Finance & Accounting Outsourcing (FAO): Overview and Related Outsourced Services

As a response to global competition and the need for process optimization, banks and lending companies are increasingly collaborating with third-party providers, both locally and offshore. This strategic approach aims to achieve cost reduction, enhance process efficiency, re-engineer core business activities, and attain overall strategic objectives. Additionally, evolving regulations, advanced service delivery models, and improved risk management frameworks are motivating banks to outsource a wider range of functions. This includes both regulated and unregulated activities, often within intricate outsourcing agreements.

Commonly Outsourced Activities: 2023 

Banks and financial institutions have a history of outsourcing non-core activities, such as customer call center operations and back-end tasks. More recently, this trend has expanded to include critical IT and personnel management functions. Other commonly  outsourced functions include internal audits, budgets, financial planning, and investment management. 

Outsourcing arrangements vary, ranging from short-term contractor relationships for commodity services to long-term partnerships where risks and revenues are shared between financial institutions and service providers. These arrangements are particularly beneficial for large and complex information technology initiatives. Moreover, banks may opt to assign specialized functions to local industry providers while entrusting unrelated tasks to different service providers.

Market Size

The worldwide market for outsourcing finance and accounting business processes is expected to reach USD 110.74 billion in 2030. It is projected to experience a compound annual growth rate (CAGR) of 9.1% from 2023 to 2030.

On a similar note, according to findings, the Business Process Outsourcing (BPO) market is expected to be worth 544.8 Billion by 2032. This sector has exhibited notable progress in recent times and is poised for ongoing expansion in the foreseeable future. The driving forces behind this expansion encompass cost efficiencies, advancements in technology, and the availability of skilled labor.

Banking BPO Services

Banking and financial services BPO is the largest and most mature sector of the Banking, Financial Services and Insurance (BFSI) BPO industry. The other two industry segments are investments/capital markets and insurance. Due to its large market size, banking and financial services BPO has always been ahead of other industries in terms of adopting BPO and offshoring.

Retail Banking and Commercial Finance Services

Retail banking BPO services support individual consumers (B2C) while commercial BPO services support merchants and other businesses (B2B). Banking and finance services cover origination, customer acquisition, account servicing, collections, customer care, consumer lending, mortgages, brokerage, verification and processing, underwriting, research, monitoring, and analytics. Service providers improve process efficiency and cost competitiveness through standardization, automation, and end-to-end service delivery models.

Investment Management and Capital Markets

Capital markets BPO services support the management of wealth or assets. Service providers offer management of securities, derivatives, equities, fixed income, structured products and pitchbook creation in the capital market segment. Wealth management services include portfolio management, consulting and advisory services, compliance, risk management, reconciliation, and trade operations.


Insurance BPO services cover collections and disbursements, pensions, property and casualty claims, property and casualty policy, and life and annuity policy. As insurance companies deal with a shrinking market, rising costs, legacy IT systems, and customer volatility, service providers are offering these services to help streamline operations, reduce costs, and grow their business.

Finance and Accounting Outsourcing (FAO) Market & Services

The finance and accounting (F&A) business process outsourcing (BPO) market provides services such as payroll processing, bookkeeping, auditing, and tax return preparation to small, medium and large enterprises. Finance and accounting BPO belong under the wide umbrella of enterprise BPO services, and are sometimes included among shared services in the Banking, Financial Services and Insurance (BFSI) industry.

“Shared services” refer to an operating model that consolidates transactional activities within an organization, with the goal to reduce costs. Finance and accounting BPO is part of the shared services operating model. For example, many internal finance and accounting departments that used to serve departments and international branches grew to become businesses in their own right and went on to provide F&A services to other companies.

Typical FAO shared services include accounts payables and receivables, general ledger, company reporting, tax returns, and fixed assets. Services have since expanded to include end-to-end processes like financial reporting, order to cash, HR, and compensation and benefits.

