Stephen Newton Founder and Managing Partner of Elixirr

“I am very excited to announce the publication of this year’s Trends in Outsourcing in the Financial Services Industry report, following the success of previous reports.

There is an unprecedented level of regulatory and investor pressure on financial service institutions and this year we focus on how the industry is responding to it.

It remains to be seen if the post financial crisis era has started as we see RoE performance begin to rebound.

This year’s report contains analysis of outsourcing market data provided by NelsonHall, a market leading outsourcing research house.

We provide a brief review of the current performance of the financial services industry, before focusing on key trends in the outsourcing space and then continue with a number of special features around the future of the outsourcing industry.

I know that our clients, and the industry more broadly, value the independent analysis that we bring in these reports and I hope this year will be no exception.”

Executive Summary

Despite the return to growth in the financial services industry in the year since we published our last report, the new “regulatory reality” has led banks to recognise that even as the economy recovers and performance improves, financial services institutions will need to work much harder to achieve the same returns they enjoyed before the crisis. The increase in required regulatory capital, and the subsequent need to implement more robust processes and transparent governance is driving institutions towards cost reduction strategies that are both innovative and sustainable.

In addition, financial services institutions have been put under increased pressure by the growing expectations of customers. Customers increasingly expect unprecedented quality and availability of service and transparency from financial institutions, a trend already observed in other industries.

From a demand perspective this is driving changes in the way financial services are looking at outsourcing as part of the toolset to address these market changes:

  • In their search for value, financial services institutions are increasingly looking for services which span the value chain whilst taking a multi- sourcing approach as their maturity in managing outsourced services grows
  • Financial services institutions continue to see outsourcing as a means of cutting costs, however they are also looking for increased value aligned with their long-term business strategies – including new capabilities, reduced capital investments in infrastructure and improved services
  • The increasing demands on financial services institutions from global regulators means third party service providers will be expected to support their customers by implementing greater transparency and more robust control frameworks

Against this backdrop, the global outsourcing sector in financial services overall has continued to grow modestly over the last four years and this growth is forecast to accelerate. Behind these headline figures, the major changes in the financial services sector are starting to change the nature of outsourced services. Our analysis reveals a fundamental blurring of traditional definitions of outsourcing is making typical industry classifications less and less relevant:

  • Outsourcers are diversifying their approach and seeking to build more innovative solutions that align with their customers’ cost and value agendas, including broadening services to previously ‘core’ areas of financial services activity such as mortgage and securities processing
  • In this context the provider landscape is changing; bank-to-bank outsourcing agreements on transaction processing which previously would not have been considered as ‘outsourcing’, make up some of the largest transactions in the marketplace
  • The traditional boundaries between BPO and ITO are becoming blurred as service providers look to provide integrated, end-to-end solutions for clients – not just leverage wage arbitrage
  • As financial institutions become more accepting of new technologies such as cloud-based infrastructure and software services, the need for large, monolithic outsourcing solutions in this space is diminishing

These trends have had a noticeable impact on the sourcing behaviours of financial institutions. As a result, new service providers are emerging, whilst existing providers are adapting their service offerings to respond to these trends.

Features in this year’s report

In addition to our market trend analysis, we have also sought to provide a perspective on the challenges the industry faces. In our Features section we examine some of the key themes from our report in greater depth:

  1. What is the impact of changing regulation on financial services sourcing models?
  2. What will the impact of increased customer expectations be on the sourcing behaviour of retail banks?
  3. How can transaction banks move up the value chain and offer innovative outsourcing solutions to help their clients cut costs?
  4. How is the insurance industry using outsourcing?
  5. What alternative outsourcing destinations are challenging traditional offshore locations?

Market Context

Global financial services

A fragile recovery

Back to black

Whilst 2012 saw many global banks continue to struggle against a backdrop of falling revenues and stagnant RoE, results for the first half of 2013 suggest that a recovery, albeit a slow one, is underway. Average RoE for the major US banks has risen to over 14% in Q2 of 2013, while the top four UK banks have seen average RoE lift to 9% and pre-tax profits jump nearly 30% in H1 2013, compared to the same period last year. However, these numbers are still well below the pre-financial crisis highs of more than 20% RoE.

Growth has been prompted, in part, by the extensive financial stimulus programmes instigated by major governments that pumped billions into their respective economies. These stimuli have contributed to the gradual emergence of the UK and US from recession. Combined with a period of relative stability in the Eurozone which has allowed banks to focus on rebuilding their balance sheets. Geography seems to be the key determining factor in whether banks have been able to achieve this, with European banks criticised for being undercapitalised compared to their US counterparts.

The insurance industry has also experienced similar challenges, particularly the need to cut costs and increase capital buffers. Whilst mature markets have stabilised, consumer and business spending remains sluggish. As a result insurers continue to seek to trim costs, whilst chasing opportunities in emerging markets.

Figure 1. H1 2013 profit increase vs. H1 2012

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Figure 2. 2013 Q1 RoE performance by selected global banks

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Source: Published 2013 Interim Results and 2012 Annual Results,Elixirr analysis


Regulation remains the key driver behind business and operating model changes across the industry, as new regulatory requirements increase the cost of doing business and decrease the profitability of previously lucrative activities. Concurrently, the penalties for non-compliance have increased: the top ten global banks recorded operational risk losses of more than $25bn in 2012, practically all of which was recorded by five banks (JP Morgan, Citi, Bank of America, HSBC and Wells Fargo).

The regulatory environment continues to evolve. The imminent implementation of AIFMD is concerning the buy-side; MiFID II is occupying sell-side participants; Solvency II, despite continued delays in its implementation, will still impact the insurance industry. Substantially increased capital requirements are also enduring, which continues to impact revenues and RoE through a reduction in leverage across the industry. This is driving the long-term need across the industry to reduce fixed costs. Financial services institutions that recognise the new rules of the game will continue to focus on what they can control, namely cost. (for more detail see our Features section)

Same game, new rules

A paradigm shift within financial services has occurred. Governments and central banks will continue to set the agenda for financial services institutions as they seek to remould the industry. The focus on increasing regulatory capital will result in a long-term focus on finding sustainable ways to reduce fixed costs. This presents an opportunity to service providers who can effectively align their offerings behind this objective.

