EUROPEAN BUSINESS SCHOOL
International University Schloss Reichartshausen am Rhein
7. Semester

Business Process Outsourcing in the
European Financial Industry

by: Andreas Weth

Table of Contents

1. Introduction 1

1.1 Problem definition 1
1.2 Structure of the Seminar Paper  1

2. Introduction to the European Financial Sector  3

3. Introduction to Business Process Outsourcing  6

4. Business Process Outsourcing in the European Financial Sector 8

4.1 The Value Chain in the Financial Sector  8
4.2 Managing Business Process Outsourcing in the European Financial Sector 9
4.3 Introduction and Definition of Documents Logistics  12
4.4 Business Process Outsourcing in the Field of Document Lo gistics  14
4.5 Business Process Outsourcing in the Field of Transaction Banking  15

5. Concluding Remarks and Future Development 17

Appendix 18

References  23

1. Introduction

Business Process Outsourcing (BPO) is one of the current major developments in the European economy. For many companies, it is a possibility for establishing a new presence in a different industry or branch; one example for this trend is the fact that Kienbaum Management Service GmbH offers BPO services in the field of document logistics.¹

1.1 Problem definition

Besides establishing a new presence in new markets, BPO also leads to significant cost reductions and quality of service improvements. Therefore it is an important strategic tool for the European financial sector which has experienced increasing costs and shrink ing margins during the last ten years. This seminar paper focuses principally on BPO in the European financial sector. Therefore, other industries are only relevant in comparisons with the European financial sector. To highlight the current European development from diversified banks to specialized financial institutions, transaction banking is explained as one of the specialized banking forms with the highest growth rate during the next years. An emphasis is also set in this paper on document logistics in the European financial sector and BPO possibilities in this field. The field of document logistics in the financial sector is not heavily researched. Therefore academic publications in this field are of high interest for the academic community as well as for professionals managing document logistics.

1.2 Structure of the Seminar Paper

After a foreword in chapter one, chapters two and three focus on the introduction to the European financial sector and BPO and include basic definitions. After that, chapter four includes the main part of this seminar paper and puts an emphasis on BPO in the European financial sector. After describing a generic value chain and stating BPO trends, an introduction is given to the field of document logistics and BPO possibilities in this field. Chapter five then gives a conclusion and highlights the future development of BPO in the European financial sector. Finally, an appendix includes the figures which are not integrated in the text and is followed by the references section.

2. Introduction to the European Financial Sector

In this chapter, an introduction to the European financial sector is given which is necessary to develop a general understanding of European banking institutions and their environment. The European financial sector must be seen in the context of the international financial industry. ² Six banks with market capitalizations ³ over US $ 100 billion dominated the global finance market in 2004 which can be seen in the following illustration (figure 1).⁴

Fig. 1: Market Capitalization in the Worldwide Banking Industry in 2004 [figure only in downloadfile]

Among them are three European banks: Citigroup, HongKong Shanghai Banking Corporation (HSBC) Holdings and The Royal Bank of Scotland. Nevertheless, two other European banks (UBS and Santander) were close to market capitalizations of US $ 100 billion. ⁵ This shows the importance of the European financial sector in the global context of the finance industry.

Fig. 2: Worldwide banking in 2003 [figure only in downloadfile]

Source: SINN, DAYAL, PITMAN, GRASSHOFF AND HERBECK (2004), p. 13. The other argument pointing to the importance of the European financial sector can be seen in figure 2 which shows that the continental European banking market (without the United Kingdom) in total ads up to 23.7 percent of the worldwide market for banking in 2003. Including the United Kingdom, European banking even adds up to 34.8 percent. According to SINN, DAYAL, GRASSHOFF AND HERBECK (2005), the European financial sector can be clustered into the following sub categories:

· Asset Managers (institutions which manage investments for a fee - providers of retail broker services and money or wealth management.)
· Consumer Finance (credit card companies and providers of personal financial services)
· Investment Banks (providing capital market and corporate finance services)
· Mortgage Finance (mortgages and mortgage insurances)
· Transaction Banks (providers of standardized and outsourced services in the financial sector)
· Universal Banks (diversified banks with broad business portfolios).⁶

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1 Kienbaum has a strong reputation as a human resource consultancy. Nevertheless, the company does not have a reputation for providing back office services. For further information about Kienbaum’s offerings, see http://www.kienbaum.de/cms/de/geschaeftsfelder/management_consulting/shared_services.cfm.

2 The European financial sector includes institutions from the European Union. According to WIKIPEDIA (2005b), there are currently (in 2005) 25 countries which are members of the European Union (in brackets are the dates of accession): Austria (1995), Belgium (founding member: 1952/58), Cyprus (2004), Czech Republic (2004), Denmark (1973), Estonia (2004), Finland (1995), France (founding member: 1952/58), Germany (founding member: 1952/58), Greece (1981), Hungary (2004), Ireland (1973), Italy (founding member: 1952/58), Latvia (2004), Lithuania (2004), Luxembourg (founding member: 1952/58), Malta (2004), The Netherlands (founding member: 1952/58), Poland (2004), Portugal (1986), Slovakia (2004), Slovenia (2004), Spain (1986), Sweden (1995) and United Kingdom (1973).

3 See figure 5 in the appendix for further information about the worldwide market capitalization.

4 See SINN, DAYAL AND LUTHER (2005), p. 9.

5 See SINN, DAYAL AND LUTHER (2005), p. 9.

6 See SINN, DAYAL, GRASSHOFF AND HERBE CK (2004), p. 25 for further information about these categories.