The world's top 100 financial institutions can achieve annual cost savings totalling $138bn (£88bn) by 2008 by moving operations to cheaper offshore locations such as India, says new research.
But savings of 39 per cent and more will mean the loss of some two million financial services jobs in developed western countries, according to the survey by Deloitte Consulting.
Depressed equity markets and increased competition are squeezing the financial services industry. Companies such as HSBC and Standard Chartered have already moved some of their IT processes to India, with the latter claiming bottom-line savings of around 50 per cent.
The research, The Cusp of a revolution: How offshoring will transform the financial services industry, claims that $356bn of cost will be relocated offshore within the next five years.
"Cost is obviously the fundamental driver. But they go for cost and stay for quality. Some of the processes are enhanced," said Chris Gentle, research director at Deloitte Consulting.
Early offshore projects have focused largely on IT-specific areas such as application programming and software development. But Gentle predicted that the next two years would see more activity around wider business processes.
"Application development is continuing," he said. "But I think the majority of moves in the next two to three years will be around other business processes such as administrative and back office finance functions and call centres."
One aspect that companies need to address when considering offshoring is the potential bad publicity arising from moving large numbers of jobs overseas, but Gentle argued this is outweighed by the cost benefits.
"The public relations and human resources agendas have to be key components of any project. But if you have potential cost savings of at least 39 per cent on the table that is something that has to be considered."
India is likely to continue as the key offshore destination, but other countries such as South Africa, China, Malaysia, Australia and Ireland are becoming increasingly popular.
The UK head of services company EDS said last month that more users are demanding offshoring as a component of outsourcing deals. Analyst Ovum Holway predicts the offshore IT services market will be worth £1bn by 2006.
Battery development could help boost performance of smartphones
Topological photonic chips promise a more robust option for scalable quantum computers
In quantum physics both the chicken and the egg can come first, claim University of Queensland researchers
Cause-and-effect is not always straightforward in quantum physics
Mark Carney said that about 10 per cent of UK jobs would be replaced by automation: lower than earlier estimates