FAO Market Highlights and Trends

Finance and accounting were the first functions to be outsourced by organizations, but the FAO market is far from mature. In fact, HfS said that it has a long way to go to reach saturation because the majority of companies still prefer to manage all F&A functions in-house.

In 2022, the global market size for BPO services in the BFSI sector achieved a value of US$ 107.58 Billion. Anticipating the future, the IMARC Group foresees the market to expand to US$ 174.94 Billion by 2028, displaying a growth rate (CAGR) of 8.05% from 2023 to 2028. Factors such as the growing adoption of external banking software, escalating instances of cybersecurity breaches, and fiscal incentives provided by regulatory bodies constitute several key drivers behind this market trend.

Buyers continue to demand lower costs and standardization from F&A BPO providers. Although buyers want the value of innovation and analytics, they demand execution and delivery first. Innovation is the ability of service providers to improve services (like integrating BPO with IT), while execution is the ability of service providers to deliver real world solutions, provide high-quality customer relationships, and improve market share.

FAO and Other Outsourced Services

In a survey of more than 399 enterprise buyers, HfS identified three tiers of FAO services according to strategic importance: transactional (low-level) processes, analytical services, and consultancy products and services (services that have the potential to transform the business for the long-term).

Transactional Services

Low-level FAO processes include accounts payable, cash and accounts receivable, travel, entertainment and expense, credit, and billing and invoicing.

Analytical Services

Higher-level FAO activities include internal audits, risk management, treasury, inter-company accounting, regulatory reporting, management reporting, financial planning and analysis, and business intelligence.

Consultancy Services

FAO Products and services that are considered strategic include financial process consulting, change management, communications support, and innovation roadmaps.

FAO Services Value Chain

The finance and accounting outsourcing value chain encompasses a spectrum of value-creation activities, spanning from design to support, delivered by service providers to buyers. At the lower end of this chain, procure-to-pay services encompass accounts payable, credit, and travel & expense. The subsequent groups include order to cash services involving accounts receivables, collections, billing, and revenue accounting, followed by record to report services such as fixed asset accounting, tax filing, and payroll. Further along are controllership services covering intercompany accounting, regulatory reporting, management reporting, risk management, treasury, and internal audits. The pinnacle of the value chain features transformational services, which encompass financial process consulting, support for innovation roadmaps, and change management assistance.

IT or ITO Systems and Software Outsourcing

Information technology outsourcing involves sourcing or subcontracting technology services like software, hardware, systems, infrastructure, maintenance, and support from external entities. In the banking and financial services sector, organizations collaborate with service providers or third parties to access IT functions, including software development, automation, robotic process automation (RPA), and cloud migration. Typically, larger enterprises outsource specific components of various IT functions.

The banking industry has always carried the torch for information technology and business process outsourcing (IT-BPO) because of its very large market size (estimated to reach 701.88 billion by 2028) and the crucial role technology plays in service delivery. Application development and maintenance have been sweeping the industry, impacting multiple market segments. Other commonly outsourced functions in IT are cybersecurity, data and analytics, integration technologies, and cloud.

Banking ITO Spending and Market Forecast

According to Gartner’s projection, the global IT spending for banking and investment services is anticipated to achieve $652 billion by the year 2023.

Debbie Buckland, who serves as a Director Analyst at Gartner, highlighted that the existing economic challenges have shifted the landscape for technology investments within the banking and investment services sector this year. Instead of reducing IT budgets, companies are allocating more resources to technologies that yield substantial business results. Notably, the focus is moving from internally developing software to acquiring solutions that offer quicker returns on investment.

On that same note, Pete Redshaw, Gartner’s VP Analyst, noted that in response to the current economic conditions, CIOs within the banking and investment services domain are now prioritizing more cautious goals aimed at fostering resilient and sustainable growth. These objectives include enhancing the customer experience (CX) and optimizing operational efficiency. This marks a departure from previous years when the primary focus of banking CEOs was on direct expansion through new territories, customers, and business lines.

