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Financial Insights Sees Growth in Payment Outsourcing: Asia's banks, take notice!

  • 01 April, 2005 11:42

<p>NORTH SYDNEY April 1st, 2005 – Leading independent research and advisory firm, Financial Insights, today announced the release of a new report looking at payment process outsourcing. The report profiles three utilities in Malaysia, China and Taiwan and examines the growing interest by Asia’s banks to outsource credit card and check processing. Although it is still early days, a number of interesting models are developing that seek to offer banks an alternative to in-house processing. These include public utilities, as well as those that operate on behalf of a single client. These utilities may be focused on an individual country or process pan-regionally.</p>
<p>The following information provides a look at the 3 utilities and the services they offer.</p>
<p>Growth of the Payment Utility in Asia – 3 Examples
(Utility Operator | Location of Utility)</p>
<p>1. EDS | Taiwan
EDS runs a private credit card processing utility on behalf of its client, a large global bank, out of its center in Taiwan.</p>
<p>2. First Data Corp | China
First Data’s processing operation in Shanghai provides an outsourced solution for the issuing and acquiring of credit cards for banks and financial institutions.</p>
<p>3. Unisys | Malaysia
The Unisys Business Processing Center in Malaysia provides a range of check and payment-related services, including financial transaction processing, retail lockbox, inward sorting, clearing, and archiving.</p>
<p>(Source: Financial Insights)</p>
<p>There are a number of factors driving banks to look at outsourcing payment processing, and these relate to issues of cost, scale and new product rollouts. Deciding what to outsource or move into a utility environment is a complicated process and will differ for each institution, but there does appear to be a viable case for the movement of certain types of payment processing out of the institution. This interest is fueling growth in utilities that seek to process on behalf of multiple entities, thus achieving economies of scale and skill.</p>
<p>Building a utility, however, is a long-term investment and requires an operator to take a strategic view of a particular market or client. There is no guarantee financial institutions will sign on to the utility and considering the significant start-up costs, this is a calculated gamble. Another point to note is that a utility, by its very nature, allows a client to transfer the risk associated with its operations, to a third party. This can never be done lightly and may draw significant scrutiny from regulators. This scrutiny will only increase as utilities move regional and increase the scope of services that fall under their care. Interestingly, as Asia’s regulators begin to focus more attention on the outsourcing phenomenon, there is a growing convergence of standards, which will make it easier when banks consider cross-border processing.</p>
<p>Today, processing utilities in Asia are in their infancy. Australia is an exception, as outsourcing has been a feature of that market for years, but the rest of Asia has yet to follow suit. Of the two public utilities cited above, one can claim 2 banking clients, while the other is still looking to add a second. Both are betting that a turning point is at hand, and hope to grow their client count in 2005. If they can do so, then it will provide a massive boost to the payment outsourcing industry, and could be a major driver for change in the regional financial sector.</p>
<p>“There are significant risks on both sides of the outsourcing equation," says Douglas Jaffe, Senior Research Manager for Financial Insights Asia/Pacific Banking Advisory Service. “But, it looks like utility operators who invested early may stand to benefit, as traditional resistance from banks begins to wane in light of changing business conditions and a new willingness to consider outsourcing of certain processes.”</p>
<p>“If the arrangement is done correctly,” Jaffe adds, “it could significantly benefit a bank in terms of reduced processing costs, and allow management to focus on the core business.”</p>
<p>For more information on obtaining this and other reports, please contact:</p>
<p>1. Outsourcing Payment Processing: Asia Gets Interesting (Financial Insights, March 2005)</p>
<p>About Financial Insights, an IDC Company:</p>
<p>Financial Insights provides independent research, custom consulting, and detailed multiclient studies on the technology issues and challenges facing the financial services industry. Our global research covers topics of strategic importance to corporate and retail banks, insurance carriers, asset management firms, securities and brokerage firms. Our local practices in Asia Pacific, Europe, Latin America and Canada add an in-depth regional viewpoint. Financial Insights, an IDC company, is headquartered in Framingham, Massachusetts, USA. IDC is a subsidiary of IDG, the world's leading IT media, research, and exposition company.</p>
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Phone: 61 2 9925 2259</p>
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