• Aris Kossoras, Partner |
4 min read

The advent of COVID-19 and virtual ways of working has certainly tested the operating resilience of banks’ existing sourcing model. This combined with the need to source more data-driven competencies is making banks take a hard look at their location strategy, not with a view to enlarge but rather to optimise to make fit for a more virtual and data-driven future.

Shifting the balance from Global Hubs to Regional CoEs

Nearshoring has been a part of the location strategy of established entities for a while, but the size of nearshore hubs is usually dwarfed by the scale of the global hubs in the traditional low-cost locations built over the last decade.

With the sudden lockdown amid the pandemic, many global banks facilitated remote working for their employees to ensure safety at work. The offshore model was challenged in terms of infrastructure and connectivity. This predicament caused a negative impact on the overall performance and productivity and led to a distrust in the sound working of offshore hubs in the post-coronavirus economy. Remote working has also raised concerns about data privacy and client confidentiality for financial services firms. Some firms have temporarily moved the work classified as sensitive data back to an onshore environment.

We see leading banks estimating a 50:50 physical to virtual working ratio as the end state norm in a post-COVID-19 world. As such, the location and real estate configuration is being re-configured.

This new model will have its own challenges in terms of securing the required capabilities in nearshore sites. The cost equation will have to be recalculated to ensure that the effect of the shift remains cost neutral to the Finance cost base. However, the key driver this time around for location strategy decisions will not be one of arbitrage but of agility and sustainability.

This will also serve as an opportunity to rebrand from production-heavy shared services to digitally enabled centres of excellence.

Following skills rather than arbitrage

Most mature organisations had started tactically assessing the competence mix for their people well before COVID-19. Forward-thinking banks had started looking at changing the mix of skill-sets away from traditional accounting disciplines in an effort to enhance the overall levels of data literacy and business architecture of the Finance workforce.

We see this trend picking up speed. The best locations to sustainably attract such talent are often not in line with the current Finance location strategies. A leading global bank is currently looking at reconfiguring its Finance location strategy away from four global hubs and one regional hub to two smaller global hubs and two regional centres. The key criteria for the selection of new sites are not cost and accounting skill-set availability but quality of life and data analytics skill-set availability. 

As this trend increases in the coming years, we expect that the location configuration for leading Finance operations networks will be radically different in a couple of years and new sites will emerge globally — potentially, location strategies and models that would be more akin to location strategies adopted by big tech providers.

What is the location strategy of the data centre providers such as Google, AWS and Microsoft - and would following it mean something?

Google, Amazon Web Services, and Microsoft are the dominant hyperscale providers in terms of data centres and cloud computing. Although COVID-19 has brought a significant impact in the industry, primarily logistical, the market for major data centre providers remains robust.

Google’s CEO stated that the organisation will resume its investment plans, and will recalibrate the pace of investments in data centres. Hyperscale operators are moving towards renewable sources of energy and aiming to bring power sources closer to the existing data centre locations. An increase in distributed workforce will contribute in generation of more sensitive information whose confidentiality cannot be risked. A primary reason for data centres to remain at the existing locations is the associated security concern. Major data centre providers are expected to show some movement towards Tier II and III markets, since they offer space to accommodate larger data centres and increased cost savings opportunities as compared to major metropolitan cities.


In summary, global banks with high offshoring ratios are expected to radically reconfigure their Finance location strategy over the next three years. At the same time, smaller banks that have not had the scale to create and support large offshore centres will potentially increase their sourcing into nearshore locations to establish minimum viable capabilities and may have an advantage if they act quickly.