BofA Expands India Development Center

It should come as no surprise that Bank of America is planning to open an Indian subsidiary in April of next year. For several years, the Charlotte, N.C., bank, with $737 billion in assets, has outsourced portions of its application development and maintenance to India, saving both time and money.

"In 2002, we saved more than $10 million by leveraging strategic partners for some application development and maintenance activities," says Mary Waller, a company spokesperson. "We were able to achieve faster speed to market. We're leveraging time zones, and we can ramp up and ramp down quickly on a project." With the recently announced planned acquisition of FleetBoston Financial, scheduled to be completed sometime next year, it is too early to tell what jobs, if any, will be shipped overseas when the merger is completed, Waller says.

With the new subsidiary, the bank will go beyond IT services to include business processes. Though Waller says the bank has not made any final decisions on what processes may be moved to India, its approach reflects a trend seen by researchers at A.T. Kearney.

Outsourcing's In Style

"In the early '90s, we saw a number of institutions move their IT application development offshore, principally because there were not enough resources in the U.S. to meet the demand," says Andrea Bierce, vice president and managing director at A.T. Kearney (Chicago). "Then, as companies had very good experiences with the IT functions, coupled with the fact that the economy didn't turn around, they had to look for additional areas where they could reduce costs and potentially move some of those functions offshore."

According to Bierce, the first wave consisted of software development, maintenance and upgrade, along with call centers, low-end processing and database maintenance. Level-two activities include accounts receivable and accounts payable processing, client reporting and statements, reconciliation, settlements and payments. Beyond that, the research firm predicts more complex functions, such as financial reporting and control, research and credit analysis will move offshore.

"Banks are very heavy in back-office processing," says Bierce. "If you don't need to interact with the customer, those processes are a candidate for potential offshore migration."

A recent A.T. Kearney study found that financial services firms plan to relocate more than 500,000 jobs offshore over the next five years, reducing annual operating costs by more than $30 billion.

Financial institutions trying to reduce costs have to leverage their global footprint and look at low-cost alternatives, says Bierce. Wages are often 50 to 90 percent lower in offshore locations such as India. Also, the people who tend to be hired, even in a call center, have college degrees. "They're highly motivated and highly educated, so companies get productivity improvements that they hadn't necessarily planned on," she says.

However, BofA's Waller says saving money is only part of the equation. "It's bringing high-quality and less-expensive solutions to our customers and value to our shareholders," she says. "It keeps us competitive in today's global market, which means we can grow business here at home and overseas."

Final decisions could be announced as early as the end of the year. "It's possible that some jobs will be eliminated if certain processes are performed through the subsidiary, but it's also possible that other jobs will be created by other initiatives and strategies that we have," says Waller. "Hopefully we can find people other things to do or at least get them in a position to be able to find something outside the company."