Executive Summary

Outsourcing trends in the financial services industry

The FS industry is the largest user of offshore services and usage continues to grow

  • Financial Services (FS) accounts for almost a third of all offshore services, outsourced and captive
  • ITO and BPO still represent the bulk of the outsourcing activity, but the frequency and awareness of KPO opportunities within FS companies is growing
  • While overall offshoring and outsourcing has continued to grow, BPO outsourcing has faltered in the last 2-3 years – for example, Financial services companies put more BPO deals on hold in 2009 than any other sector (Morrison Foerster, 2010)
  • Average size of outsourcing transactions has declined in last 3 years

Operating model diversification continues, but the overall trend is away from captives…

  • Most FS companies now maintain a ‘multi-sourcing’ approach to ITO and BPO
  • Existing captive centres continue to be exploited by those that have kept them but several high profile examples of banks exiting the captive market (Citi, UBS)
  • Few new captives expected – FS companies preferring to outsource or co-develop Centres of Excellence (CoE) with 3rd parties (e.g. Barcap in Kiev)
  • Noticeable examples of banks in-sourcing tasks in both BPO and ITO space – DB from HCL, Barclays from Accenture – point to continued dissatisfaction with outsourcing services

Increased location diversification, especially to nearshore

  • For FS, India is still the dominant destination , particularly for ITO services, however, Eastern Europe has become increasingly prevalent for ITO and BPO
  • Significant increase in use of nearshore sites in US (Florida, Carolina, Texas) and UK (N. Ireland, Scotland) for processes considered high value or high risk in the BPO and ITO space, or where data protection regulation prevents full offshoring
  • Emerging offshore centres in China, SE Asia, S America and Africa expected to play more significant role in next 3-5 years as arbitrage is eroded by inflation for traditional sites

Sources:Elixirr analysis, DataMonitor 2010, TPI 2009, press releases


This analysis takes the form of:

  • An overview of the trends in outsourcing and offshoring by major financial institutions in the last 3 years, covering the following dimensions
    • What (functions outsourced / offshored)
    • How (form of offshoring and outsourcing)
    • Where (popular and emerging locations for delivery)
    • Who (summary of major outsourcing transactions by major Financial Services (FS) players and outsourcers)
  • Supporting data for the current outsourcing landscape for the FS Industry


Overall Growth in BPO, ITO and KPO services

FS companies have continued to outsource and offshore throughout the downturn though at a slower rate than in previous years, mirroring the broader outsourcing market

Growth in Offshore Services, 2007-2010E

Screen Shot 2016-08-23 at 10.52.09

Source: Elixirr analysis of OECD, Gartner and BCG data 2008-2009

  • The IDC reports that outsourced offshoring generated $260 billion in revenues and had grown by 25% during 2007-09
  • However, most activity has been an extension of existing deals or services – relatively few major new transactions
    • Datamonitor reports that the value of new offshoring deals signed in the last quarter of 2008 fell by 38%, when compared to the previous year
    • NASSCOM, the Indian software association, revised offshoring growth downwards for the 2009 period

The FS Industry is the Biggest Consumer of Offshore Services

Offshore Services Consumption, 2009

Screen Shot 2016-08-23 at 10.52.33

Source: CGGC Study, 2010

Offshoring Activity Survey of FS Institutions

Screen Shot 2016-08-23 at 10.52.44

Source: Deloitte study on financial institutions, 2008

  • FS accounts for almost a third of all offshore services, outsourced and captive
  • Over 75% of FS institutions are outsourcing
    • almost 40% of FS institutions are outsourcing across multiple domains
    • the remaining 25% of FS institutions not outsourcing are predominantly niche players in private banking and insurance
  • ITO and BPO still represent the bulk of the activity but the frequency and awareness of Knowledge Process Outsourcing opportunities within Financial Services companies is now significant (8% of respondents to the Deloitte study)

ITO Trends in Financial Services

ITO remains a key cost lever for FS but consolidation and optimisation has driven much of recent activity

Change in the use of nearshore and offshore capability for the FS Sector, 2009

Screen Shot 2016-08-23 at 10.53.14

Source: Equa Terra – Trends in FS Industry across W. Europe, 2009

Demand for IT outsourcing and offshoring has remained strong and is growing for the FS industry across all major Western European markets.

