Bank On Outsourcing For Big Savings

Hit hard by the economic downturn, a number of global financial-services companies are outsourcing their IT operations to cut costs while maintaining access to cutting-edge technology. In the latest examples, Deutsche Bank last week signed a $2.5 billion agreement with IBM Global Services that the bank says will save it $1 billion in IT costs during the 10-year life of the contract, while Washington Mutual Inc. inked a $400 million, seven-year deal with Unisys Corp. to handle digital check processing.

Deutsche Bank will buy computing power from IBM under a usage-based pricing model, where it pays only for the processing time on servers and mainframes that it uses. Other functions, such as application usage and help-desk support, will be billed the same way. IBM will take over operation and management of Deutsche Bank's main data centers and satellite IT facilities in locations across Europe. The vendor also by 2004 will build a state-of-the-art data center in Germany's Rhine-Main region from which it will manage parts of Deutsche Bank's operations and those of other customers in the area.

Deutsche Bank's decision to outsource is in keeping with a cost-savings trend that IBM has seen over the last 18 months, says Paul Sweeny, an IBM general manager. IBM also is talking with J.P. Morgan Chase & Co. about securing a comprehensive outsourcing deal that could be worth as much as $5 billion.

Meanwhile, Washington Mutual plans to give customers faster access to funds by outsourcing the creation of digital copies of paper checks. Unisys will provide staff and equipment that will scan copies of paper checks at branch offices. Previously, branches sent paper checks to a central facility to be processed by hand. "The economics of outsourcing were a lot better than running the operation in-house," says Dyan Beito, executive VP of deposit services, who declined to provide further details.

Originally appeared in InformationWeek, Dec. 23, 2002