Financial institutions are increasingly looking to third parties to manage entire payment functions, rather than the process alone, says a recent study by IDC and Financial Insights. IDC estimates that the U.S.A. spending on payments BPO services reached $3.3 billion in 2005, and will grow at a five-year compound annual growth rate (CAGR) of 4.2% to reach $4 billion by 2010. This increasing trend of payments in outsourcing presents new opportunities and challenges for financial institutions and payments processing vendors.

“Financial services institutions have been pioneering adopters of the BPO model. Payments outsourcing, an increasingly visible and gaining segment of the global business process outsourcing market, is the latest reflection of this industry’s comfort with outsourced business processes,” said Shruti Yadav, analyst, BPO Services, IDC. “IDC observes healthy growth in deal activity and market spending accompanied by a shift from back-office to strategic objectives and deal drivers,” she said.

The study reveals that while cost and efficiency considerations remain central to payments outsourcing decisions, customers are increasingly looking to impact strategic areas such as customer service, compliance, process integration and competitiveness.