, this would make the outsourcing of core business functions a more viable and cost-effective proposition. Banks offering a comprehensive e-business service will therefore gain the competitive edge in the European outsourcing marketplace."

Download the entire report e-business and outsourcing - an opportunity for European banks? [pdf format - 747K]

Technical details

IBM United Kingdom Limited commissioned MORI to conduct the poll among 250 medium (defined as those with turnover of $10 million to $100 million) and large (turnover of $100 million or more) companies across Europe. 50 each in the UK, France, Germany and Italy, and 25 each in Sweden and Denmark. Questions were put to respondents at Finance Director, Chief Accountant or equivalent level during pooling from June 3-28, 1998. the principal activities of the companies interviewed were manufacturing, transport/distribution, retailing, construction, mining, IT and other services