Financial services companies are becoming more confident about offshoring some core business functions, according to a new report. And experts predict that traditional offshore locations such as India will attract more of the new business than competitors in Eastern Europe.

According to a report published by analyst company Datamonitor, offshore outsourcing is evolving. At first firms used it for non-core IT work but now they are starting to use it for business-critical processes as well. Anders Maehre of Datamonitor said that although business process outsourcing (BPO) is still a young industry, financial firms have become more willing to outsource core services - such as mortgage processing, insurance underwriting and claims processing - to offshore centres.

"There has been a significant change in attitude and people are deciding what to outsource based on what is non-strategic rather than non-core," Maehre said. "Firms are outsourcing core functions that they have realised do not provide a strategic differentiator."

UK organisations are expected to give more business to Indian sites than to "nearshore" operators in Eastern Europe.

A year after many Eastern European states joined the EU, experts agreed that nearshore outsourcers have failed to dislodge India as the leading area for offshore IT development work.

Nick Farrell at Bulgaria-based outsourcing provider Sciant admitted progress with UK customers has not been as quick as expected. He cited Britain's traditional links with India as the main stumbling block.

Mike Friend of research firm IDC said the shift towards offshore BPO is unlikely to change this situation, adding that poor English-language skills could be hampering Eastern European companies.

Meanwhile, Girish Ramachandran, European director at Indian outsourcer TCS, said the potential of Eastern European sites had been over-hyped. He argued that while Eastern European firms offered competitive prices and technical skills, a lack of scale counted against them.

The Financial Services Authority (FSA) last week said offshoring can contribute a material risk to its objectives of market confidence, financial crime reduction and consumer protection. Its report also warned against rapid offshore adoption to achieve cost reductions.