Importance of IT Outsourcing

To optimize consumer relationships and experience, banks will need to provide their products and services through new channels and devices, automate many processes, and upgrade core, legacy systems. Technology is also reducing transaction and distribution costs of financial services, giving banks the opportunity to reach consumers that are currently excluded from the financial system, but whose income is increasing.

Today, banking ITO is not only about cost reduction and improving the bottom line, but about keeping pace with technology and adapting to change. Banks will leverage the four main technologies (cybersecurity, data and analytics, integration technologies, and cloud) to become fully digital and connected.

Banking ITO Service Providers

Technology will have the biggest impact on these key areas of the business: customer experience, data and information (social media). Much of IT investment will be centered on creating a more customer-centric experience. As buyers continue to expect cost savings, service delivery models will feature innovation and flexibility and solutions that combat regulatory risk.

Service providers can help banks and financial institutions deploy the right technology architecture and policies that allow banks to operate synchronized processes, increase productivity, and improve real-time processing. Service providers also allow banks to obtain new capabilities, gain scalability and flexibility, and focus on strategic priorities.

Human Resources Outsourcing

Human resources outsourcing (HRO) is the transfer of responsibility and risk for HR functions to an agency outside the organization. The agency or HRO service provider performs a part of all HR services for the organization. Some companies prefer to outsource their entire HR department, while others outsource only non-core administrative tasks.

Human resources outsourcing in the BFS industry belongs under enterprise BPO services and shared services. Common HRO services that are outsourced include payroll, compensation and benefits administration, recruitment administration, workforce administration, employee helpdesk, and learning management.


Market research covers both multi-process human resource outsourcing (MPHRO) and single-process human resource outsourcing (SPHRO). Everest Group defines MPHRO as the practice of outsourcing multiple HR services to one provider in an integrated way, while SPHRO is practice of outsourcing a single, standalone HR activity.

Integrated MPHRO include transactional and analytics-level services: payroll, benefits, employee data management, compensation, recruitment, learning, performance and succession, global mobility, regulatory and compliance, and employee relations. SPHRO covers transactional and lower-level analytics services: payroll, recruitment, learning services, and benefits administration.

HRO Value Chain and Core Processes

In its Blueprint Report for multi-tower HRO, research firm HfS identified core processes in the HRO value chain. The value chain refers to services, programs and departments that support an organization’s workforce. The HRO value chain ranges from low-level transactional processes, mid-level judgment/analytics processes, and high-level strategic services.

Data management, benefits, payroll are transactional, while compensation, recruitment, learning services, global mobility, regulatory and compliance, and employee relations are judgment-intensive. Strategic HRO services include HR strategy.

HRO Market Forecast

In 2022, the worldwide market size for Human Resource Outsourcing (HRO) was assessed at USD 36645.07 million. It is projected to experience a compound annual growth rate (CAGR) of 4.91% throughout the forecast period, reaching a value of USD 48858.42 million by the year 2028.

Organizations facing limitations in financial, human, and technological resources to effectively manage critical HR functions often choose HR outsourcing services. The significance of HRO has been on the rise due to the pivotal role played by HR departments in enhancing overall employee satisfaction. By outsourcing various HR functions, such as learning management, recruiting, compensation planning, performance management, and succession planning, companies can achieve cost savings and performance enhancements. Even smaller companies are increasingly inclined towards outsourcing their HR functions, as service providers develop suitable outsourcing models tailored to each organization’s needs, leading to improved employee productivity benefits.

HRO in the Banking and Financial Services Industry

HRO in the banking and finance services (BFS) industry is mainly driven by the pressure to reduce costs, improve process efficiency and focus on more strategic activities. Major HRO service providers understand that large companies outsource human resources not only to be cost competitive, but to improve employee experience and build a strong support system as the organization grows.

Deloitte Consulting’s Human Resources Benchmark for Banks report stressed that HRO buyers and providers in the banking sector have realized the need to gain insight from client organizations to achieve better performance. Banks are starting to look for providers that can help them select top performers, improve retention of key performers, and speed up time to competency.