  • e.g. JP Morgan increased outsourcing to India by 25% to $400mil p.a.
  • Barclays – creation of IT CoE in Kiev, Ukraine

Use of nearshore locations has increased for higher value IT tasks

  • Growth of IT delivery centres in low cost US locations e.g. Texas, Florida and Virginia
  • Citi – expansion of Belfast (N. Ireland) delivery centre

Basic services such as call centre and remote infrastructure management offshoring are reaching saturation.

High level of vendor consolidation to top tier Indian players by FS institutions in order to:

  • Reduce costs by leveraging scale while maintaining service quality
  • Mitigate risk / exposure to small vendors
  • e.g. Citi RightSourcing preferred vendor program

Future Trends in ITO

  • Infrastructure: Cloud computing as next wave of Infrastructure sourcing – removing the assets from the institutions
  • ADM: Moving up the value chain for AD – Business requirements definition and design offshoring and outsourcing
  • Service Management: New standards and service models for ITO where current models are perceived as failing

BPO Trends in Financial Services

Overall BPO slowed in the FS sector, but new opportunities in FS specific process offshoring are catching up with the more traditional BPO functions

BPO Adoption* by Functional Area in FS

Screen Shot 2016-08-23 at 10.53.31

*Note: % of respondents in the survey who outsource some or all of this function Source: BPO Trends in FS Industry, Equaterra 2008

  • Industry-wide, post 2008 the market for offshoring BPO has struggled. For 2009, the BPO market’s total contract value fell 38% to $18.5 bn, its lowest level since 2001 (TPI, 2009)
  • Financial services companies put more BPO deals on hold in 2009 than any other sector (Morrison Foerster, 2010)
  • However, growth is forecast to resume from 2010 onwards – the BPO market is forecast to hit $450bn by 2012 (Nelson-Hall, 2009)
  • As organisational confidence grows ‘higher value’ functions are increasingly being considered for outsourcing / offshoring (Everest), e.g.
    • Performance management for HRO
    • Management reporting and analysis for F&A
  • FS specific processes were increasingly targeted as an offshoring opportunity by major players across this period

Future Trends in BPO

  • BPO – FS Specific
    • Expansion into Front & Middle Office functions
    • Commercialising Back Office processing engines – major banks as service providers
    • Move back onshore for failing functions – potentially some institutional client service
  • BPO – Generic
    • Procurement outsourcing growth – separation of Strategic Sourcing and Fulfilment functions
    • Accessing improved ERP system capabilities in the marketplace
    • F&A – management reporting and analysis

KPO Trends in Financial Services

The Research, Analytics and Market Data Management market is still immature but this immaturity presents growth opportunities for FS companies

India KPO Market

Screen Shot 2016-08-23 at 10.53.48

Bank/In-House Research Department Traditional BPO Firm with Expansion to KPO Professional KPO Firm
Goldman Sachs
Morgan Stanley
JP Morgan
Deutsche Bank
Office Tiger
Amba Research
Copal Partners
IP Pro
Roc Search
Market Rx
  • Whilst KPO is still a high growth and diversifying industry area, we believe that most industry predictions from 2008-2009 will be revised down significantly
  • The majority of large capital markets banks have established either a captive or outsourced capability for some basic research functions
  • Competition has intensified in this sector as niche players have been increasingly challenged by the major BPO providers who are growing or acquiring KPO capabilities
    • e.g. Cognizant bought out UBS’ captive as part of a wider delivery centre acquisition
  • India has been the most common destination for KPO services but increasingly Philippines, China, Ireland and Mexico are emerging as alternative destinations
    • Citi – Expanding KPO operations in Philippines by 30% (2009)
    • Credit Suisse captive services in Poland (Wroclaw)

