By: Paul Reynolds, Director and Chief Research Officer, TPI Momentum
We at TPI have said before that outsourcing adoption in the financial services industry is critical to the growth of the overall market. With active annualized outsourcing contract values worth more than $11 billion collectively, it is one of the largest buyers of outsourcing. The decline in activity during the 2nd quarter is indicative of just how much stronger regulation and weaker balance sheets have adversely affected financial institutions.
Like most other sectors, senior leadership is mandating initiatives to reduce costs while also increasing productivity and quality. Profitability for banks has and will be reduced as consumer demand shrinks and more cautious lending practices are enacted. This is leading banks to look within to improve how their capital base, liquidity, risk management and market-facing entities are managed while also looking outward to better understand existing customers’ preferences so that expanded services (mainly online & mobile banking) can be made available.
Companies in this sector with active outsourcing contracts (one third of 307), will need to take these steps to reshape its business model as it recovers from the financial crisis. Due to its maturity in outsourcing, more value-added and complex analytical work is outsourced, though many firms are also looking to shared services, process improvements, and offshoring to captive or lower-cost domestic service centers for solutions.
Cloud computing is a hot topic for many firms looking at its offerings closely, but the pressure to rapidly respond to market opportunities is pushing firms to commit more to long term infrastructure transactions such as SaaS. Flexibility, innovation, continuous improvement and process reengineering are all deliverables that banks will look for particularly as banks try to optimize their global delivery strategies and M&A takes them in and out of markets. Opportunities for service providers exist in being able to show evidence to support their claims that technology/services offered will deliver on its promise.
For more information about outsourcing activity in the Financial Services sector and other industries, please contact Paul Reynolds at paul.reynolds@tpi.net.
Interesting read, Paul. The financial services industry is in the midst of a transition that will impact stakeholders up and down the supply chain.
You briefly touch on what I believe will be a critical differentiator for financial institutions and their IT partners moving forward—flexibility. In conversations I’m having, simplification and standardization seem to be in vogue, especially for back office systems and processes which offer little in the way of differentiation. Banks are realizing that over-customization often leads to headaches—integration complications, expensive maintenance and upgrades, and an overall lack of agility when pursuing major business transformations.
Injecting a dose of simplicity and standardization will be a major challenge for any bank. IT partners will be depended upon to leverage their knowledge of the business and its associated processes to provide creative solutions.
Posted by: Shaji Farooq | August 27, 2010 at 12:08 AM