“The performance of financial services institutions is starting to rebound, but capital challenges remain and support services continue to be under cost pressure”

Figure 3. Overall outsourcing market performance 2009-2012

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Figure 4. Overall outsourcing market 2012

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Sources: NelsonHall data,Elixirr analysis

Notes: – Please note the change in data source from the 2012 report to Nelson Hall – Outsourcing contract data is from publicly available information

Global outsourcing market

Trends and performance

Global outsourcing market

The overall global outsourcing market continues to enjoy steady growth. The year-on-year gains in the overall market observed in recent years are set to continue in 2013. This is a good indicator that confidence in the strength of the outsourcing value proposition has been maintained throughout the global economic crisis and ongoing recovery. Key structural changes are driving this growth and we have identified four key trends in the global outsourcing market:

1. The labour arbitrage model is no longer the only key driver

Every year, above-average inflation and resultant increasing wages in established offshore outsourcing destinations are driving costs upwards and reducing potential cost savings. Despite this, outsourcing continues to grow year- on-year, demonstrating that cost is no longer necessarily the primary driver. Organisations are looking for:

  • Flexibility and scalability of resources
  • Guaranteed price, even if this is not necessarily a lower price
  • Higher levels of service and expertise
  • Lower capital investment

2. New outsourcing destinations: rise in nearshore and alternative lower cost destinations

As the business model for offshoring has been eroded by increasing wages and real estate costs in mature locations such as India, outsourcers have responded in two ways:

  • Exploring alternative offshore destinations that can deliver continued cost savings, for example Sri Lanka or Colombia, instead of traditional outsourcing destinations such as India or the Philippines (see our Features section for more analysis)
  • Increasing automation is reducing the need for large numbers of low skilled workers, leading to nearshoring of outsourced services to gain access to more highly skilled workforces and better customer service

3. The rapidly evolving digital world is forcing businesses to make a series of fundamental changes to their operating models

Innovation and technology are disrupting the way outsourcers provide and sell their services:

  • Online is becoming the norm: this requires companies to maintain multi-channel solutions as customers move away from face- to-face interactions (i.e. online banking)
  • Greater demand for big data analytics to drive revenue growth, cost reduction, and running robust Customer Relationship Management (CRM) systems
  • Cloud applications and services are allowing companies to buy based on usage and eliminate large up front costs

4. Rise in stronger value propositions

Many of the “quick wins” or easy cost saving opportunities have been exploited, especially in mature markets where outsourcing is an established solution. In response to various challenges, the outsourcing industry is shifting from a cost-focused industry to one that is defined by higher value, better service and more expertise. Responses include:

  • Low cost providers operating on thin margins can struggle to make the required transformational changes. Working with strategic partners is becoming more common
  • Vertical integration in outsourcing can enable greater value through deeper expertise in one business unit. For example, many financial services institutions struggling with the Dodd- Frank Act are looking to outsource “vertically” some of the required documentation and data gathering
  • The clear cut boundaries between BPO and ITO are blurring as outsourcers provide solutions that cover the entire end-to-end value chain

Figure 5. 2009-2012 total outsourcing market, by industry

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Financial services outsourcing market

Trends and performance

Financial services outsourcing spend makes up approximately 34% of the total outsourcing market, and this proportion has remained relatively consistent between 2009 and 2012 (see figure 5). Whilst the non-financial services markets have shown a small gain, the financial services share of the global outsourcing market has diminished slightly since 2009.

The financial services outsourcing market has grown at 2% CAGR since 2009 (see figure 6), driven by a need to cut costs and improve service levels. This growth continues in response to increased cost of regulatory compliance and capital and increasing customer demands which require further investment. Outsourcing continues to offer a way to deal with the issue of cost, and at the same time providers are getting creative with the types of services they are offering their clients, as we will explore further in this report.

As shown in figure 7, BPO accounts for 78% of outsourcing in financial services and has shown stronger growth than the ITO market between 2009 and 2012. BPO grew 3.2% over the last four years (CAGR), whereas ITO was stagnant (0.2% decline over four years), showing a real term decline in sales. This trend is expected to continue next year and forward to 2016. We see three key trends driving the trends in financial services outsourcing:

1. A key driver for outsourcing remains cost reduction

As revenue pressures resulting from regulation increase, there is a continued focus on outsourcing to reduce costs to protect margins. However, financial service providers are looking for more strategic relationships to deliver enhanced value through any outsourcing, given that potential labour arbitrage using offshore resources has fallen away in recent years.

2. Pure ITO is falling out of favour

Across the financial services industry pure ITO is in real term decline, for both value and number of deals signed. The ITO market is increasingly saturated, and many companies are looking to manage their existing deals more effectively rather than commit to new arrangements. Furthermore, CIOs are looking to refocus their use of ITO service providers, having been ultimately disappointed with the success of large scale “transformational” outsourcing deals, and the market is seeing an increase in the appetite for cloud-based solutions.

As an alternative to large transformational deals, buyers are looking to use more bespoke providers, combine services into industry verticals with BPO elements, or move ITO spending towards outcome-based pricing (enabled by cloud computing and managed service solutions). The knock-on effect is the reduced number of “mega- deals” and the impact on the total market size. Additionally, though there is very little data on the subject, we believe that there has been a concurrent increase in cloud-enabled BPO.

This fall out of favour of pure ITO in financial services is evidenced by its share of the market compared to BPO. In the overall outsourcing market, ITO accounts for 65% of the market size (see figure 4i). However, in financial services, the ITO market share is significantly smaller, at 22% (see figure 7).

