Nearshoring Strategy: The A+ Move for Finance Companies in Turmoil

Over the past decade, fintechs have shaken the financial world. By putting users first, they’ve tackled high fees, slow processes, and bad customer service, pushing even the most traditional banks to step up their game.

Yet, along the way most of them misfired. Take the online bank Simple. It failed to accommodate large customer volumes following its acquisition by BBVA. The data conversion caused major technical issues, locking people out of their accounts. Not long after, Simple was shut down completely.

Or the unsuccessful attempt of a buzz financial startup, Fast, to revolutionize online shopping with a “1 click checkout” system. Soon, it proved not to be as fast as expected.  Fast raised over $120 million in funds, but couldn’t onboard enough merchants to stand a chance against more established industry giants like PayPal. The result? Burned money, another brilliant startup’s flop. 

Such stories show innovation in finance is easier said than done. But there’s no avoiding it. Loan associations need faster approvals, as no one wants to wait weeks for a loan. Credit-rating companies are diving into big data for accurate scores. Fintechs are innovating with robo-advisors and blockchain, while brokerage firms have become digital powerhouses to meet modern investor demands. 

Sure, finance and tech are risky games, and success is never guaranteed. But having the right expertise when embracing new tech for financial products and services is like having a rock-solid safety net. Nearshoring emerges as a way for finance firms to evolve and innovate, minimizing the risks of failed technology investments.

The Rationale for Nearshoring Strategy: Key Drivers for Financial Firms

These days, financial firms are ramping up their tech investments. But what if they're falling behind in tech or their team's too small to innovate fast enough (which often happens to agile, modern FinTechs)? That's where expert tech nearshoring comes in.

Before discussing nearshoring strategies, let's examine what motivates businesses to consider working with a nearshoring partner to embrace modern tech.

Financial Motives: Because Money Talks

According to a recent report by S&P Global, deposit costs in the USA increase due to competition for funding and liquidity, harming banks’ net interest income generation. Additionally, US banks are bracing for tighter regulations under the Basel III Endgame. These new rules mean banks with over $100 billion in assets must hold more in reserves, adding a big operational burden and requiring major investments in risk management and compliance.

But this isn't just an American problem; the European real estate market is struggling, with fewer loans being given out, higher borrowing costs, and CRE debt reaching €2 trillion. Real estate deals have dropped by 61% in 2023, and it's hard for property owners to refinance their loans. This situation puts banks and other financial institutions at risk of losing money, facing liquidity problems, and negatively impacting their investments.

Despite challenging financial circumstances, finance firms should not remain stagnant. Instead, they should explore creative strategies to manage resources and invest in innovative technologies. Many firms are turning to nearshoring partners to bring in IT specialists with the necessary skills and expertise. This cost-effective alternative to traditional hiring or outsourcing allows finance businesses to expand their services and technologies without incurring excessive costs.

Regulatory Compliance: Changes Day By Day

A 2022 Accenture study showed the anticipated growth in banking compliance costs by over 10%, with some predictions expecting more than 30%. This spike resulted from a flood of new regulations, such as CRA, Rule 1071, CFPB, and GDPR, and the list continues to grow.

Additionally, open banking regulations across various countries, such as the UK, Europe, Australia, Saudi Arabia, Brazil, and Mexico, are shaking up the financial industry. They're lowering data-sharing barriers and giving customers more financial product and service choices. While these rules boost competition and innovation, they add more compliance and technology headaches.

Staying Competitive: Adapt or Perish

52% of Americans say money challenges negatively impact their mental health, while for 77% of them, financials are a source of anxiety. And this is a widespread, global trend. 

As money continues to be a major stress factor, providing accessible solutions to help people manage their cash better can give financial firms a huge edge over the competition.

Today, people want easy and time-saving finance services. About 31% would switch  to Amazon, Google, or Facebook for banking. These platforms are convenient, familiar, and packed with cutting-edge tech like blockchain, AI, and biometric authentication that simplify our lives.

A few years ago, reputable financial organizations were dismissing cryptocurrencies (yet still adopting blockchain for secure, peer-to-peer transactions). Today, banking giants like JPMorgan and HSBC are entering the crypto space. Cryptos have become a popular payment method with low barriers to entry, transcending borders, serving unbanked communities, and providing security and speed. And no financial organization, no matter how big and small, wants to miss on the opportunities they create.

Alongside crypto, generative AI has also revolutionized the financial sector in the past year, moving from exploration to widespread use. It holds significant potential for market disruption, not only improving client response time and cutting down on first-line service workloads but also supporting finance experts in compliance analysis, document processing, and violation investigation.

