The Benefits of Outsourcing Items Processing Functions

Many financial institutions are going through a period of transition. With check volumes continuing to decline, it’s important for banks and credit unions to find efficiencies where they can. One area where financial institutions can realize immediate benefits is outsourcing their item processing function. To find out more, PaymentsJournal sat down with Joe PachukaCIO of deposit solutions at Fiserv, and Sarah Cave, Director of Debit and Alternatives Advisory Services at Mercator Advisory Group, to discuss the many benefits of outsourcing effects processing.

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Focus on core business

Although check volumes are declining, bills processing remains a vital function for banks, Pachunka noted.

“Check processing may be considered a legacy business, but it’s still a very valid channel for transactions,” he added. “And it has to be operational 24/7.”

By outsourcing such a manual and time-consuming function, banks can focus on their core business and focus on other areas.

Indeed, Grotta observed that by outsourcing this part of the business, banks can focus more on pursuing innovation.

“Many financial institutions I talk to don’t necessarily want to focus on processing effects and are happy to have someone else overseeing that part of the business,” she said. Outsourcing to a respected vendor also allows banks to improve their cybersecurity posture and reduce the risk of system resilience, Pachunka added, while receiving new application features daily.

“We are seeing instances where applications on internal hosted systems are rarely updated, even once a year,” he continued. “In some cases, updates have not been applied for more than three years.”

Fiserv, he noted, updates its application software three or four times a year.

“When you consider that we live in a rapidly changing cyber risk environment, the rapid deployment of resolute cyber risk results applications is critical to address the ever-increasing risks around us,” Pachunka said.

It is therefore perhaps unsurprising that recent statistics indicate that outsourced financial services will grow by 7.5% per year.

Overcome talent retention issues

Outsourcing can also be useful during times when it is difficult to attract and retain talent, such as the one we are currently experiencing.

“Retaining talent and expertise to meet internal needs is difficult,” Pachunka said. “The challenges are real and not just in the financial space; all businesses face this.

This is especially true in article processing, where “a lot of people who really understand article processing are starting to retire,” he added.

By outsourcing item processing, financial institutions do not have to worry about finding employees to perform this function and can leverage the “benchmark strength” that outsourcers possess.

Banks can also take advantage of economies of scale. As check volumes decline, as they do in many cases, an outsourced customer will see their monthly variable costs decline as the volume declines over time, Pachunka said, adding that a service provider outsourced may also evolve if growth or acquisition activity occurs.

He also pointed out that banks don’t lose control of anything when they outsource remittance processing.

“We don’t support the back office of the bank,” Pachunka said. “When outsourcing, you still need to have a window into the processing, but not hosting it yourself. Most of the financial institutions we work with don’t feel like they’re losing control, but rather giving up the headache of having to deal with this on a daily basis, and often even at nights and weekends.

Pachunka said that when working with a financial institution that is getting into item processing outsourcing, Fiserv “walks you through the process step by step and makes it as easy as possible.”

Disaster and Pandemic Recovery

For many financial institutions, pandemic stimulus plans were largely moot until 2020. But when the COVID-19 pandemic hit the world, many were scrambling to maintain operations.

Outsourcing item processing can be helpful during pandemics or natural disasters by working with vendors who are well prepared for such occasions.

Pachunka noted that when COVID-19 lockdowns occurred across the globe, Fiserv didn’t miss any release deadlines for customers.

“Our deposit solutions operations are geographically dispersed across the United States and around the world,” he said. “During the first month of the COVID lockdown, we sent additional home monitors and equipment for everyone working remotely.”

He added that even now, Fiserv requires operations employees to work one day a week from home to ensure a remote environment is always efficient, should the need arise again.

“Our pandemic preparedness plan has been thoroughly tested and proven to be effective,” he said.

Regarding natural disaster preparedness, Pachunka noted that Fiserv’s data production and recovery sites are hundreds of miles apart in the United States and based in strategic locations.

“We’re in a strong position when it comes to data center support,” he said.

As check volumes dwindle but are still in use, Pachunka said Fiserv aims to help financial institutions with this and manage these often time-consuming and manual functions until they are no longer needed.

“At Fiserv, we intend to be the last provider that can process your checks and other items,” he concluded. “We are also preparing the next generation to support item processing until the last check is written.”