3. The outsourcing industry is diversifying

Financial service providers are outsourcing a wider range of services, including specific business areas such as HR and procurement (see BPO Trends Analysis for further discussion). This trend is being driven by a desire for more strategic arrangements (including the integrated use of IT and BPO services), and the search for further value in areas not traditionally outsourced. Service providers are responding to this by seeking to develop broader end-to-end services, whilst niche entrants with specific expertise are also gaining ground. We expect outsourcing to play a continuing, and growing role, in financial services, and for outsourcers to work more widely across the value chain and in an increasingly holistic manner.

Figure 6. Financial services outsourcing market performance 2009-2012, and forecast 2013-2016

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Figure 7. Financial services outsourcing performance 2009-2012 and forecast 2013-2016 by BPO / ITO

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Figure 8. Financial services outsourcing performance by region 2009-2012

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Sources: NelsonHall data,Elixirr analysis

Emerging markets

Economic update and impact on outsourcing

BRICs, no mortar?

The BRIC countries have experienced fluctuations in fortunes over recent years. Following a decade of sustained high growth, high inflation and improving living standards, events over the past year have led to a more negative outlook for BRIC countries (see figure 10). This began with a rapid, but controlled, slowdown in the Chinese economy, and a marked decline in Brazilian, Indian and Russian growth.

In China this has been driven by a number of factors, notably, overcapacity and saturation in the export market, an unsustainable credit fuelled construction bubble and rising wages as China’s demographic dividend peters out. The slowdown in Chinese growth has led to a significant knock- on impact on the commodities driven economies of Russia and Brazil, who have also suffered from domestic political discontent.

This trend has been further accelerated by the prospect of an end to quantitative easing in the US. This has led investors to reassess, in the short term, their investments in emerging markets and subsequently withdraw capital. This is largely due to the short term challenges in these economies, such as political instability, high inflation, corruption and the need for structural reforms.

India in particular has suffered over the past year as investors have woken up to the realisation that inflation has outstripped growth by 4-5 percentage points, whilst the economy remains unreformed, leading to, amongst other things, aging infrastructure, sclerotic job market, a weak banking sector and a high current account deficit.

Whilst these factors will have an impact on the growth trajectory of these countries, it is also impacting their outsourcing industries.

Most of the emerging economies still provide comparative advantage in wage arbitrage, however this is only diminishing over time as markets mature. Competitors able to offer greater wage arbitrage over established players have entered the market. Nonetheless, whilst economic needs are maturing, the BRIC countries are still supplying outsourced services rather than demanding them. Mature countries are moving up the value chain and are able to compete on quality of service and proposition, rather than just cost. However, it is worth noting that financial services institutions are still located more predominately in high-cost locations compared to their service provider counterparts (see figure 9). There is therefore still opportunities for savings from labour arbitrage.

Overview of key offshore destinations

India: India remains the largest hub of offshored financial services BPO centres in the world and continues to grow, supported by local and international service providers. Large Indian service providers are also attempting to expand into Europe to provide nearshore services in countries like Poland and Bulgaria, with some success. However, in the past few years several alternative offshore destinations have shown strong growth in the market, highlighting that India’s position is far from assured.

“Political stability has increased the attractiveness for outsourcing in several countries amid rising costs in more traditional markets”

China: China has a well-educated workforce and is providing a growing range of services to the global banking community, from a complete IT outsource service from Deutsche Bank to an IBM/Siemens joint venture, to the creation of several shared service centres in regional hubs like Shanghai and Shenzhen. This is only likely to increase as the financial services sector continues to mature and looks for the kind of productive capacity and scale that China can offer.

Philippines: Although it can not compete with India in terms of population size, the Philippines is a popular outsourcing destination. The Economist estimates that BPO revenues totalled $11bn in 2012; around 5% of the country’s GDP. This revenue is created predominately by contact centres, with the English language skills and neutral accent making the labour force an attractive proposition. Representative of this is the decision by many Indian providers, such as Infosys and Wipro to open operations there.

Alternative outsourcing and offshoring locations

Whilst the BRIC nations find themselves further along the outsourcing maturity curve, there are several other emerging candidates for the location of offshored hubs and the provision of outsourced services. These new destinations may provide the catalyst for outsourcing provider growth over the next few years, rather than the established BRIC economies amongst emerging markets. Discussion of two alternative destinations; Sri Lanka and Colombia, can be found in the Features section.

Figure 9. Use of low cost versus high cost locations by financial services institutions and service providers

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Sources: NelsonHall data,Elixirr analysis

Figure 10. GDP growth in the BRIC economies

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Sources: The Economist

BPO Trends Analysis

BPO performance in financial services: Market trends

Financial services BPO market

The global financial services BPO market has continued to recover from the effects of the 2008 financial crisis and European sovereign debt crisis. Growth from 2011 to 2012 was at a four year high at 4.5% (see figure 11).

Figure 11. Global financial services BPO market size 2009-2012, forecast 2013-2016, by domain

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The 2012 average contract value was the lowest for four years, but the number of deals signed increased (see figure 12), suggesting a preference for smaller, more focused deals or more flexible shorter term arrangements than previously. Opinion is split as to whether this reflects risk aversion post-crisis or the greater maturity of financial services companies outsourcing capabilities, leading to more ‘multi-sourcing’ or ‘best-sourcing’ approaches.

Figure 12. Financial services BPO average contract value and number of deals signed 2009-2012

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Sources: NelsonHall data,Elixirr analysis

There are three key factors driving continued BPO growth.

1.Return to growth in financial services, but a continued desire to cut costs

The return to growth is driving the demand for banking back office processes such as payments or securities processing. These highly scalable processes continue to be required by all institutions and demand is directly linked to an increase in transaction volume in the financial services market, with certainty of pricing a secondary driver.

Despite the economic recovery and the return to growth, banks are continuing to look to BPO as a tool to reduce cost. As a result BPO is forecast to grow at the accelerated pace of 5% CAGR 2012- 2016 / 23% total growth (see figure 11).

