Back office outsourcing for community banks is no longer a specialized service that only a handful of banks use. It’s become an absolutely crucial part of the industry. Today, many community banks outsource at least some of their back-office tasks to third party professionals. In fact, in 2019, business process outsourcing generated $92.5 billion globally and this figure is expected to rise over the next few years as more industries hire third-party back-office experts.
Why is this service becoming so popular? Back office outsourcing has a number of benefits for banks and other lenders, especially small and medium-sized community banks. When you hire a third-party expert to tackle the tedious tasks associated with back-office processes, your staff will have more time to dedicate to core processes like customer service, marketing, and new product offerings. Having an efficient back office that essentially runs itself is one of the best ways to stand out in today’s saturated community banking industry.
What Does it Mean to Outsource Your Back Office?
Back office outsourcing has changed a lot over the decade. In the past, back-office outsourcing for community banks was extremely limited in scope. Most providers offered isolated services that only solved one specific pain point in the back office process. For example, you could hire an internet technology (IT) staffing agency that would manage a team of technology experts to help your customers navigate your bank’s website.
The problem with these “a la carte services” is that they’re hard to manage and often create holes in your back office system. You would have to hire multiple providers to cover all of your back-office needs. And if these providers don’t communicate with each other, you could open yourself up to inefficiencies, or worse—liability and security issues.
However, this is no longer the case. The best modern back-office outsourcing providers focus on end-to-end back-office processes, rather than just one or two areas of expertise. They can handle every aspect of a community bank’s back office, including:
- Automated and friendly customer communications (especially in response to delinquencies, defaults, or collections);
- Detailed accounting;
- Portfolio management;
- Loan structuring and origination;
- IT support;
- Compliance with community banking regulations;
- Staff training; and more.
In practice, this means that you may never have to think about your back-office operations again. End-to-end service providers ensure that every aspect of the back office process operates seamlessly.
5 Advantages of Back Office Outsourcing for Community Banks
Hiring a trustworthy professional to take care of your community bank’s back office has a positive impact on nearly every aspect of your business. Here are just five reasons why back office outsourcing for community banks is a game-changer for the industry:
#1: Community Banks Save Money, Time, and Resources
The most important benefit of back-office outsourcing for community banks is that it’s more cost-effective than managing your back office in-house. Just think about all of the costs normally associated with the back office:
- Staff salaries and benefits (including IT support, software developers, call-center representatives, data scientists, compliance experts, portfolio managers, loan originators, auditors, accountants, and many more);
- Building proprietary software, portfolio management platforms, and online portals;
- Staff training;
- Equipment costs and maintenance (including servers to store data securely);
- Managing and renting buildings for back-office operations.
And this is just a short list of the costs you’ll be on the line for when you manage your own back office. Outsourcing your back office removes most, if not all, of these costs.
You’ll also waste less time and resources overseeing all of these details. If you want to check in on your back office operations, you can simply get in touch with your provider and ask for a detailed report on how operations are going. This allows you to focus on managing a lean in-house staff that is fully dedicated to front and middle office operations only.
#2: You’ll Face Fewer Compliance and Regulatory Violations
An underrated benefit of back-office outsourcing for community banks is regulatory compliance. It’s your bank’s responsibility to stay up to date with the latest regulatory standards—regulatory bodies won’t do this for you. This means that unless you hire a compliance expert to stay abreast of every new regulation, your bank could risk hefty fines.
The best third party back-office providers have a group of compliance experts on staff to keep your system up to date. These compliance experts specialize in all legal requirements, including important financial guidelines like the Sarbanes-Oxley Act. They will ensure that your software and web portals are as secure as possible and will inform you whenever a new regulation impacts your bank. You don’t have to take on this burden alone.
#3: It’s Easier to Manage Portfolios and Govern Data
Community banks have to collect and analyze mountains of data to effectively manage portfolios and reduce risk. Outsourcing this process allows you to do this more efficiently. Using tools like advanced loan origination software, data visualizations, predictive models, and more, a back-office provider can leverage all of your data in novel new ways. They can automatically collect and analyze data related to:
- Credit scores and alternative credit data on loan or credit card applications;
- Automated application decisioning;
- Repayments and scheduling;
- Delinquencies and collections;
- Interest rates; and more.
With a back-office provider, you don’t have to worry about your data going to waste.
#4: Community Banks Have More Flexibility and Agility
One of the most attractive qualities of community banks is that they offer a wide range of services to their members. They are small and nimble, so they’re able to take advantage of new banking technology trends.
Back office outsourcing makes community banks even more agile. With fewer back-office staff to manage, community banks can quickly pivot to new back office best practices. They can also make better use of technology, as the provider will ensure that all of the back office software they use is frequently updated and leverages the latest innovations.
#5: You’ll Form Better Customer Relationships
Some back-office providers also offer call centers and customer service options. These call centers are tied into back-office operations, making your communications with customers more effective. For example, portfolio management software can automatically detect when a customer misses a payment. From here, the call center can get in touch with the customer from their preferred method of communication and begin the resolution process.
If a community bank is understaffed, some of these communications may get pushed off or become less personalized. When you have a system in place for communicating with customers in a friendly, professional, and knowledgeable way, you’ll improve customer retention.
These aren’t the only benefits of back-office outsourcing for community banks, but they are some of the most notable. If you find a provider that can promise you all of these benefits, you’ll edge out your competition and retain a loyal group of community bank members.
The Most Effective Way to Outsource Your Back Office
There’s a simple way to offload all of your back-office operations: hire an end-to-end provider that has experience with the community banking industry. This type of provider makes back-office outsourcing easy for community banks. The provider will start by addressing all of your back office requirements and pain points and then will build a system tailored specifically to your preferences.
What’s great about a system like this is that you have the option to retain some back-office operations if you’re not ready to hand over your entire system to a third party. Later, if you decide to let go of some of these back-office responsibilities, you can simply ask your provider to add this service to your existing system.
Having everything under one roof also makes an outsourced back-office just as easy to manage as an in-house one. In fact, it’s often easier to manage because you don’t have to worry about details like staffing, recruiting, software updates, equipment maintenance, or payroll.
Managing your own back office is a relic of the past. If you want to embrace the future of community banking, it’s time to upgrade your legacy system and find a provider who can take you to the next level.
defi SOLUTIONS provides exceptional end-to-end back office outsourcing for community banks. We have years of experience working closely with the banking industry and have a thorough understanding of compliance, loan structuring, customer communications, and more. If you’re ready to make your back end more efficient, contact our team today or register for a demo.
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