According to Deloitte, the primary driver of cost efficiency for banks and lending institutions is the development of an effective service delivery model. To be cost-competitive in an uncertain market, banks need to work with service providers that forecast and fulfill talent gaps and align workforce plans, capabilities, and worker performance with business strategy.

As HRO buyers continue to prize industry-specific domain expertise and deep process knowledge, key service providers will offer sophisticated analytics to gain insights and drive better decision-making among human resource managers and executives.

Training or Procurement Outsourcing

Procurement is the process of acquiring and managing raw materials or services needed to create a product or service. Procurement outsourcing is the practice of hiring a third party to handle an organization’s procurement activities and related functions. In the banking and financial services (BFS) industry, procurement outsourcing is the transfer of key procurement activities like sourcing, supplier management, and transaction management to a third party.

One of the main catalysts behind the growth of the Procurement Outsourcing (PO) market, which achieved a consistent expansion rate of 10-12% and reached a value of $3.9 billion in 2021, is the heightened readiness of buyers to collaborate with providers for sourcing operations assistance. Across all industries, CFOs and procurement officers outsource procurement activities not only to reduce labor costs, but to take advantage of core values like provider expertise, effective spend management, and the latest technology.

From low-level procure-to-pay (P2P) processes like invoicing and accounts payable, companies are now outsourcing high-value procurement services like spend analytics and vendor governance. Leading procurement providers are those that offer specialized vertical expertise and geographic market sourcing presence.

Procurement BPO Services

Banks, lending institutions and other finance organizations do business with thousands of vendors that provide a wide range of goods and services. Common purchases include supplies (office supplies, paper), facilities/building services (housekeeping, construction), equipment (information technology or IT infrastructure, servers, automobiles) and professional/technical services (consulting, software, marketing).

Procurement activities generally fall into two categories: direct and indirect. Direct procurement is the purchase of goods and services that enter directly into the company’s production process, while indirect procurement is the purchase of goods and services that support the company’s activities. Direct categories are typically proprietary or sourced internally by a financial institution. Indirect categories are wider in scope, covering everything from IT (software, hardware) to human resources (recruitment and training) to facilities (construction, cafeteria/foodservice, cleaning).

Everest Group further classifies direct procurement activities under core or non-core spending.

Core Spending

Under direct procurement, core spending refers to raw materials or ingredients that are proprietary or specific to the organization, while non-core spending refers to commodities required to deliver the service.

Non-Core Spending

Non-core direct spending and indirect procurement activities are generally more commonly outsourced than direct procurement. Depending on the contract, the procurement service provider may ask for a fixed fee against realized savings or a performance-related fee (a percentage of savings).

Everest Group also classifies procurement processes into procure to pay (P2P) and source to contract (S2C). P2P activities like requisition and invoicing are transactional or low level, and S2C activities like spend data management and strategic sourcing are judgment intensive or mid-level. In-house processes like mission and business strategy are considered strategic or high-level activities.

Procurement BPO Benefits

Indirect spend can account for 15 to 40 percent of a company’s total revenues. According to research by Accenture, most companies achieve only a fraction of potential savings in the real world. Companies with efficient procurement processes realized 30 percent more savings than low performers. These “procurement masters” also leveraged outsourcing more than their competitors.

Financial institutions that outsource procurement expect to reduce overall costs, increase focus on core competencies, and achieve bottom line savings. Procurement outsourcing providers allow companies to benefit from specialized support and domain expertise, avoiding the expense of setting up, managing and supporting an internal procurement team.

It is difficult to match the enormous functional, industry and category expertise that procurement service providers bring, even with a dedicated in-house team. With savvy market intelligence, advanced sourcing tools, and deep best practices gained from managing the procurement activities of several banks and lending institutions, procurement service providers are well-positioned to help CFOs realize maximum potential savings.

