Labour costs remain a large percentage of total loan origination and loan administration costs in virtually all country markets in North America and the EU. This cost problem is particularly vexing in most EU countries. New lending and loan administration volumes are far smaller than in the US, labour laws restrict job lay-offs, and operating efficiency is much lower. The number of loans originated and serviced per full-time employee in the UK is just over half that in the US, and cost per loan is twice as great (see graph below).
TowerGroup expects EU mortgage firms to offshore to India far less than UK or US firms. More EU lenders will select nearshoring to new EU member states in eastern Europe. EU firms that do offshore to India will look more to IT consulting and programming than to business process outsourcing and other consumer-facing processes.
James R. Eckenrode is vice-president of the banking and payments practice at TowerGroup. E-mail: jim.eckenrode@towergroup.com.