Future Trends in KPO

  • Diversification of research services – Product structuring, end-to-end research production
  • Growth of legal offshoring for FS
  • KPO is BPO – most KPO processes become integrated into wider BPO capabilities, not viewed as distinct discipline
  • Major BPO outsourcers cannibalise KPO specialists


Operating Model

‘More of the Same’ ‐ Outsourcing and offshoring growth 2008-10 has been along more mature / considered lower-risk models. Most major players maintain a ‘mixed portfolio’ of operating models in ITO / BPO

Screen Shot 2016-08-23 at 10.54.16

NOTE: This picture is oversimplified – many banks straddle multiple operating models

Operating Model for ITO

Most of the large banks who
developed captive centres
in the last decade have been
increasing the scope
of these centres to improve
onshore / offshore ratios– e.g.
Deutsche Bank, Credit Suisse
Significant consolidation to major
Indian players such as Wipro,
Infosys, TCS, Cognizant.
Some banks also taking
functions back in house from
outsourcers – e.g. Barcap
UBS and Citi have both sold Indian IT
Delivery Centres to Indian Outsourcers.
As Indian players try to expand into
the West, we also see some sale of assets in
Europe – e.g. Citi data centre in Dusseldorf to Wipro
  • As the most mature area of outsourcing and offshoring, ITO demonstrates the broadest spectrum of operating models
  • Most major institutions operate a mixed portfolio of strategies across ADM and Infrastructure, including:
    • Captive
    • Dedicated / co-managed
    • Managed service
  • Full service outsourcing is most prevalent in infrastructure services
  • ADM services are still perceived as core in banking sectors especially and retained on a more task or FTE-governed basis
  • High level of consolidation to major vendors
  • Invisible outsourcing to software houses

‘Invisible’ Sourcing – Software Houses in ADM

In response to pressures on headcount and IT development budgets, IT divisions are relying increasingly on development and support services by 3rd party software houses


  • FS IT divisions have been set aggressive overall headcount reductions over the last 2-3 years
  • Increased scrutiny of IT consulting and development spend
  • Tighter procurement controls
  • Focus on short term cost reductions vs. Long term capability development
  • Perceived risk of giving bespoke/specialist software products to generic outsourcers


  • Use of 3rd party software houses to develop and support own product – for trading platforms and specialised products it is more difficult to source staff on the open market or via basic outsource providers
  • Leads to creep in discretionary software spend (disguised in the short term by amortisation)
  • IT divisions are unable to develop in-house capabilities due to lead times and investment requirements
  • Typical vendors for Capital Markets banks would include:
    • FS-specific packaged software vendors (MiSys, SunGard)
    • Specialist CMB platforms (e.g. Igefi, ION Trading)
    • ERP giants: Oracle, SAP

Operating Model for BPO

Capital Markets back office processing
is still mainly done by captives.
Deutsche Bank has started to shift some
activities back from HCL to its own
delivery centre (DBOI) to realise process
efficiencies and improved service
Majority of banks have achieved basic offshoring
of their HR and F&A functions – for example Citi
has extended the scope of its Eastern
Europe site to take on the majority of basic
accounting activities
Full outsourcing of FS specific processes
is mainly confined to retail and insurance industries
Deutsche Bank remain unusual in the BPO space
having outsourced the majority of its procurement to Accenture.
Other players have predominantly gone the captive route
  • Few examples of ground breaking changes in the BPO space 2008-10; FS institutions have, as with ITO, continued to leverage existing models in trusted locations
  • Those who already have offshore delivery centres have been able to leverage those investments e.g.
    • Citi has added Procurement / P2P functions to its offshore F&A centre in Eastern Europe
    • SocGen have increased the scope of their HRO in India
  • Back office processes for capital markets remain dominated by captive centre solutions
  • Multi-national banks are looking to leverage their investments in processing platforms by selling services to smaller players and hedge funds / asset managers

