--- Date: Thu, 19 Feb 2004 14:08:07 -0500 From: David Solomonoff <dsolomon@private> To: declan@private Subject: Outsourcing, privacy and security Declan, I am sending a letter I wrote to the Inman News, http://www.inman.com/, a real estate industry newsletter, regarding an article on oursourcing. Some of the assertions regarding privacy and security strike me as either ingenuous or dangerously naive. I have also included the original article, which is only available online to nonsubscribers for a brief time. **** "Mortgage lenders ship jobs to India," by Jessica Swesey, contained reassurances about the security of sensitive data which are either disingenuous or dangerously naive. Steve Kropper, founder of Domania, which provides customer acquisition and retention technologies to banks, mortgage lenders and real estate agents asserts, "data can be viewed in an offshore environment, but it can't be stored." He is also cited, but not quoted as asserting that "because lenders that have outsourced customer service don't store customer data in overseas locations ... Customer service workers generally use computers that don't have storage devices and are required to keep their desks free of pen and paper," according to Ms. Swesey. This shows a very poor understanding of computer security in a modern, highly networked environment. There is a huge and very complex infrastructure connecting the offshore backoffice operation and the domestic corporate office -- with many points for potential security breaches along the way. Security expert and privacy expert Lauren Weinstein recently discussed the privacy and security issues in a recent article, "Outsourced and Out of Control," http://www.pfir.org/outsourced-cacm, in which he observed that, "Many outsourced jobs involve countries where significant privacy laws do not exist; even if those laws are improved of ... effective enforcement would still appear to be highly problematic. Customer service outsourcing can give risky access to data .... Recently, a Pakistani subcontract worker threatened to post U.S. patients' medical data on the Web if claimed back pay was not forthcoming." Weinstein further points out that, "There are even moves to outsource computer system administration ... often in countries with poor (if any) computer security laws, creating the possibility of massive abuse of domestic systems by distant persons who could be difficult or impossible to effectively prosecute." In addition, the software that is used for these operations may have been developed in an insecure environment. In a similar case, "The U.S. General Accounting Office noted the possibility of malicious changes to code since significant U.S. air traffic control system Y2K work had been subcontracted outside the U.S. without mandated background checks," he notes. If these implausible assurances about computer security and privacy determine outsourcing strategies, the resulting litigation by customers and resulting loss of reputation may ultimately eclipse any short term savings. David Solomonoff dsolomon@private **** Mortgage lenders ship jobs to India Greenpoint, Countrywide to open overseas call centers Tuesday, February 17, 2004 By Jessica Swesey Inman News Mortgage lenders are jumping on the outsourcing-to-India bandwagon. But they're keeping their plans and actions under wraps in the politically charged debate over how foreign outsourcing affects workers in the United States. IGate Global Solutions, a global technology and operations firm, last month announced a deal with Greenpoint Mortgage that will involve "relocating certain services to India." "Operations will commence shortly and be housed in iGate's new 14-acre campus situated in Whitefield, Bangalore," iGate said in a statement. But Greenpoint won't discuss the details or answer questions about its outsourcing strategy. Sending jobs to India is a touchy subject for American workers. Indeed, Presidential candidate Sen. John Kerry has even started to use the issue as a soapbox to reach out to voters. Lenders are looking to India to stay competitive as the mortgage refinance market tightens and creates fiercer competition for business. Call centers in India present an opportunity to cut costs and beef up customer service and retention, according to Steve Kropper, founder of Domania, which provides customer acquisition and retention technologies to banks, mortgage lenders and real estate agents. "One of the few countries in the world where you have a comparative advantage in the phone costs and where people speak English well is India," he said. Telephone-based customer service in the United States historically is of poor quality because companies won't pay much for such unskilled positions and skilled workers abandon such jobs for better-paid opportunities. Whether a call center in India provides better quality service may be debatable, but there's no question that it's cheaper because labor costs are lower overseas. Lenders spend about $1,350 in sales and marketing costs to obtain one retail mortgage customer, or about $600 through a more direct channel, Kropper said. A combination of U.S. and offshore sales and marketing cuts that customer acquisition cost to just $400. Countrywide Financial Corp. also reportedly is setting up call centers in India. American Banker recently reported the lender plans to open a 250-person call center in that country by the end of next year with the aim of cutting at least $8 million in costs annually. The company didn't respond to repeated requests for more information about its plans. Consumer advocates wonder whether borrowers will ever pocket any of the savings. "My guess is one would see cost control first as opposed to cost savings," Kropper said. Consumer privacy isn't a major concern because lenders that have outsourced customer service don't store customer data in overseas locations, Kropper said. Customer service workers generally use computers that don't have storage devices and are required to keep their desks free of pen and paper. "The data can be viewed in an offshore environment, but it can't be stored," he said. Kropper believes outbound calling for borrower leads can be performed in India as well as post-loan closing customer services. But he doesn't think the whole mortgage lending process will migrate overseas because while some functions work well in an outsourcing situation, others work better in the United States. Outsourcing parts of the mortgage transaction isn't a new practice among lenders. Many already outsource credit, mortgage insurance and appraisal services to third-party vendors. Two-thirds of mortgage loans come from channels other than direct lending, according to Kropper. It's easy to see why lenders keep quiet about their outsourcing plans, given the backlash over shipping U.S. jobs to India. Even so, some experts say the public fear of outsourcing is misplaced. Bruce Bartlett, a senior fellow for the National Center for Policy Analysis, believes outsourcing's benefits greatly outweigh its costs. He thinks outsourcing is far less a threat to U.S. workers than they first imagine it is. "There is not a one-for-one relationship between jobs lost here and those gained elsewhere from outsourcing," Bartlett wrote in an article NCPA published in December. At some point though, investors will want to know the details of a public company's cost-cutting strategies. Copyright 2004 Inman News -- David Solomonoff dsolomon@private _______________________________________________ Politech mailing list Archived at http://www.politechbot.com/ Moderated by Declan McCullagh (http://www.mccullagh.org/)
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