Wachovia joins banking's outsourcing trend

Computerworld - Wachovia Corp. is planning to outsource support for dozens of back-office applications to three global services vendors in a move expected to help the nation's fourth-largest bank reduce its application support costs by 15% to 20%.
The Charlotte, N.C.-based bank, which shared its outsourcing plans with employees this week, has taken a course that maps with other large banks such as ABN Amro NV to leverage labor arbitrage and boost efficiencies with a "follow-the-sun" approach to IT processing, said Bill Bradway, an analyst at Financial Insights, a market research division of IDC in Framingham, Mass.
By outsourcing application support to global services firms with regional capabilities in, say, the Far East and Eastern Europe, Wachovia and other banks "can quite easily compress the time it takes to deliver support requirements," said Bradway.
Last year, Wachovia began evaluating offshore outsourcing approaches that other large U.S. financial institutions have taken, a review pushed by G. Kennedy Thompson, the bank's chairman and CEO, according to Jean Davis, head of operations, IT and e-commerce at the bank. Last fall, Wachovia sent a delegation of IT, operations and business leaders to India and Costa Rica to meet with several offshore services providers.
"The starting point was [cost] savings, and we were talking to our peers in the industry that had made productive savings through offshoring and could attest to the quality of the work," said Davis. For its part, Wachovia had two successful development projects done in India in the late 1990s and had used an Eastern European firm to help integrate its brokerage systems with Prudential Securities following their July 2003 merger, said Davis.
She declined to name specific applications identified throughout the bank's divisions that have been targeted for offshoring. However, she did say Wachovia will not be outsourcing support for any of its core production systems, nor will it be offshoring support for any systems that contain sensitive customer information.
Instead, the targeted systems support back-office operations, such as an application that generates daily reports or an overnight processing system, said Davis. "For instance, the CIO team that supports the retail bank has selected maybe a dozen applications for this first round of review out of hundreds," she said.
"Wachovia isn't terribly different from what a lot of Wall Street firms have done -- outsourcing less time-critical and customer-sensitive" data processing, said Robert Iati, an analyst at The Tabb Group in Westboro, Mass.
Davis declined to name the three services vendors with whom Wachovia is now in the final stages of negotiating,but she said one is based in the U.S., one is in India and all three offer global processing support. Davis said she expects the contracts to be finalized by late August or early September.
She also declined to quantify what percentage of Wachovia's 2,600 full-time and 500 to 750 contract programmers might be affected by the outsourcing deals. However, she did say that the services contracts "could impact 15% to 20%" of Wachovia's annual application support costs.
Davis added that any IT workers displaced by the outsourcing arrangements will be given preferential treatment should they apply for other open IT positions in the company.
Financial Insights' Bradway estimated that if 450 full-time and contract programmers were displaced by the outsourcing deals, Wachovia could see $40 million to $50 million in savings a year.