"Why do we want to pay you x amount of dollars when we can get three workers in India for the same price without paying any benefits?" a Bank of New York Mellon manager is said to have told a back-office worker who, along with some veteran co-workers, was laid off in late August.

The manager could speak freely because the about-to-be-laid-off operations staffers were under a gag order — if they spoke to the press, their entire severance package would be revoked, the ex-worker recently told me on the condition his identity be protected. Company officials deny any recent layoff but say some jobs may have been lost to attrition, though documents supplied by the worker say 69 employees were subject to a layoff.

Offshoring and layoffs, of course, are nothing new, nor probably are conversations like the one related by the worker. Banks were early participants in the offshoring movement, which started about 20 years ago. They have been under pressure from activist investors and other shareholders to cut expenses even as regulatory costs are on the rise, and sending work to India, the Philippines and other locations where salaries are still lower than in the U.S. and exchange rates are favorable is a means to that end.

Yet the two decades of experience with offshoring has shown that shifting operations work from knowledgeable, local workers to people in another country with oftentimes limited training comes with risks — of errors, of misunderstandings and of security lapses.

"I'm not sure offshoring is the greatest long-term macrostrategy, because as they offshore services, they become harder to manage," said Larry Tabb, the chief executive of Tabb Group, a New York consulting firm.

The custody banks are under as much pressure as any financial services organization to rein in costs. State Street in Boston has announced plans to lay off 7,000 workers by 2020, and Bank of New York Mellon has been engaged in a multiyear cost-cutting plan.

Samir Pandiri, global CEO of asset servicing at BNY Mellon, can testify to the advantages of offshoring but acknowledges that there are some challenges, too. About 40%-45% of the operations he supervises are in the United States, and the remainder are distributed equally between Europe and Asia

BNY Mellon has been outsourcing work to India for 10 years; it has operations in the cities of Pune and Chennai. Its goal is to have a "follow-the-sun model…so you could get more work done around the clock, so you're much more responsive and you can reduce the time to do a transaction," Pandiri said.

Geographic dispersion also mitigates risk. During Hurricane Sandy, for instance, work that normally would have been done stateside was done in Europe and Asia without interruption. And international clients sometimes ask to have work done locally, in their own time zone, Pandiri said.

Time differences do present a challenge, he noted. If a European client's work is being done in Florida or in India, "the disadvantage is if the client needs to talk to somebody right away, you may not be able to get to them unless you're doing a night shift," Pandiri said. "The advantage is you can continue to do the work even after the client has gone to sleep."

Other things can be a problem, too, some sources point out.

One downside to shipping work overseas is the potential for errors as newbies try to decipher shorthand instructions from long-term clients.

In one case told by the ex-BNY Mellon worker, the bank's India outpost received an order from a shareholder who wanted to withdraw $20,000 from an account and requested that 100% of that amount be removed from a certain fund, but an India-based worker misunderstood the instruction and redeemed 100% of the account, or $100,000. The bank had to purchase that back at no penalty to the shareholder.

"A lot of times, they have that lack of comprehension because it's not black and white," the ex-BNY Mellon worker said. "If it's not written so it's understandable by them, they will make a mistake on it."

The misunderstandings brought on by language can be comical. "We had an ongoing issue where one of [the workers in India] kept saying to some of the women in our group, 'Hey, babe,' because he'd heard that on TV," the ex-worker said.

In addressing the general problem of errors, Pandiri acknowledged that understanding client preferences can be an issue for new workers at a foreign location who speak another language, especially for call center work. But whether domestic or foreign workers involved, a learning process is involved, he said.

"Call centers have been around for almost 20 years and almost everybody does call centers in every location — in Asia, Latin America and Canada," Pandiri said. "It's a pretty well-established routine. But the training and how you run the place are going to be critically important when you start the process."

Another issue is that offshore workers tend to conduct their own form of labor arbitrage. They can come to a bank, take the training, gain experience, and then go to the next outsourcer and double their salary.

"Once you've finally taught somebody what to do, they leave," Tabb said. "Then you're stuck with another person who just came out of school."

Data security is another concern.

When custodian banks open accounts for clients, the information they gather can include Social Security numbers, dates of birth, addresses, next of kin, job titles, salaries and other types of personally identifiable information.

"If you're transferring this kind of information, as a general rule, the more people see it, the less secure it becomes," said Siddharth Kalla, ‎chief technology officer at Acupay System, which provides software to global custodians. It's one more place where data can be exploited.

"Security definitely is an issue that has to be addressed within a good contract," said Simon Tarsh, a director with Deloitte Consulting and leader of its business process outsourcing advisory practice. "There are regulations around where original source documents need to be kept. And equally, physical security has to be addressed within these offshore centers. Many have secure doors and don't allow flash drives or cameras."

The benefits to keeping certain types of complex operations work in house with experienced U.S. staff are clear.

"The local people understand the business much better, they're much less likely to make a mistake, they can do it faster and more efficiently," Tabb said. "I think banks take a big risk in firing all their domestic people and hiring people overseas. That said, I don't know that they have much choice."

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