Financial services firms are set to outsource more and more functions, but rather than using business process outsourcing (BPO) providers close to home, they’re likely to increasingly favour offshore locations. And this could be bad news for jobs in the UK.

Barclays, a bank that announced its intention to cut technology costs at the start of the year, has revealed it will not be renewing its BPO contract with Siemens, a move which could result in 500 redundancies.

It said in a statement that the staff have: “Been advised that once the activity is integrated back into Barclays, their roles will become redundant.” It will move the work in-house on 30 September.

Rajeena Brar, senior consultant at IT think-tank Pierre Audoin Consultants, says: “This is in-line with Barclays’ announcement earlier in the year that they intend to reduce costs by offshoring. It’s likely that after consolidating the BPO activities into the bank, they will then see where they can offshore that work.”

Brar points out that Indian outsourcing players are circling the UK market. In the insurance sector, for example, WNS, an Indian BPO firm, has acquired Aviva Global Services and HCL Technologies, another offshore technology company, has taken over Liberata Financial Services. Outsourcing providers to the banking sector are likely to lose more business to these types of global players.

Meanwhile, there are signs that banks are very interested in moving functions out of house. A recent report by the Management Consultancies Association and the British Bankers Association, predicted banks will do a lot more outsourcing from now on. “The credit crunch has created something of a wake up call to the financial services sector,” says Fiona Czerniawska, author of the report.