2. BPO providers must be compliant with new regulations

The increasing complexity of global regulation shows no signs of abating. This is compounded by the on-going public discontent at the financial services industry, driving politicians to ensure criminal sanctions are imposed as a penalty for the failure to meet accountability obligations. As a result financial services institutions will demand more from their vendors. BPO service providers will have to prove they can comply to increasingly complex regulations in order to win and maintain business.

Although accountability will remain with financial institutions, in the medium-term we will continue to see direct interest from regulators in service providers themselves. As traditional organisational boundaries give way to operating models enabled by a number of diverse providers, regulators will deeply probe each and every aspect of the industry value chain.

3. BPO growth continues to be driven by widening scope of activities

Financial services institutions are increasing the scope of activities that they can outsource to enable them to focus on their core customer propositions. There has been strong growth in “non-traditional” areas of outsourcing such as procurement and risk, and in addition traditional ITO services are being bundled into BPO deals using cloud technologies. However, as BPO providers expand their service offerings into non- traditional services, they will increasingly fall under the regulatory spotlight.

“Financial services institutions are increasing the scope of activities that they can outsource to enable them to focus on their core customer propositions”

BPO performance in financial services: By domain


Financial services BPO spend remains dominated by domain-specific processing services (see figure 13).

Figure 13. Financial services BPO market by domain 2012

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Securities processing forms the largest proportion of the key services we analysed (47% in 2012), followed closely by payments processing (34% in 2012, see figure 14). Securities processors are seeing an uplift now that markets are recovering and trade volumes are increasing. Services have become increasingly commoditised and providers are working harder to improve their processes and reduce their own costs. Consequently securities processing is seeing significant consolidation, and the business case for outsourcing has improved. However, this sector is still dominated by the transaction banks, not by traditional ‘outsourcers’. As such large transaction banks are now amongst the top BPO providers (this year Citi, BNY Mellon and State Street ranked 3rd, 5th and 7th by value of deals signed respectively, see BPO contract 2012 snapshot for further details).

Figure 14. Banking BPO market 2009-2012, forecast 2013-2016

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* Note: Core Banking BPO is defined as the outsourcing of core account administration in support of deposit services, client data services (CIF), general ledger services, loan services, and reporting services. However, outsourcing of account administration services in support of mortgage processing, payments processing, securities processing, and channel management services are excluded

The payments space is seeing significant innovation and change, with electronic payment methods (contactless, mobile and online) gaining momentum. The demand for activities servicing credit and debit card customers will continue to increase, driving the case for outsourcing. For example, three of the top ten global banking BPO deals, with a combined value of $245m, were signed with TSYS (by Bank of America, RBS, and BancorpSouth respectively) for services for credit and debit card processing, which also included statement processing, card production, and settlement (see BPO contract 2012 snapshot for further details).

Mortgage processing is showing signs of real-term growth again as the global housing market begins to pick up, led by a recovery in prices in the US (figure 14). The post-mortem following the bursting of the US housing bubble has had a major impact on mortgage processing, focusing significant regulatory attention on this area as governments seek to prevent irresponsible future lending practices.

A swathe of new regulation in this area affects the third parties who are accountable to the institutions that they service (particularly appraisal management companies and title underwriters). Dodd Frank, for example, has instituted unprecedented laws regarding consumer protection which affect not only the relationships between third party providers and their clients, but also the internal processes and controls that they need to implement.


The insurance BPO market returned to growth in 2012, having declined by 3% in 2011 (see figure 11). Growth was driven in part by mega-deals in life and pensions, the top five deals accounting for 24% of the total value of all insurance BPO deals in 2012 (see Appendix for further details). These deals are being driven largely by a desire to minimise the cost of regulatory compliance and capital increases.

Figure 15. Insurance BPO market 2009-2012, forecast 2013-2016

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Outsourcing in Property and Casualty (P&C) processing suffered in 2011 but returned to 4% growth in 2012, and the market is forecast to pick up from 2013 to CAGR 5% between 2013-2016 (see figure 15).

Life insurance BPO has performed well since 2009, growing with 6.0% CAGR over the 4 years, and is also forecasting strong growth at 9.8% CAGR through 2013-16 (see figure 15). Across the market we are seeing insurers increasingly look to service providers to remove complexity from their businesses, allowing them to focus on their core business and prospects for growth in emerging markets.

Life and pensions firms are waking up to the costly burden of policy administration, particularly of “closed books”. This is a key driver behind outsourcing, as the largest deal this year shows. Diligenta, a subsidiary of TCS, will administer 3.2 million Friends Life policies in the UK using the TYSCS BaNCS system. The contract is worth £1.37bn ($2.2bn) over 15 years.

Regulation will continue to be a key driver for outsourcing as demands for increased capital, greater risk management, control systems and governance drive up costs and reduce margins. As a result insurers will continue to look to outsource non-critical and costly support services, though regulators are also turning their attention to the risk borne by outsourcing arrangements may constrain future growth. For example in Hong Kong, the Office of the Commissioner of Insurance (OCI), has recently introduced requirements for insurers to obtain prior approval from the OCI before entering into any outsourcing contract.

Notably, within insurance we continue to see the traditional boundaries of BPO being blurred as insurers outsource further up the value chain; with firms such as Scottish Widows outsourcing large parts of their asset management functions, handing over their assets to third party managers. Currently 6.6% of assets are managed externally but this is forecast to increase to 8.9% by 2017. This highlights how the boundaries of BPO are increasingly being stretched.

Support services

The mainstay of BPO in many industries, support services BPO remains a small fraction of the market in financial services but continues to grow at a significantly higher rate: 5% last year, and with a CAGR of 4.2% between 2009-2012 (see figure 11).