Operating Model for KPO

Growing area for capital markets
banks for provision of basic investor
research to support analysts, and
also management of market data services
(library management, admin, subscriptions)
KPO has ‘jumped’ a development
stage – as the FTE counts involved
are typically small, FS institutions have tended
to either add into their existing captive
centres or go directly to outsource model
Given perceived high value nature
of processes involved, it is
unlikely banks will full outsource research
services as this is seen as a differentiator
  • KPO is the smallest and least mature area of outsourcing but is growing in popularity as banks try to reduce the cost of their research functions in an effort to reduce cost to service clients
  • UBS has led the way in building an offshore analytics function in its Indian delivery centre but has since spun the function off to Cognizant
  • Small outsourcers have gradually been acquired by larger players such as Cognizant, TCS and GenPact
  • Given the nature of these functions there is little immediate appetite for outsourcing anything more than basic tasks; ‘judgement-based tasks’ remain largely onshore with high cost analyst resources

Captives in India

The longevity and effectiveness of the captive offshore centre model continues to generate debate

Operations in Indian Captive Delivery Centres (2007-09)

Screen Shot 2016-08-23 at 10.54.55

Source: Evalueserve – Captives in India, 2009

  • IT; most mature area of outsourcing therefore least change. Even so, more roles have been pushed into existing captives e.g. Deutsche Bank
  • BPO; activity least consistent – some banks have decided that outsourcers are more cost effective (e.g. Morgan Stanley HRO to Hewitt) but those with significant offshore delivery have increased offshore ratios (e.g. Citi F&A and Procurement in Hungary)
  • KPO as the newest offering has shown most growth in captive services:
    • Nervousness about outsourcing skills previously seen as core so have opted for building captives (e.g. Citi)
    • Poor outsourced service quality (e.g. Credit Suisse now manage Irevna directly)
  • Captive centres continue to come under pressure from large-scale outsourcers, particularly the Tier 1 Indian players
  • Both Citi and UBS have disposed of significant captive assets in the last 3 years
  • However, as the figure shows, many companies have continued to leverage their existing captive centres;
    • as a cost-effective method to increase offshoring with low investment (Deutsche Bank)
    • to retain control on higher value functions (Citi)
    • to enable the realisation of process efficiencies in onshore / offshore handoffs (BNP Paribas, Deutsche Bank )

Future Trends

  • Future of ‘captive’ and dedicated service centre models uncertain but overall likely to decrease (i.e. Few expected ‘new’ captives)
    • Trend to exit of captives/co-branding in IT
    • Commercialisation of Back Office processing captives for the large banks
    • Continued lack of convergence on single strategy
  • Service Management capability as a differentiator
    • For FS Back Office processing (onshore / offshore integration and streamlining)
    • For IT (multi vendor management for value)


Growth in Major Offshore Geographies

  • Major outsourcing centres have continued to grow over the last 3 years
  • For FS, India is still the dominant destination, particularly for ITO services
  • However E. Europe has become increasingly prevalent,
    • Basic BPO (F&A – Citi, Procurement – Deutsche Bank, Citi)
    • ITO – BarCap new CoE in Kiev, Ukraine
  • Philippines is increasingly popular for front line support, especially in SE Asia due to strong English language capabilities relative to India or China and low labour cost
  • China is comparatively unexploited by FS – whilst most major banks have some offshoring there, this is largely confined to the support of Asian business units (e.g. Hong Kong)

The Rise of Nearshoring

Secondary locations in home countries or locations in nearby countries with lower labour and real estate costs

Nearshore site examples


  • New Jersey – multiple
  • Colorado – Wells Fargo
  • Florida – Citi, Deutsche Bank
  • Texas – Amex
  • Canada – Citi, Deutsche Bank, Morgan Stanley


  • Belfast (N. Ireland) – Citi
  • Dublin (ROI) – multiple
  • Edinburgh – RBS, HBOS
  • Derby – Citi
  • Birmingham – Deutsche Bank
  • Newcastle – Tesco Bank