Finance and Accounting outsourcing (FAO) Services

Finance and accounting outsourcing (FAO) is the transfer of an organization’s bookkeeping activities to a third party, whether in whole or in part. Third parties provide services like payroll processing, tax preparation, audits, budget, and consulting services. In the banking, financial services and insurance (BFSI) industry, finance and accounting outsourcing belongs under enterprise or shared services.

According to the HfS Finance and Accounting BPO Blueprint Report for 2013, a third of the demand for FAO services comes from the banking and financial services industry, with demand gradually slowing down. Most banks and lending institutions outsource finance and accounting processes to realize cost savings and access service provider category expertise. Finance organizations increasingly value execution or the ability of service providers to deliver real-world solutions and drive business growth, followed by innovation.

FAO Services Value Chain

The finance and accounting outsourcing value chain encompasses a range of activities or processes that bolster the products or services of banks and financial institutions. Positioned at the lower tier of this chain are procure-to-pay services, covering accounts payable, credit, and travel and expense functions. Moving up, mid-level FAO services comprise order to cash services, involving accounts receivables, collections, billing, and revenue accounting, as well as record to report services such as fixed asset accounting, tax filing, and payroll. Further along, at the upper tier of the FAO value chain, lie transformational services, which encompass financial process consulting, support for innovation roadmaps, and assistance with change management.

FAO Services

HfS identified three tiers of FAO services according to strategic importance: transactional (low-level) processes, analytical services, and consultancy products and services (services that have the potential to transform the business for the long-term).

Transactional Services

Low-level FAO processes include accounts payable, cash and accounts receivable, travel, entertainment and expense, credit, billing and invoicing, and payroll processing.

Accounts Payable

Accounts payable is money owed by the organization to creditors. Service providers handle invoice scanning, coding, matching to P.O., scheduling, account reconciliations, and related activities. Providers also offer software to streamline these processes.

Accounts Receivable

Accounts receivable is the money owed by clients or customers to the organization in exchange for the sale of products or services on credit. Service providers handle drafting, sending, and monitoring of outstanding bills and offer virtual account reconciliation services.

Payroll Processing

Service providers handle employee payroll processing (employee benefits and compensation, tracking vacation and leaves, W-2 forms processing) and manage IRS regulations, ensuring that correct taxes are paid on time.

Analytical Services

Mid-level FAO activities include internal audits, risk management, treasury, inter-company accounting, regulatory reporting, management reporting, financial planning and analysis, and business intelligence.

Internal Audit

Providers handle financial and operational internal auditing, IT internal audits, fraud analytics, risk assessment, finance and supply chain management to improve or augment a financial institution’s current internal audit initiatives.

Risk Management

To meet complex risk and compliance challenges that banks face, service providers offer enterprise risk management solutions, consulting, and assurance services that cover risk management areas like market, credit, and Basel, Dodd-Frank, CRD, and EMIR.

Treasury Services

Outsourced treasury services are activities that manage a bank’s enterprise’s holdings and operational and reputational risk. Service providers help banks establish more efficient systems for reporting cash flow and reserves and allow CFOs to make informed business decisions. Treasury services include disbursements, investment and funding, trading (bonds, currencies, financial derivatives) and financial risk management.

Regulatory reporting

In a market with unprecedented reporting and compliance standards, third parties help banks review books to identify and resolve potential tax issues in advance. Service providers help banks meet both compliance and cost efficiency goals with services like record-keeping, transaction reporting, and reconciliation.

Consultancy Services

FAO services that are considered high-level and strategic are financial process consulting, change management, communications support, and innovation roadmaps.

Financial Process Consulting

Outsourced financial process consulting services in the banking industry include income statement analysis, balance sheet or cash flow analysis, group consolidation, planning, and budgeting. Service providers have in-depth knowledge of business intelligence tools and enterprise resource planning (ERP) systems to drive efficiency and reduce errors.

Change Management

A bank may hire a third party to head or manage the organization’s change management activities during transition periods, market changes, or in response to new and stricter regulations.

Innovation Roadmaps

Third parties can provide innovation roadmaps to identify key capabilities that will improve an organization’s innovation performance.

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