Figure 16. Support services BPO 2009-2012, forecast 2013-2016

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Sources: NelsonHall data,Elixirr analysis

Growth is being driven largely by an increase in three key areas: Customer Management Services (CMS), document management and HR outsourcing which collectively comprise 86% of support services BPO. These are forecast to continue to drive growth up to 2016. CMS outsourcing is being driven by two key factors. The first is increasing pressure on non- branch customer interaction points, as customer services move away from the branch. This has been driven in the UK in part by a growth in complaints regarding PPI mis-selling, which is driving banks to increase capacity. The second factor is an increasing desire to enhance and maximise customer interaction by offering multi- channel support. As a result contracts are broadening in scope as well as size, and CMS is expected to grow by 7% CAGR over the next four years (see figure 16).

HR BPO is now seen as able to deliver reliable savings as well as enhancing existing capabilities to enable better talent management. For example, technology innovation around workforce management will continue to drive growth and increase this sector’s attractiveness. As a result this sector continues to mature and deal sizes are increasing. Growth is expected to continue to remain strong at CAGR 7% over the next four years (see figure 16) and larger deals, such as the $150m deal between Unicredit and HP last year will become more common.

Procurement currently only accounts for a small proportion of support services outsourcing spend. However, it grew rapidly at a CAGR of 13% between 2009-2012 (see figure 16). This is a new area of focus in the post-crisis era, as Procurement Service Providers (PSPs) have matured and overcome some of the early issues seen in the area. Additionally, large financial services clients are looking to procurement outsourcers to provide increased visibility of spending, improved and standardised compliance and reporting standards. For example, in 2013 Zurich signed a contract with Procurian, worth an estimated $150m, to help the insurance group manage and optimise its global procurement. This demonstrates the trend of outsourcing decisions being driven by the expertise and value provided by a bespoke provider, rather than the search for absolute cost savings from an offshore, low-cost provider.

BPO contract 2012 snapshot

Who is selling? BPO vendor snapshot 2012: Top vendors by deal value*

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*Note: Publicly available contracts

Top 5 Banking deals

Rank Buyer Vendor Value Duration (years) Description
1 Citigroup HCL Technologies HCL Technologies $220m 5 years (new contract) Back office processing, customer service management
2 UniCredit HP $150m 15 years (new contract) Payroll, application hosting and management, systems integration
3 Bank of America T-Systems $120m 6 years (new contract) Payment processing
4 Bank of Queensland HP $108m 2 years (extension) Fulfilment, customer management, front-office BPO
5 SunTrust First Data $90m 3 years (renewal) Merchant processing

Top 5 Insurance deals

Rank Buyer Vendor Value Duration (years) Description 1 Friends Life Diligenta $2.2bn 15 years (new contract) Life policy services 2 ING Cognizant $330m 7 years (renewal) Insurance BPO 3 Aegon Serco $263m 10 years (new contract) Life policy services, customer relationship management 4 Large UK Insurance Intermediary Quindell $190m 3 years (new contract) Property and casualty (P&C), claims processing 5 Lincoln Financial Group Capita $168m 15 years (extension) Life policy services

Sources: NelsonHall data,Elixirr analysis

Figure 17. Financial services BPO market size 2009-2012, forecast 2013-2016, by region

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Figure 18. Financial services BPO average contract value and number of deals signed 2009-2012, by region

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Sources: NelsonHall data,Elixirr analysis

BPO performance in financial services: Regional analysis

Global BPO Contract Activity

The total market continued to grow, with the Americas the source of more than 50% of global BPO revenues and EMEA contributing 33% of the market. Asia Pacific BPO was the smallest region at 10%, but continues to see strongest growth of 6% over the last four years. EMEA had the largest average deal value, at around $97m per deal in 2012. While Asia Pacific deals have remained consistently relatively small (average contract value $20m in 2012), we have seen a marked decline in contract value in the Americas – from highs of $74m average in 2010 to $21m in 2012. The overall trend indicates a move towards smaller, more flexible arrangements as part of diverse outsourcing portfolios. All data is potentially affected by extremely large, long-term deals that can skew the average value in any one year.

  Americas BPO Activity EMEA BPO Activity Asia Pacific BPO Activity
Market size $72.9bn $51.1bn $19.2bn
Average contract size $21m $97m $20m
CAGR 2009-2012 2% 5% 6%
  The market for BPO in the Americas showed growth of 6% in 2012. The market shows continued growth, with the forecast showing relatively strong growth of 7% CAGR between 2012-2016. The Americas saw a large leap in the number of deals signed in 2012, but average contract values continued to fall, indicating that a preference for smaller deals is driving growth (see figure 18i). The market returned to good growth last year (7%), an indication that banks are finally recovering from the financial crisis. In contrast to other geographies EMEA average contract values were at a four-year high in 2012, but the number of deals signed continued to fall from a high in 2010 (see figure 18ii). Many of the largest insurance an appetite from the insurance sector to extend the reach of outsourced operating models in their organisations. See our special feature for more in depth analysis. Despite being impacted by the global recession the BPO market in Asia Pacific has outperformed other geographies, with 6% growth (CAGR) over the last four years. The number of new deals being signed is recovering following a four year low in 2011. Average contract values have remained stable between 2011 and 2012. There were several large deals signed in Australia in 2012. For example, EDS has won a two- year contract extension by Bank of Queensland to provide fulfilment for both consumer and business banking.

Sources: NelsonHall data,Elixirr analysis

ITO Trends Analysis

ITO performance in financial services: Market trends

The ITO market: an increasingly blurred definition

The ITO market has been in decline in real terms across all domains, with 1% growth on 2011 total ITO performance and a four year CAGR of -0.2% (see figure 19). In part this is due to a move towards integrated BPO and ITO deals, together with a fast growing cloud services sector, which is blurring traditional definitions of ITO.

Figure 19. Global financial services ITO market size 2009-2012, forecast 2013-2016, by domain

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The traditional ITO market appears increasingly mature, with most potential cost savings realised and prices extremely competitive. The majority of the major financial services institutions have largely outsourced core IT infrastructure, so future business will take the form of renewals and re- tenders rather than net market growth.