These and other tech trends are pushing traditional banks and fintech startups to adopt new strategies to meet customer needs. However, they can be a double-edged sword inflicting mass damage if handled incorrectly. Hiring solutions like expert nearshoring can help financial companies quickly and safely secure the skills they need to innovate and lead. 

Cybersecurity: Top Target for Hacks

Every industry is a target for cyberattacks, but finance firms, handling both money and sensitive data, are practically waving a ‘see me’ flag at hackers. Last year, the finance and insurance sector was the second most frequent target for cybercrime, following only manufacturing.

Verticals of attack change constantly. Right now, finance and banking face a big issue: AI-driven phishing schemes. They mimic customer behavior to execute unauthorized transactions, outsmarting traditional safeguards and getting slicker with AI advancements. Sophisticated ransomware attacks are another mass problem. The notorious case of the US branch of the Industrial and Commercial Bank of China hack attack proves even industry giants aren’t safe. 

Implementing a Nearshoring Strategy for Finance

Working with trusted IT nearshoring partners gives modern financial firms an advantage over the old, unwelcoming finance institutions. But to improve your business image and win the trust of today’s customers, you need to start with a thoughtful plan. Let’s prepare it step by step!

Selecting the Right Nearshoring Partner

Choosing the right nearshoring partner is like finding the perfect accountant. You need precision, reliability, and someone who shares your goals. Pick a partner who knows the IT market inside out and is committed to long-term partnerships:

1. Assess Expertise and Experience: Evaluate the nearshoring partner’s track record in solving finance industry challenges. Examine client testimonials and detailed case studies. Don't forget: past performance is a good predictor of future success.

2. Consider Cultural and Time Zone Compatibility: Opt for regions with high cultural compatibility and overlapping working hours. This helps minimize communication barriers and lets your teams respond to problems with minimum delay​.

3. Analyze Cost and Value Proposition: The cost-value balance has to make sense whether you prioritize cost-effectiveness or top-notch service quality. Discuss your nearshoring partner’s pricing and decide if the deliverables justify the price tag.

4. Ensure Solid Security Measures: Verify that your nearshoring partner has ironclad security protocols. Data breaches are not just costly – they’re headline-worthy. The last thing you want is to lose your clients’ data and jeopardize your reputation.

5. Start Risk-Free: Test the waters with a safe staff augmentation service before fully committing. At Pwrteams, we don’t charge you anything until you decide to hire so that you can assess our candidates at zero commitment. 

Overwhelmed by too many options? Don't worry; we're here to streamline your decision process.
⬇️ Download our Team Augmentation Provider Checklist to gather all the crucial information about your potential nearshoring partners in one place. This clear, structured comparison will help you quickly identify and select the perfect match.

Establishing Effective Governance and Oversight

Leadership is not about micromanaging; it’s about making sure everyone knows their role and does their part best. By creating a structured and communicative environment, you’ll ensure your nearshoring strategy works as planned.

6. Define Clear Roles and Responsibilities: Make sure everyone, from the board of directors to senior management, knows their job. The board should work with the staff augmentation partner on strategic direction and risk management of the nearshoring strategy, while senior management handles policies and daily operations of the remote team.

7. Establish Clear Reporting Lines: Create a transparent hierarchy to streamline communication with your nearshore service provider. For example, while building a nearshoring strategy at Pwrteams, we assign dedicated Client Partners to contact our clients’ representatives and answer their inquiries.

Continuous Improvement and Performance Management

Even the best strategies need fine-tuning. Together with your nearshoring partner, identify opportunities for improvement to keep your operations sharp, employees thriving, and stakeholders happy.

9. Set up Feedback Mechanisms: Create systems to gather and act on stakeholder feedback. Ensure that your nearshoring provider is in the loop, as their goal is to keep the remote team up to the same standards as your internal employees.

10. Adhere to Industry Norms: Benchmark your practices against industry standards to keep your practices current. Share new knowledge with your remote employees to maintain harmony within your ranks.

Want to jumpstart your nearshoring journey?
👉 Check out our Nearshore Team Onboarding Guide in which our Head of Client Partners describes the nearshoring process in detail and shares insider tips to kick the partnership off confidently.

The Power of a Winning Nearshoring Strategy

The financial industry is dynamic and ever-evolving. Emerging technologies continually reshape the market, and staying ahead of the curve is crucial for even the most innovative companies to maintain their relevance.

A top nearshoring strategy can help you stay ahead. Let's work together to find the best IT and tech talent. This will keep you leading in finance innovation and ensure your business stays competitive. Ready? Talk directly to one of our experts, and let’s take it from there.