Labor outsourcing in PH banks: How it threatens jobs, consumers

What if your bank records and transactions are accessible not just to one bank entity but also to a web of obscure service providers?

Almost all banking functions in the Philippines – from tellering, credit card services to ATM cash replenishment – are currently being outsourcedto third party service providers. For labor, such scheme undermines job security and union strength. For clients, data privacy is at serious risk.

The labor outsourcing phenomenon has gone full steam for foreign and local banks alike since December 2000, when the Bangko Sentral ng Pilipinas issued BSP Circular 268which laid down the basis for the labor outsourcing scheme in the banking industry. Under the circular, the following banking functions can be outsourced:

BSP Circular 268 spelled out the implementing rules of Sec. 55.1 of the General Banking Law of 2000, which authorized the outsourcing of “inherent” banking functions. It should be noted that the law deviated from the Labor Code’s “usually necessarily and desirable” clause by using “inherent” to define functions which cannot be outsourced. “Inherent” functions however are not tackled in jurisprudence, posing a legal quandary at present.

The circular said only service providers “with demonstrable technical and financial capability” can be contracted for a particular service. Yet such criterion is under the discretion of banks.

The issuance of BSP circular 268 signaled a torrent of consequent circulars, each authorizing the outsourcing of specific banking functions. Based on the latest data by the Banks and Financial Unions (BFU) Alliance, more than 60 banking functions are allowed by the BSP for outsourcing – in such extent that only managerial positions are spared from the outsourcing mania!

Central Bank authorities probably realized the serious risks stemming from outsourcing belatedly, issuing a new circularlast year which sought to install a little bit regulation. The circular bans outsourcing for functions that are related to “position-taking,” “market risk-taking,” and “strategic decision-making. Essentially, the prohibited functions for outsourcing are still managerial/ analyst-level positions. All other banking functions are prone to outsourcing to service providers.

Race to the bottom

At the core of labor outsourcing motive is the persistent drive for lower labor costs and higher profits. Outsourced banking functions definitely provides the bank immense labor savings, as employees in third party service providers are contractual, are paid significantly lower than their regular counterparts, and are denied of the full package of benefits.

If we go by the data from the Occupational Wages Survey of the Bureau of Labor and Employment Statistics (BLES), we can see the pronounced decline in average wages in select banking functions during the past decade. For instance, the average salary of tellers dropped to just P12,732 (slightly above the minimum wage during that time) from P13,120 in 2004. For bookkeepers, average wage slid down to P12,997 in 2008 from P16,276 four years earlier.

Contracting out jobs to service providers also undermine the strength of unions. Based on the Ecumenical Institute for Labor Education and Research’s (EILER) study, a general decline was noted in the members of local banking unions during the past decade. In RCBC for instance, union membership was more than halved from 3,500 in 1996 to just 1,200 at present. In Standard Chartered Bank – Philippines, union membership meanwhile was cut to 72 at present from 314 in 2008.

One of the striking casualties of the outsourcing phenomenon is the local subsidiary of Hongkong Shanghai Banking Corp. (HSBC), wherein more than 450 jobs were outsourced to service provider HDPP. At closer look, the contractor is actually a sister company, hence the greater ease at which costing of service agreements are manipulated. Union members manifested their opposition to the scheme, but the management dismissed the union leaderbased on alleged data security breach in the company.

Should clients be worried?

With the orgy of outsourcing in the banking industry, serious breach of client’s privacy cannot be ruled out – especially if the cost-cutting motive stands above the need to ensure bank secrecy.

To illustrate the risks, we use the Philippine National Bank (PNB) as example. Currently, its credit appraisal department is outsourced not just to one service provider but to at least eight service providers: Vitale services, Asian Appraisal, Philippine Appraisal, Royal Asia, CV Richard Ellis, Coulliers Int’l, Professional Asset Valuer Inc., and E-value plus. One of these appraisal firms, Vitale, also provide credit appraisal services to Veterans Bank based on preliminary research. Here, we can see data dispersal and data centralization – both of which pose vulnerability to personal records.

It would be scary to think that a Napoles-like web of providers is lurking in the shadows, selling personal information to companies or worse, organizing targeted crimes against bank clients.

All these risks, from job insecurity to data privacy issues, stem from the bank’s ever growing hunger for profits. It’s time for them, too, to moderate their greed. –Jose Carlos Maningat, http://thepoc.net/poc-presents/blog-watch/commentaries/labor-outsourcing-in-ph-banks-how-it-threatens-jobs-consumers