Financial services used to be local. Now, the industry is global, and a mixture of financial globalization and fintech is helping smaller banks stay competitive as rivals seek to disrupt their markets.

Financial institutions must innovate to stay relevant. Fintech players are changing the way financial services companies interact with customers by streamlining operations and taking the friction out of complex processes such as know-your-client and anti-money laundering. As competition from fintech-powered digital banks becomes fiercer, financial firms have been forced to rethink their entire ecosystem.

Lack of talent is slowing the process. Financial companies chasing innovation goals are finding it harder to recruit specialists. While finance ranks as the first job choice among MBAs, fintech ranks 16th of 18 choices.

Financial firms can solve this problem by thinking globally. There is plenty of talent for financial services companies to tap into in other countries, especially in emerging markets. This is where financial globalization comes into its own. In the UK, for example, 42 percent of the surveyed fintech workforce comes from overseas.

The benefits of searching overseas

Recruiting overseas talent can yield considerable gains. Large populations and focus on technology education, especially in emerging markets, have created a healthy base of highly competent workers to work for U.S. companies.

This situation also creates considerable labor arbitrage opportunities. Companies can outsource skills at a fraction of the cost that they can in the U.S. They could get two to four times as many qualified candidates in India as they could in the U.S.

Regional banks, in particular, can derive new benefits from overseas labor. While the big four banks — Chase Bank, Wells Fargo, Citibank and Bank of America — and the super-regional players are all well-versed in international finance, there is a lower tier of regional banks that hasn’t yet tapped this valuable international fintech resource.

However, these banks simply can’t compete with the larger players for incoming overseas talent. Even if they could, that talent is limited because the visa process is restrictive. H1B visas, which enable qualified foreign workers to enter the U.S., are consistently oversubscribed; the U.S. government now issues them on a lottery system.

Banks can buck this trend by going to where the overseas labor is and creating centers of excellence overseas. There, they can foster and nurture those skills and reap a much-needed boost in the race to innovate and compete with larger players.

Working with a partner

By working with a services company that has experience fostering financial services innovation overseas, regional banks can take advantage of service centers at low cost. In addition to fresh skills and labor arbitrage, these outsourced centers of excellence carry another important benefit: They aggregate expertise from a wide client base.

A regional bank using an outsourced overseas innovation center isn’t just getting its own team of individuals; it’s drawing on a large innovation network that can help it create a cycle of fast, continuous service improvement.

This model doesn’t come without challenges. Banks must manage perceptions, as some clients might not feel comfortable about outsourcing jobs that could have stayed in the U.S. Globalization is pushing the boundaries of where people feel comfortable, and each bank must assess its own risk here, deciding which roles it’s happy to source overseas.

For example, IBM partners with our clients to create their managed centers of excellence. We own the complete hardware, software and services ecosystem, and work with our clients to meet their specific needs. We also own the overseas talent to help financial services clients achieve their goals.

Offshore outsourcing can offer tremendous benefits for financial services organizations. In one instance, we took a company on a journey that began with improvements to its invoicing workflow and ended with the use of cognitive and blockchain technologies to achieve a productivity boost of 30 percent. We cut 16 days from the company’s invoice processing time and increased its on-time payment rate by 13 percent. We also boosted help desk efficiency by 15 percent.

Financial globalization is going to affect regional banks whether they’re ready for it or not. By embracing fintech and process optimization through powerful outsourcing alliances, these banks can be on the right side of this emerging trend in the financial services sector and be ready for an unparalleled period of innovation.

Learn more about IBM’s business process outsourcing services