  • To maintain service quality and proximity of management for ‘higher touch’ or sensitive services and processes benefitting from:
    • Language
    • Culture
    • Lower knowledge transfer costs and attrition rates
    • Easy to ‘parachute in’ management
  • Citi has invested significantly in its Belfast centre to take advantage of significant UK government subsidies provided, temporarily putting arbitrage on a par with medium cost offshore sites such as Prague
  • Major Indian vendors are now trying to enter this space, buying data centres and other sites in W. Europe and US – the objective is to compete on service with major outsourcers such as IBM, Accenture and HP

Emerging & Niche Delivery Centres

South America

  • Mexico, Costa Rica, Panama: Popular for BPO and also call centres for Spanish language services
  • Chile, Colombia, Argentina; Spanish-language services to US and Spain (e.g. Citi Delivery Centre in Colombia) – Chile in particular is viewed as a stable environment without the hyperinflation issues previously seen in Argentina and Brazil
  • Uruguay – niche BPO provider for the banking industry in Montevideo
  • Brazil: Growing as an IT service provider, particularly Curitiba (‘Silicon Valley of South America’) but the majority of services are still consumed by the domestic market due to language issues

Africa and Middle East

  • South Africa is popular for BPO from the UK due to language and time zone (e.g. Morgan Stanley asset management). Seen as the FS centre for Africa but has infra- structure and security concerns
  • Egypt is the leading emerging outsourcing provider in Northern Africa
  • Morocco, Tunisia and Algeria are developing language specific offshoring capabilities for the French market, largely in the contact centre space – (e.g. SocGen, BNPP)
  • Jordan has grown as an offshore centre for Middle Eastern / Arabic businesses – solid ITO capabilities though limited talent pool and language constraints

Future Trends

  • Nearshore growth (e.g. US/UK Tier 2 locations) to continue
  • Rise of emerging locations such in SE Asia (Vietnam, Indonesia) and N. Africa (Egypt)as lower cost alternative to India and E. Europe
  • ‘Double’ offshoring – Indian centres to offshore own operations to lower cost centers


Selection of Key Activities by Institution

Sale of Indian Service Centre to Cognizant
Consolidation of ADM to major Indian players Sale of Indian IT captive (2008) and German data centre (2010, in progress) to Wipro, Sale of BPO captive to TCS (2008) Continued offshoring of F&A and Procurement to its Budapest delivery centre
Renegotiation of 7 year deal with IBM for infrastructure services (mainframe, midrange) Integration of infrastructure outsourcing deals for MS and Smith Barney merger Global Managed Service outsourcing of Networks to Verizon (2009)
Aggressive offshoring of Equities trade processing functions to India Some outsourced BPO processes brought back in-house (from HCL service to DB captive in India) to improve service and efficiency
Transformational infrastructure outsource with Microsoft and HP to leverage cloud computing capabilities and drive down costs (first for FS industry)

Deal Profiles Index

  1. UBS-Cognizant sale of Indian Service Centre
  2. Morgan Stanley infrastructure deal with IBM
  3. Citi Indian BPO captive sale to TCS
  4. American Express cloud computing deal
  5. Zurich Financial Services Infrastructure outsource
  6. Barclay’s exit of Accenture ADM contract

UBS-Cognizant Sale of Indian Service Centre






  • 2,000 FTEs
  • Multi-Year
  • Dedicated service centre operated by outsourcer


  • Hyderabad, India


  • UBS disposed of its Indian Service Centre to Cognizant
  • Services include ITO (remote infrastructure management), BPO (Wealth Management and Asset Management back office processes), and KPO (research and analytics for the Investment Bank – c. 50FTEs)
  • Stated objectives of UBS are to :
    • Reduce time-to-market
    • Expand service delivery
    • Enhance productivity, operational efficiency and quality

Morgan Stanley Infrastructure Deal With IBM






  • 2,000 FTEs
  • $575m contract value (est.)
  • 5 year extension
  • ITO and helpdesk
  • Managed Service


