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Financial Services Outsourcing Deals for Q3 2010
The changing regulatory framework and concerns over the double dip recession have positively affected the volume of deals in the financial industry. The total number of outsourcing deals in Banking, Financial Services and Insurance (BFSI) sector has remained flat in Q3' 2010 as compared to Q2' 2010 at 389. Global concerns over the economic turmoil recurred in Q3' 2010, where the companies were hesitant to outsource their functions, resulting in rescheduled investments.
The global financial services industry saw a fall of 18 percent and 68 percent in the total volume of deals in the banking and insurance industries respectively and a rise of 16 percent in capital market industries in Q3' 2010 as compared to the same period last year (i.e. Q3' 2009).
Specifically, technology transactions led outsourcing deals in Capital Markets organizations. Details of hefty outsourcing deals in the technology and risk management space are pointing towards global recovery after the crisis, and are placing competitive pressures on financial institutions to rethink strategically about their operational model.
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| Predictive Analytics, Cloud Services and Virtualization gain impetus |
Deals in Capital Markets witnessed a quarterly increase of about 12 per cent in Q3' 2010 whereas deals in the Banking industry indicated a decrease of about 17 per cent in Q3' 2010. The increase in quarterly deals in Capital Markets can be accounted to an increasing number of technology deals, especially due to the implementation of technologies based on cloud services and virtualization which gained momentum in Q3' 2010.
The aftermath of the changing regulatory framework for outsourcing can be marked through a decreasing number of deals within Capital Markets and Banking Industry for outsourcing processes and functions. Outsourcing deals in the Banking industry reduced by 33 percent, whereas in Capital Markets it decreased by about 11 per cent.
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| Outsourcing deals for middle office and front office functions increased in Q3' 2010. which indicates a transformation in the outsourcing of high-end value functions. Banking and Capital Markets firms have already matured in capability, scale and efficiency through back office functions outsourcing, and in upcoming quarters, these firms might shift their focus towards outsourcing middle and front office functions. Since middle office and front office functions add more value for investment related decisions, outsourcing deals within these functions are expected to gain momentum. Although, the number of outsourcing deals may not increase in upcoming quarters, but transformation in the processes being outsourced may increase. |
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Technology deals in the Insurance industry were focused to align policy administration processes and infrastructure platforms used in the industry. In order to reduce operational costs, Insurance companies are outsourcing end-to-end processes. Increasing economic pressures, technological changes and competitive pressure indicates a potential growth in outsourcing deals in the Insurance Industry. |
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| Restructuring activities - Main Driver of Technology Deals |
Three out of every four global transactions have been reported as technology deals, whereas there is no significant change in the number of global business process outsourcing transactions throughout 2010. Restructuring activities continue to be the key driver of IT as well as business process transaction activities in Q3' 2010. Outsourcing is currently in its transformational phase wherein buy-side firms are continuously exploiting the synergies between ITO and BPO which suggests that they are becoming more focused on streamlined operations.
Technology deals, fueled by the drive to gain competitive advantage, are expected to shift into high gear in the upcoming quarters. Technology enabled solutions for application support/operations reported the highest share of 30 percent of total technology deals in the BFSI sector in Q3’ 2010.
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| Besides a remarkable number of deals in application lifecycle technology, the BFSI sector has reported an upward trend specifically for security environment management, infrastructure management, network management and desktop support deals. A majority of these deals form a part of application infrastructure renewal programs. New applications for customer management as well as security enhancement continue to gain financial services’ attention.
Evolution of technology focused on mobile commerce and predictive analytics will be the key contributors to strategic growth in the financial services sector. These applications aid real-time customer relationship management. Acceleration in the adoption of enterprise technologies such as cloud computing and cloud services is also predicted as the industry move towards 2011.
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| Geographic Segmentation:
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| More than 41 per cent of clients and nearly 60 per cent of service providers are from North America. Nevertheless, about 7 to 8 per cent of a quarterly decrease was witnessed in deals for the North American region for both, Client and Service provider. This decrease in the deals was compensated by an increase in the volume of deals in European countries.
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Despite the regulatory framework which promotes onshore deals, the number of offshore deals from North America increased from 15 per cent in Q2' 2010 to 22 per cent in Q3' 2010.
The financial services firms are reinventing their business models through technological changes and outsourcing their processes to gain competitive advantage, and this is expected to frame the future of the financial services industry in upcoming quarters. The changing regulatory environment and company’s discretionary spending will affect the volume of deals in the last quarter of 2010.
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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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