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Seven advantages of outsourcing for regional banks

Regional banks play a vital role in supporting the social and economic fabric of the areas they serve. Offering many of the same services of national banks but with more personalized relationship-banking approach of a community bank, regional banks foster economic and small business development, financial inclusion through their presence in underserved or rural areas, and a deeper understanding of local markets for more tailored services.

But following the pandemic and the collapse of several banks in 2023, the challenges have intensified for regional banks:

  • Economic pressures and credit crunches
  • Liquidity issues
  • Regulatory scrutiny
  • Stricter and more costly compliance requirements
  • Branch closures
  • Reduced profit margins
  • Customer expectations for seamless, personalized experiences and 24/7 accessibility

These challenges have weighed heavily on regional banks’ ability to thrive. Quoting a recent article from the Financial Brand:

“Regional and mid-cap banks account for almost 30% of the country’s banking assets, yet have significantly under-performed both larger and smaller financial institutions in the past year from an account growth perspective. This can be attributed to legacy infrastructure, outdated processes, less-developed data and analytics maturity, and a hesitance to increase the investment needed to improve digital experiences.”

The tough and fluctuating landscape for regional banks is expected to persist and compound as the pace of technological innovation continues to disrupt traditional banking models, as regulatory requirements become even more stringent and as customer preferences continue to evolve.

Skillfully navigating it all requires systemic responsiveness and ongoing agility fueled by modern capabilities and broad resources. Strategic alignment with an experienced solutions partner is the fastest way for regional banks to advance their position.

The advantage of outsourced solutions

While in the past outsourcing may have been viewed with some trepidation or skepticism by regional banks, the advantages it can deliver have become undeniable, reshaping regional banks’ perceptions around it and making outsourcing now largely viewed as a strategic opportunity.

Here are seven advantages regional banks can gain through outsourcing:

  1. Cost reduction and efficiency gains: Outsourcing can provide advanced capabilities and resources without the need for large upfront investments. By outsourcing non-core functions such as remittance and day 1/day 2 processing, returns and exchanges or document management, regional banks can lower their costs while they modernize and improve operational efficiencies — and reallocate resources to strategic initiatives.
  2. Access to specialized expertise: Experienced outsourcing partners bring deep industry knowledge and specialized expertise in areas like banking compliance, disaster recovery, segregation of duties, digital and process transformation, customer experience, cybersecurity and more. Leveraging these competencies can expedite advancement and enhance competitiveness.
  3. Innovation and advanced technology adoption: Through an outsourcing provider, regional banks can more seamlessly access and implement cutting-edge technologies, tools and best practices that may not be readily available or affordable independently.
  4. Scalability and flexibility: The most capable outsourcing partners will have on-shore, near-shore and off-shore capabilities to foster responsive and nimble operations — enabling regional banks to scale their operations up or down in response to changing market conditions, business needs or growth.
  5. Enhanced customer experience: Partners can offer around-the-clock support, advanced multichannel communication options and tailored solutions to meet the diverse needs of regional bank customers — enabling a nice balance of personalized service with modern capabilities to optimize customer satisfaction.
  6. Risk reduction and business continuity: Expert outsourcing providers will bring robust risk management frameworks and compliance measures to help regional banks mitigate risks related to data security, regulatory compliance, and operational disruptions. Experienced providers help banks strengthen resilience through advanced backup cybersecurity and disaster recovery protocols and systems with contingency plans to ensure uninterrupted operations in the face of unforeseen disruptions or emergencies.
  7. Sharpened focus on core competencies: Working with an outsourced solutions provider, regional banks can free up internal resources and management to focus on core competencies, such as relationship banking, community engagement and strategic planning and development.

The right partner is key

Outsourcing has the power to catapult regional banks to the forefront of competitiveness and renewed market vitality. But choosing the right partner to move forward with is critical.

Essential traits to look for in evaluating a potential outsourcing provider:
  • Industry expertise and proven track record: The best partners will bring deep knowledge and experience in the banking and financial services industry, including understanding of regulatory requirements, compliance standards, and best practices. They will also have a strong track record of successful implementations and client satisfaction demonstrated through case studies, testimonials, and references.
  • Commitment to quality: Assess the provider's commitment to delivering high-quality services and solutions, including their approach to continuous improvement, quality control processes, and adherence to service level agreements (SLAs).
  • Scalability and flexibility: Ensure the provider can scale services to meet the evolving needs of your bank, whether it's expanding operations, handling seasonal fluctuations, or adapting to changing market conditions and competitive trends.
  • Robust security and compliance: Strong data security capabilities, procedures and adherence to industry regulations (such as Reg Z, SCRA, PCI, etc.) as well as a culture of compliance set the best providers apart from the rest.
  • Transparency and communication: Seek an outsourcing partner that prioritizes transparent communication, regular reporting and proactive engagement, ensuring alignment on goals, expectations and project status.
  • Innovation and thought leadership: Look for a partner that demonstrates a commitment to innovation, thought leadership, and staying ahead of industry trends — one who offers insights, recommendations and opportunities for strategic advancement.

At Conduent, we empower regional banks to stay ahead of the curve by transforming their capabilities and competitive potential though innovative banking and finance solutions — backed by more than 30 years’ of industry experience, global resources, leading-edge technology and specialized expertise that spans across all banking-related touchpoints.

Read more in this case study about how we helped a top-10 regional bank expand and advance its capabilities while cutting its costs in half. 

About the author

Lily Isham is the general manager leading Conduent’s Bank and Lending business. In this role, she defines and leads strategy and client management, transformational initiatives and product roadmaps across the organization’s financial services practice driving operational excellence and process improvement to foster client success. With 13+ years’ experience in the financial and banking industries and an international MBA from Fuqua School of Business at Duke University, Lily brings deep expertise and approaches her global interactions with a focus on data-driven decisions and client satisfaction.