Despite the fear of outsourcing that has dominated the financial services community over the last few years, firms are now increasingly open to discussions about the subject, according to recent research by buy side focused, data quality management solution vendor MoneyMate. The majority of the 40 US and UK-based investment managers involved in the vendor’s survey, which was conducted over the course of the last six months, indicated that they are considering outsourcing their data management processes, explains chief technology officer Ronan Brennan.
“We have been distributing our surveys at key industry events over the last six months or so in order to determine the market’s appetite for outsourcing,” says Brennan. “The results show that around 80% of respondents are already considering, or are willing to consider outsourcing their data management processes.”
In order to validate its own model of what Brennan calls “with-sourcing”, MoneyMate surveyed representatives from firms outside of its own customer base. “Usually we speak to people that already have considered the idea of outsourcing, so we wanted to talk to those firms that have not approached us or previously indicated their interest.”
Brennan believes the appetite for investment in outsourcing has grown so significantly because of the current global regulatory push and the intense public scrutiny being directed at financial services firms. “Previously there was some concern about keeping data in-house but now due to operational constraints and a requirement to do more with less, firms are more willing to outsource to experts in the field,” adds Catherine O’Reilly, head of marketing at the vendor.
Operational challenges due to manual processes were cited by half of the respondents as the greatest challenge in bringing their product data to market. Other challenges include timeliness for 37.5% of respondents, accuracy for 34.4% and costs for 31.3%.
Regulators are looking for verifiable audit trails and the high level of manual processing within the industry is no longer considered to be acceptable, notes Brennan. “This current lack of automation and the recent regulatory and public focus on data are tightly correlated with firms’ willingness to outsource,” he contends. The same goes for the fall in headcounts as a result of tightening belts, which has inspired firms to seek alternatives to throwing bodies at the data quality issue.
The recent regulatory fines and discussions have certainly raised the profile of the reputational risk posed by bad quality data. “Previously firms were more concerned about the operational risks involved in outsourcing but now the focus is on a firm’s external facing risks,” says Brennan. Vendor risk is always a consideration but investment priority has been determined by the need to retain the reputation of a firm’s brand. “There is a greater awareness than ever before of the broader levels of risk facing a firm,” he adds.
MoneyMate’s argument is not dissimilar to that of rival outsource solution provider Netik, who has also been talking up the rise in outsourcing in the post-crisis environment over the last six months. However, to dismiss the fear of outsourcing that has characterised the industry for the last few years may be premature. No doubt, there is a rising interest in the outsourcing option but the true test will be the number of firms that sign on the dotted line at the end of the day.
To this end, Brennan indicates that MoneyMate has seen a marked uptick in requests for proposals and requests for information over the last few months. “In the space of one week we received two of each and we haven’t seen this level of interest in the last couple of years,” he says.
In order to meet the requirements of its current and prospective customer base in the more competitive outsourcing environment, the vendor has been investing in its platform over the last couple of years. The focus has initially been on allowing firms to take control of their data by enhancing the platform’s overall governance and data stewardship, says Brennan. A fairly recent example of a customer that has benefited from this approach is Schroders.
“Accessibility is our next focus,” says Brennan. “The availability of the data to the downstream systems, event-based messaging, integration with the web and with third party solutions.”
The challenge in this downstream endeavour is to meet the breadth of requirements of the vendor’s customer base, he adds. It is not therefore a technical challenge but rather a need to target the right areas and pain points. In this respect, the recent focus has been on meeting demand for web data delivery and the production of key information reports to end systems, which Brennan indicates have already been added to the product development roadmap.
The current roadmap has been defined to some extent for the evolution of the vendor’s products over the next three years. The most immediate release, however, will be in September or October when the platform will add ad hoc reporting, static data management and publish/subscribe functionality.