Building the modular bank: Sourcing strategies in the age of digitization

October 6, 2017

Executive summary

Almost a decade has passed since the financial crisis, yet European banks continue to struggle to return to economic health. Greater efficiency and profitability remain a challenge, while at the same time banks are under pressure to invest in new digital technologies. Those looking to rationalize their value chains and “modularize” their operations should use an approach we call Fit for Growth*, which involves reducing or eliminating the less strategic aspects of their operations and investing the savings in capabilities that directly promote growth.

Outsourcing remains key to this effort — but the outsourcing options now available go far beyond simply sending IT operations to India. Activities as complex as procurement, analytics, trading, marketing, and several finance functions can now be outsourced profitably and with confidence, often to “nearshore” locations in Central and Eastern Europe. The larger banks are also actively setting up subsidiary technology, trading, and other operations throughout Western Europe to take advantage of proximity and local talent.

Any decision to outsource, however, must be subjected to a careful analysis, including a detailed business case. The financial implications of any outsourcing strategy are complex: Maintaining dual activities while the project is set up, funding a governance function to manage operations, and paying taxes and covering other expenses — all while maintaining mandatory profit levels — can add up, offsetting any gains.

If the process is done right, however, the rewards should outweigh the risks. And every bank should take advantage of outsourcing’s potential for creating a more focused, streamlined organization and for reinvesting the money saved in new, growth-promoting digital capabilities.

* Fit for Growth is a registered service mark of PwC Strategy& LLC in the United States.

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Five steps to modular banking

1. Set a goal for your institution’s sourcing and shoring agenda and match it with your digital agenda. Prioritize your business goals: Is your primary goal reducing costs, improving quality, reducing management attention, or closing capability and digitization gaps?

2. Document your entire value chain and related processes. Scope and evaluate each area for its sourcing and shoring potential based on your defined goals and a careful assessment of your institution’s capabilities. Focus on non-differentiating capabilities for further analysis.

3. Consider the options for improving your current processes internally, through automation and robotic processes, artificial intelligence, and other digital technologies, and evaluate the maturity of these technologies, given your needs.

4. Assess the various sourcing and shoring models and their ability to provide the digitization and automation technologies that may be relevant for your institution. Determine whether you have sufficient scale to manage complex digital technology on your own, perhaps through onshore subsidiaries, or if you would benefit more from an established outsourcing provider. Draw up a business case, including a detailed financial assessment, for each option.

5. Define an outsourcing governance model that balances your business targets with an effective risk management system and an appropriately sized retained organization. Include in the model the means to ensure that all technologies and processes employed will comply with regulatory and data security requirements.


Banks throughout Europe are seeking innovative ways to improve earnings and boost growth. High on their list should be a concerted effort to rethink and streamline their business models, focusing on strengthening the capabilities that define their strategic identity. Key to this effort is optimization of the costs involved in carrying out the many activities that don’t directly contribute to generating customer value. That’s where the new outsourcing comes in. New digital technologies, together with more advanced new service centers, offer a real opportunity to redefine which activities need to be kept in-house and which don’t. Is it time for your bank to go modular?


Building the modular bank: Sourcing strategies in the age of digitization