  • Various (IBM datacentres) inc.
    • UK
    • USA


  • IBM provide utility infrastructure services to Morgan Stanley’s Individual Investor Group and Discover Financial Services.
  • Deal is a renegotiation of 2004 contract
  • IT services are provided by grid computing from IBM’s data centres on an ‘on demand‘ pricing model providing MS with greater flexibility as consumption changes
  • Applications previously run on mainframes will now be provided on a grid computing basis, and is paid for on a usage basis which MS claims will save $millions p.a.
  • IBM have also been selected to help MS integrate the IT infrastructure of the Smith Barney business recently acquired from Citigroup

Citi BPO Captive Sale to TCS






  • 12,000 FTEs
  • $2.5bn contract value (est.), TCS paid $505m for the CGSL business
  • 10 year contract (2008-2018)
  • FS specific BPO
  • Dedicated service centre


  • India – Mumbai


  • Citi sale of their BPO subsidiary, Citi Global Services Limited (CGSL), based in Mumbai
  • Includes multiple FS specific processes across Citi’s retail and capital markets businesses
  • One of the largest captive offshore centres in existence at over 12,000 FTEs
  • Citi released $500m in cash to help its balance sheet and capital ratios
  • Citi has committed to at least $2.5bn in revenues over 10 years –revenues at time of sale were c.$280m per year
  • Continuation of Citi’s strategy to divest captives – previously sold CGIS IT India delivery centre to Wipro

American Express Cloud Computing Deal





  • $125m contract value
  • 5 year deal (2009-2014)
  • Infrastructure services, including cloud computing services
  • Transformational outsourcing


  • Global – 130 countries
  • Remote management services will be from EDS’ offshore centres


  • HP EDS is managing the American Express end-user desktop computing environment and its global voice and data networks
  • EDS will provide on-site services for about 60,000 employees in more than 130 countries
  • In addition, HP and American Express have partnered with Microsoft to deliver cloud computing technologies for Amex – Microsoft’s Business Productivity Online Services – which could revolutionise how infrastructure services are consumed and charged for and dramatically reduce costs.
  • This will also serve as the test case for many FS institutions nervous about security and reliability issues associated with the new technology

Zurich Financial Services to CSC






  • 1,000 FTEs
  • $2.9bn contract value (est.)
  • 11 year contract (2009-2020)
  • ITO, Infrastructure
  • Managed Service


  • Various – CSC will cover the group’s IT operations in the UK, US, Canada, Switzerland, Germany, Italy and Spain.


  • CSC provide data centre and IT infrastructure managed services to Zurich Financial Services (ZFS).
  • CSC support ZFS’s global service desk, local on-site support and software packaging.
  • Relationship between ZFS and CSC dates back to 2004.
  • The contract is designed to transform ZFS’s existing data centre environment into a fully modernised, flexible and highly virtualized operation.
  • Depending on the country specific agreements entered into, up to 1,000 ZFS employees will potentially move to CSC during the first half of 2010.

Barclays and Accenture (Non Renewal of Deal)



Provider (terminated)



  • 230 FTEs
  • £400m contract value (est.)
  • 6 year contract terminated (2004-2010)
  • ITO, Application Development
  • Captive – insourcing of outsourced service


  • Global – onshore and offshore delivery resources


  • Barclays opted against the renewal of their existing AD outsourcing deal with Accenture.
  • Barclays have decided to bring several outsourced functions back in-house recently
    • Ended outsourcing deals with EDS and Siemens in 2006 & 2008 respectively
    • Ended Getronics desktop support contract in 2009
  • Barclays looking to improve resource flexibility and lower costs associated with developing and maintaining software applications.
  • Accenture still being used by Barclays as they continue to provide consulting and IT solution services.

Future Trends

  • Indian players (Wipro, TCS, Infosys, Cognizant etc) to become global players to challenge established players such as Accenture, IBM, HP
  • Niche outsourcers (e.g. KPO) to be subsumed into scale players

Further Information Available Upon Request

Below is a screenshot example of our detailed report on outsourcing and offshoring transactions available upon request:

Sources: DataMonitor Knowledge Center, 2010, Press search, BusinessWeek,Elixirr client experience, Pillsbury Global Sourcing client experience