The future for ITO “mega-deals” is uncertain, with many companies unsatisfied with the level of service they receive. As with BPO, many businesses are increasingly opting to use smaller, more agile providers to meet their strategic needs. This is starting to be evidenced in retail banking, where institutions are leveraging small, focused providers to deliver online services which are becoming the main channel of customer interaction. As Barclays’ partnership with Tech Hub in Manchester shows, banks are starting to turn to start-ups, rather than their traditional providers, to help them solve their strategic challenges.

Figure 20. Financial services ITO average contract value and number of deals signed 2009-2012

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Sources: NelsonHall data,Elixirr analysis

Cloud services are blurring the definitions of traditional ITO

Cloud computing is allowing providers to offer cutting edge platforms (both software and hardware) without the large upfront capital cost, but in a scalable and usage based form. Gartner has estimated the public cloud services market is worth $131bn in 2013, up 18.5% from last year. Amazon Web Services (AWS) alone, according to Macquarie Capital, earned $3.8bn in 2012.

Many of these cloud deals are not captured as traditional ITO and this is lowering the apparent size and number of contracts signed. MetroBank set a precedent in 2010 when it outsourced its entire IT to NIU Solutions on a “pay as you grow” model, highlighting the value of software as a service which does not require large capital investment to access state of the art technology.

Traditional ITO vendors are now investing in cloud computing to try and capture some of this growing market. This is exemplified by IBM acquiring SoftLayer; a cloud computing firm for $2bn. Whether these established ITO players can successfully transition their existing customers to a cloud solution, or if they will look for a solution elsewhere, is yet to be seen.

Pure ITO will continue to be side-lined by broader outsourcing propositions

A key factor contributing to the apparent absence of growth in the market is the shift towards vertical integration of numerous types of ITO services under a BPO wrapper. As companies look for new ways to drive additional value from outsourcing, they are turning away from pure ITO and entering into innovative solutions, or strategic partnerships that integrate technology with BPO to provide joined-up solutions that span the value chain.

By outsourcing the technology as well as the process, the entire processing cost base can be rationalised. This can also enable companies to avoid large investments in systems development which is important in the current capital- constrained financial services environment where operations and IT have to compete for capital funding with the rest of the business.

Therefore, core enabling services that typically fell into the remit of ITO are increasingly being offered as part of a cohesive end-to-end solution, but under the BPO banner. For example, in 2012 TSYS was awarded a $120m credit card processing contract by Bank of America. Processing was previously carried out in-house on a proprietary system, now however a TSYS platform (TS2) will be used.

We expect to see more BPO contracts that have embedded IT elements over the coming years, with technical elements enabling and automating the business processes.

Source: Gartner, “Forecast Overview: Public Cloud Services, Worldwide, 2001-2016, 4Q12 Update”

ITO performance in financial services: By domain

Infrastructure outsourcing

Infrastructure outsourcing continues to dominate the ITO market in financial services, making up 81% of total spend in 2012 (see figure 21). Growth has remained low over the four previous years at 0.3% CAGR, but is forecast to pick up slightly from 2013, to CAGR 1.6% 2012-2016 (see figure 21), however this still remains below the projected inflation rate.

Figure 21. Financial services ITO market 2009-2012, forecast 2013-2016

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The average value of infrastructure outsourcing deals fell sharply in 2012 (see figure 22i), as a result of fewer “mega-deals” being signed in the market place, although the total number of deals recovered slightly from previous years. However, on average, infrastructure outsourcing deals had larger average contract values than application management outsourcing, and six out of the top ten deals in both banking and insurance this year were for infrastructure outsourcing services (see ITO contract 2012 snapshot for further details).

Figure 22. Financial services ITO average contract value and number of deals signed by domain 2009-2012

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Sources: NelsonHall data,Elixirr analysis

The long-term nature of most infrastructure outsourcing arrangements has contributed to the relatively flat performance of the domain. Additionally, institutions appear to be consolidating infrastructure (reducing overall spend) and are increasingly wary of large, long- term investments.

In contrast to the relatively flat performance of traditional ITO infrastructure deals, we are seeing an increase in cloud solutions being employed in this space. Gartner forecasts that the ‘Infrastructure as a Service’ (IaaS) market showed growth of 42.4% in 2012. The laaS ‘pay as you go’ model can help institutions manage variable usage; particularly at peak demand, however migration costs can be high. The value of ‘big data’ and the insights it can provide for marketing, risk assessment and sales could also prove to be a driving force for IaaS. The popularity of this reflects financial services institutions’ desire to cut their fixed costs in a strategic manner.

Application management and development

Market performance was poor with a 2% decrease from last year, continuing a year-on-year decline in application management outsourcing spend (see figure 21). The number of contracts signed last year also fell, albeit slightly and in line with the broadly static trend of previous years (see figure 22ii). Average contract value rose, as a result of several large contracts in 2012, such as the $350m application management deal CGI signed with National Bank of Canada (see ITO contract 2012 snapshot for further details).

The rise of cloud computing and the importance of developing agile digital strategies is reducing the relevance of traditional application development solutions. For example, ‘Platform as a Service’ (PaaS) is forecasted by Gartner to grow to $1.5bn worldwide in 2013. PaaS could enable financial services firms to increase the speed of application development, enabling them to react more quickly to opportunities at a lower cost.

Despite this trend, service providers will continue to generate revenues in this area due to the importance of quality maintenance for current systems. This was brought into sharp focus after the well-publicised issues with front line systems at RBS in the summer of 2012, which left customers unable to withdraw cash from ATMs or process transactions, and were ultimately blamed on outsourcing application development and management.

Application development is not effectively captured as part of the market analysis as it is often purchased as part of wider project services or spend is with software houses rather than traditional outsourcers. However, the use of third party vendors for application development continues to be a key element of sourcing strategy for financial services firms.

