Blog

The risks and rewards of outsourcing

May 12, 2014 by Brendan Burge — Sales Manager N.A., Transoft International Inc.

Today’s highly competitive banking environment has produced an increasing number of ways to cut costs and increase profits. One of the most popular with respect to currency processing is to contract an outsource service provider to manage ATMs, commercial cash deposits, central bank returns and the like.

This rise in the popularity of cash process outsourcing has also meant significant opportunity for cash-in-transit companies. As this trend is gaining in popularity we would like to take a moment to examine the risk and reward of outsourcing.

For banks the rewards of outsourcing are almost entirely cost- and profit-centric. Cash vaults are expensive to build and maintain. Staffing can also be a challenge, as it is not the most enjoyable job and the pay is often relatively low.

Avoiding the infrastructure costs and efforts to hire, train and maintain efficient staff can also be a plus.

The risks of outsourcing are often harder to identify. Obvious risks might include inadequate security, insurance and facilities for the work being outsourced.

Others include the loss of direct involvement in providing a core service to customers. Investigating a complaint can often take more time and involve more people than it did before outsourcing.

During our time in this industry we have had many opportunities to visit and observe operations of outsource providers. Specific observations of risk that we have seen (and no outsource provider would admit to) are:

• unsecured facilities that are dressed up to look secure;
• inebriated staff;
• commingled funds;
• inexperienced staff with no option for standardized training;
• poor vetting practices in hiring;
• lack of applied cash handling standards within an outsource services company; and
• unsecured transportation.

It has always been a bit of a mystery to us why Banks would seek outsource opportunities for such a critical core business. It is also somewhat surprising that the decision process to select an outsource provider is more heavily weighted to financial impact than to product impact.

It is interesting then to learn that the Federation of Indian Chambers of Commerce and Industry has proposed a set of guidelines for cash logistics companies in India. It is also interesting to note that these guidelines were not sponsored by The Reserve Bank of India. Rather, they grew from FICCI members’ recognition that cash handling by businesses and banks incorporates more risk than they are comfortable with.

We applaud FICCI for their efforts to bring the Indian banking community together with retailers, CITs and the Reserve Bank of India in an attempt to secure cash, which, as they say, belongs to everyone and is therefore everyone’s concern.

Following is a link to the FICCI document outlining a rationale for and summary of the guidelines. Perhaps a grassroots initiative is what is needed to mitigate the risks and maximize the rewards of outsourcing.

Read on and ponder what is really happening with your cash when it is handled by an outsource provider.

Proposed Guidelines for Cash Logistics Companies in India