Cost is still a driving factor for offshoring. Nearly half of all offshoring operations generate cost savings of more than 40%, as compared to the cost of running the same operations onshore, according to a recent study by Deloitte Center for Banking Solutions.

Benefits of labor arbitrage seem to have plateaued as labor costs at offshoring destinations have increased, especially for high skilled labor, with only 36% saying they expect offshoring labor cost to remain flat or decline (See Chart 4). At the same time, banks can realize more savings by offshoring end-to-end processes instead of discrete functions. Thus, by increasing the percentage of total headcount located offshore from 3.5% to the current best practice figure of 6.7%, banks can accelerate offshoring costs savings from the average of 30%–60%.

Offshore tech spending by banks will increase from the present six percent of the industry’s $44 billion total annual IT budget to 30% by 2010, says the study.