Sources: Gartner, “Forecast Overview: Public Cloud Services, Worldwide, 2001-2016, 4Q12 Update”
Everest Group, “Everest Cloud Connect Enterprise Cloud Adoption Survey 2012-2016”

ITO performance in financial services: Regional analysis

Global ITO Contract Activity

The number of new deals signed in 2012 continues to show signs of decline from the 2009 level (see figure 24). Average contract values have returned to 2009-2010 levels after a noticeable rise in 2011, driven by a number of large transformational deals in EMEA.

Figure 23. Global financial services ITO market size 2009-2012, by region

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Figure 24. Financial services ITO average contract value and number of deals signed by region 2009-2012

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Sources: NelsonHall data,Elixirr analysis

  Americas ITO Activity EMEA ITO Activity Asia Pacific ITO Activity
Market size $16bn $13bn $10bn
Average contract size $158m $67m $95m
CAGR 2009-2012 1% -1% -0.5%
  The Americas followed the global trend of falling ITO deal numbers, with less deals signed in 2012 than previous years. However, the average contract value rose again this year, boosted by several very large insurance deals signed. The largest ITO deal in 2012 was in Latin America, with Caixa bank signing a 10-year contract with CPM Braxis Capgemini in Brazil. Capgemini will become Caixa’s strategic IT services provider helping them to modernise current IT systems (see Appendix for further details.) The absence of any sizeable deals has severely impacted average contract values in 2012. This is in stark contrast with a four year-high in 2011. Furthermore, the number of contracts signed in 2012 continues the downwards trend. Many European financial service providers are recovering slowly, with many banks supported solely by state bail-outs, and are unwilling to embark on expensive infrastructure projects. The Asia Pacific ITO market remains mainly limited to Australia. Other countries in the region do not have sufficiently mature banking sectors, and would struggle to gain favourable labour arbitrage due to the low cost locations they already operate in. Newerbanks in emerging markets do not have the same legacy IT system problems as EMEA and the Americas, nor the same cost pressures that are driving outsourcing elsewhere. The volume of Asia Pacific deals remains small in comparison but has not declined further from 2011, however, average contract value fell by nearly half, reflecting the reduction in the number of large deals signed.

ITO contract 2012 snapshot

Who is selling? ITO vendor snapshot 2012: Top vendors by deal value*

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*Note: Publicly available contracts

Who is buying? ITO major deals snapshot 2012

Top 5 Banking deals

Rank Buyer Vendor Value Duration Description
1 Caixa CPM Braxis Capgemini $1.3bn 10 years (new contract) Multi-scope IT outsourcing
2 Large German Bank Atos $450m 5 years (renewal) Multi-scope infrastructure management
3 National Bank of Canada CGI $350m 5 years (renewal) Application outsourcing & management
4 Postbank Atos $260m 7 years (new contract) Multi-scope infrastructure management
5 UBS HCL Technologies $250m 5 years (new contract) Application outsourcing

Top 5 Insurance deals

Rank Buyer Vendor Value Duration Description
1 Allianz HP $490m 5 years (new contract) Infrastructure management
2 Old Mutual T-Systems $350m 7 years (extension) Multi-scope IT outsourcing
3 Blue Cross Blue Shield of North Carolina Fujitsu $250m 5 years (new contract) Multi-scope infrastructure management
4 Blue Shield of California HP $220m 5 years (renewal) Multi-scope IT outsourcing
5 John Hancock CGI $142m 7 years (renewal) Infrastructure outsourcing

Sources: NelsonHall data,Elixirr analysis

Features Review


The features in this year’s report focus on analysing the impact of external trends in financial services and understanding the knock-on impact these will have in financial services outsourcing.

As with previous years, regulation continues to be a key change driver across the financial services industry, both in terms of the operational limitations it imposes and the cost of compliance. This year we also explore in part the impact increasing customer demands are having on the industry.

1. Regulation

Our first feature examines the structural impact of forthcoming regulation on outsourced support arrangements

2. Outsourcing in the future retail bank

Our second feature looks at how digital disruption in retail banking is changing the way banks think about sourcing and support models

3. Moving up the Value Chain

Our third feature examines how transaction banks are well placed to meet the demands of investment banks for more holistic and transformative solutions

4. Challenging times for the Life and Pensions industry

Our fourth feature focuses on how margin pressures in the insurance industry driven by aging infrastructure and regulatory capital demands are behind a new wave of outsourcing

5. New destinations for outsourcing

Our final feature explores offshore destinations that could deliver furthercost savings, focusing on Sri Lanka and Colombia as possible alternatives to traditional outsourcing destinations such as India and Brazil

The changing face of regulation

Oversight of outsourced services is increasing

Increasing pressure from politicians

The various components of an outsourcing regulatory framework make it clear that the ultimate accountability for the business process lies with the client organisation rather than the service provider. As accountability cannot be abdicated to a third party, putting in place appropriate governance procedures is key in order to retain control over outsourced functions.

Whilst the spectre of individual criminal liability is looming over financial services, it is a well established principle in outsourced services across other industries. Whilst BP is inextricably linked with the Deepwater Horizon incident, they did not own or operate the rig. Despite this, their lack of control over the two outsourced service providers ensured their fines were roughly double those of the organisations that actually operated the rig. Litigation is likely to persist over the next twenty years and damages may reach $20bn; this exacerbates the exceptional reputational damage that has already been done to BP.

“Recent banking failures and the introduction of more stringent regulation have emphasised the importance of clear oversight and control over outsourced processes”

New referee – new rules

The financial services industry in the United Kingdom is dual-regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) after the dissolution of the FSA in April 2013. Importantly, this system of dual regulation extends to outsourcing arrangements.

Specific FCA and PRA rules on outsourcing are found in the Senior Management Arrangements, Systems and Controls (SYSC) handbook. There are specific requirements in relation to the outsourcing of critical or important functions; a function is deemed to be critical or important if a failure in this area would affect the firm’s financial performance and ability to comply with regulatory obligations.

