Karvy Global  | Newsroom

DECEMBER 2006

The Larger Implications of Outsourcing Core Loan Processing

By Bonnie Sinnock ,
National Mortgage News,
December 11, 2006

SAN FRANCISCO -- Given that sensitive borrower information generally has to cross borders in situations where U.S. mortgage market participants offshore loan processing, one might have some concern that there are some related additional compliance and security concerns. But actually offshoring companies may offer better security and compliance than some of their domestic counterparts do.

Offshorers typically have a more secure working environment than one typically finds in a U.S. operation, said Arthur Flew, chief executive officer of KARVY Global Services Ltd. in a phone interview from his Hyderabad, India office. Employees, for example, often have lockers, don't carry purses or other personal items into the work environment with them and face security checks on entering and leaving offices. He said the high level of scrutiny and precaution is not due to any actual heightened security concerns, but - perhaps because the cross-border transmission of sensitive data creates the perception of additional risk - "the spotlight shines here.

"Our floor just has to be cleaner [than elsewhere]," Mr. Flew said.

This and other forms of scrupulousness when it comes to security and compliance done as a matter of course by offshorers and not even generally cited as a competitive edge, said Mr. Flew, although he noted that KGS may have some advantages in the latter area given that its corporate parent has a broker and investment banking arm. KARVY is "one of the few [business process outsourcers] that comes with a compliance office," he said. Mr. Flew added that the company also - in an increasingly competitive offshoring market where talent has become more challenging to retain - has about half the percentage of staff attrition seen among its peers. He said he believes this is because KGS' parent company has been operating in India for roughly 25 years and emphasizes training and a wide range of opportunities for employees.

KARVY, a privately held company with a name constructed from the initials of its five accounting industry founders, offers high levels of compliance when it comes to industry quality standards in the areas of cost and low error rates as well as information security, Mr. Flew said.

The company, for example, is in compliance with certain standards set by the Geneva-based International Organization for Standardization, said Mr. Flew who, previous to joining KARVY, ran global operations technology control and logistics for Citibank's private bank unit in Zurich. The ISO standards KARVY is in compliance with include 1001 and 27001. (The 1001 standard is for file structure and labeling in information interchanges and the 27001 standard is for information technology security techniques in information security management systems, according to the organization's website.)

"We believe we can pass anybody's security standard," Mr. Flew said, noting that, while no one can ever completely protect against all breaches, steps can be taken to effectively mitigate the risk. "Information security is just paramount right now. If you go out and buy a home or refinance a home once you fill out the forms [mortgage companies] have a lot of information on you," he said.

KARVY - which only recently entered the mortgage market because it found it to be a comparatively "young" one with opportunity - views the U.S. residential real estate finance business to be one shaped to an extent by its compliance requirements, Mr. Flew said.

"HUD and everybody else kind of controls the forms, the differentiation comes from where [the] mortgage is, who does the inspection, [etc.]," he said. "It's a parameter-driven workflow process." KGS seeks to work profitably with long-term partners in the mortgage space through a process in which it will provide clients with constant real-time access to metrics that show the service levels it is providing, said Mr. Flew. Pricing is done through negotiations in which the company strives to provide transparency in terms of its cost structure, he said. Although there has been some concern about escalating salaries in this competitive, efficiency-driven business, Mr. Flew said they still offer a compelling labor arbitrage compared to the U.S. and will long term. "No matter what people say about salaries and wages going up [in India], it is long way before [they] hit U.S. levels," he said.