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Financial Services Outsourcing Deals for Q4 2010
Key Trends in Q4 2010
- Financial services outsourcing deals fell by 30 percent in fourth quarter 2010 compared to the previous quarter. Total deals in Q4 were 273.
- The decline in new deal signings in the banking industry is largely attributable to recent regulatory changes.
- The largest number of deals was in information technology outsourcing.
- The largest percentage of buyers and service providers are located in North America and Europe.
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Financial Services Outsourcing Deals for Q4 2010
The fall in the overall financial services outsourcing transactions in Q4 2010 can be attributed to lingering concerns pertaining to new regulations, slow economic recovery in developed markets, and the rise in contract restructuring activity. The total number of deals fell to 273 in Q4’2010 from 389 in the previous quarter. The financial services industry, especially asset servicing firms, is eagerly looking to the next steps by new regulatory bodies. Moreover, banks are also affected by added pressure to rein in government budget deficits. |
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Part of the decrease in new deal signings was due to financial services firms restructuring existsing vendor agreements rather than signing new deals.
Deal volume fell 36 percent in Q4 2010 compared to the same period previous year i.e. Q4 2009. Deals in the capital market area fell over 50 percent in Q4 2010 compared to Q4 2009, mainly due to a decreased number of risk management and outsourcing deals.
Deals originating from North America declined by 55 percent and deals outsourced to North America declined by 44 percent respectively in the aftermath of the changing regulatory framework in the U.S. |
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Restructuring of Contracts Slows Down Outsourcing Activity
Financial institutions, especially banks and asset and investment management firms, focused more on restructuring existing contracts with their service providers than on signing new deals. Financial firms were more cautious in signing new deals due to lingering uncertainty surrounding pending information on new regulations. Further, long-term contracts signed in the early 2000s are now coming up for renewals. |
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However, the insurance sector depict an opposing trend. Middle and back-office outsourcing within this vertical grew by 67% in Q4’2010. The service providers witnessed rising demand in areas such as trade administration, trade clearing and settlement, reporting, cash administration, and fund administration. Insurers are more focused on gaining operational efficiency by offloading non core activities to the external service providers. |
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Application Support/Operations and Application Architecture Account for Majority of the Technology Outsourcing Deals
Technology outsourcing deals witnessed a decrease in Q4 2010 caused by the restructuring of the existing contracts. Outsourcing in functions such as Application Architecture and E-Commerce experienced a growth over previous quarter in contrast to Network Management, Application Integration and Application Development, where the deals have reduced considerably. According to FSOkx research, EMEA is emerging as an opportunity for applications outsourcing suppliers. However, technology outsourcing deals will grow at a modest rate in 2011. More demand is expected in the ambit of cloud services. |
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Others includes Web Hosting, Cloud Services, Data and Predictive Analytics, Payment Solutions, Mobile Applications, Documents & Record Management and Quality Assurance |
Geographic Segmentation – Buyers & Service Providers
Service buyers were predominantly from North America and Europe. However, deals originating from North America registered a drop of 39% in Q4 2010, whereas deals initiated in Europe fell by 24% during the same period. It is anticipated that Western markets will continue to be volatile subsequent to the restructuring of contracts and concerns over the changing regulatory framework. |
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Methodology
Deal Analytics is prepared from FSOkx Deal Analytics Tracker, where financial deals are tracked daily for the Banking, Capital Markets and Insurance industries. Deals within the functional domains of Technology, Outsourcing, Risk Management, Compliance and Regulations are followed. Both the value and the volume of the deals along with the functional domains are considered.
The Banking industry is bifurcated into domains such as Commercial, Wholesale, Retail, Investment Banks and others. Capital Markets includes Advisory services, Investment Management, Asset Management, Wealth Management, and others comprise Trading Platforms, Security Exchanges etc. The Insurance industry is further branched into Health and Life Insurance, Business Insurance and Property Insurance among others.
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