SYSC rules impose requirements on, amongst other things:

  • The due diligence to be undertaken in relation to a proposed supplier
  • The outsourcing contractual terms
  • The basis on which the regulated firm should supervise the outsourced functions and manage the risk of the outsourcing

Whilst there have been regulatory requirements for outsourcing for the past six years, it is particularly relevant in light of recent political developments. The publication of “Changing Banking for Good”, the Final Report released by the Parliamentary Committee on Banking Standards and the FCA Risk Outlook for 2013, have brought the issue of individual and criminal liability into sharp focus.

The importance of control

Regulators continue to challenge institutions to drive ever-greater levels of compliance, whilst institutions strive to return to levels of commercial performance that existed pre-financial crisis. HSBC’s $1.9bn fines for Anti-Money Laundering weaknesses in Mexico at the end of 2012 also highlight the severe potential consequences of weak or ineffective control over local entities.

The current regulatory environment continues to evolve. The imminent implementation of AIFMD is concerning the buy-side; MiFID II is occupying sell-side participants; Solvency II, despite continued delays in its implementation, is still affecting the insurance industry. Substantially increased capital requirements are also enduring. As new regulations are introduced, the increased costs borne by the financial services industry, together with persistently difficult market conditions, make outsourcing of non-critical functions an attractive proposition.

However, this regulatory process, together with the drive towards criminal sanctions against organisations or individuals that breach regulations, highlights the need for financial services institutions to professionalise and standardise control frameworks around third-party arrangements, in the same way as it has been done with their own operations.

Regulatory impact on support models

Because of the global reach of regulation, it is more helpful to look at key themes and their impacts on outsourcing or support services arrangements, rather than scrutinising individual regulations on a case-by-case basis.

Theme Detail Implication for outsourcing and support models
Global regulation provides leading players with a singular focus Although any given regulatory compliance is still rooted in the local jurisdiction of the principal booking entity, some of the largest banks are responding to complex global entity structures by raising internal compliance targets to the highest standard, in many cases above the level of stringency of local requirements, in order to avoid any unintended consequences of executing business plans New deals, renewals and extensions to existing outsourcing deals will come under a greater level of scrutiny for alignment with internal policies and procedures as institutions survey their global supplier landscape
Strengthening client validation measures When the key priorities of institutions are assessed, regulations which mandate the need for an enhanced understanding of their customers are amongst the most important Key measures include: know your customer, anti-money laundering, anti-bribery & corruption All of these measures share the same feature, which is a significant increase in operational overhead and reporting requirements in the interests of understanding institutions’ customers fully and sustainably to prevent against criminal and terrorist financial activity Transactional legal services providers are well placed to be able to offer a differentiated proposition in this area Institutions could possibly pool resources to create industry utilities, retaining cost and expertise within the financial services industry
Capital adequacy and liquidity RoE continues to rebound, albeit slowly Some commentators have predicted that the trilateral regulatory strengthening at global, US and EU levels would eventually drive fracturing and regionalisation JP Morgan and Oliver Wyman have taken the stance that regulation is at its most aggressive in the EU and as a result it is likely that fragmentation will accelerate Institutions will be seen turning to service providers to support improved financial management of their businesses. For example, enhancing the effectiveness and decreasing the cost of intra-day liquidity management buffer charges
Credit mitigation Sell side institutions are required to maintain enough liquid assets, net of any liabilities, to ensure the settlement of all scheduled liabilities in the event of their own failure and liquidation Institutions will reflect on the requirement to preserve core business and release non-value adding services which to date have not been seen as candidates for outsourcing e.g. derivatives post trade processing

Clearly the greater regulatory burden on financial services institutions is driving firms to find innovative ways of cutting costs whilst increasing or preserving service quality. While outsourcing is clearly continuing to drive efficiencies for financial services institutions, the increasing scope and depth of regulation is also compelling buyers to implement improved governance and control frameworks around outsourcing arrangements.

Outsourcing in retail banking: Evolution and revolution

Evolution: Commoditised back office processing and support functions will remain the mainstay of outsourcing in retail banking

Following the core messages of our report, it is clear that outsourced service provision remains a key part of banks’ sourcing models. Our outlook for many elements of outsourcing in retail banking are not expected to change in the immediate future, in particular:

  • Highly repeatable, commoditised back office processes, for example core banking systems and payment processing (making up the largest group of retail banking BPO outsourcing contracts signed this year, and forecast to grow with 5% CAGR over the next four years, see figure 14). This also includes other discrete services, for example cash handling, card production and cheque handling amongst others.
  • Non-core, and non-specific functions, such as IT desktop support, printing, document storage, and security, will remain potential areas of outsourcing where there is a strong cost saving potential. Higher value services are seeing more pronounced growth as retail banks seek greater value for money across the business, for example procurement and HR outsourced solutions (see figure 16).

Technological innovation, as well as increased regulation and reduced margins, are putting pressure on transactional services in banks. But changes are likely to be gradual and evolutionary, and will remain commoditised and cost driven. Service is still likely to be provided by outsourcing, through offshoring to a lower cost location, or as part of a shared service environment.

Some of the key sourcing changes we are seeing include a growing market for innovative IT outsourcing, including mobile and digital. Providing the back office capabilities to process these new forms of transactions and new products will require some changes to current outsourcing provision, and banks are looking at current ITO deals and expecting greater flexibility to support this going forward. In part the move towards greater flexibility is being driven by greater appetite in the industry around cloud solutions.

Revolution: Digital transformation is driving key changes to the retail banking customer engagement model

The retail banking industry is undergoing rapid change, with customer interaction shifting from physical channels to digital channels, and alternative payment methods (online, mobile and contactless) changing the way that customers transact. The core customer facing elements of the business are required to evolve rapidly to fill a widening gap between customer expectations and the service they are able to provide. Furthermore some elements of the bank are increasing in importance as customer preferences evolve (such as online or contact centre), while other areas are seeing reduced usage (branch network). As such banks are rethinking their support model to ensure that the best service is being delivered to their customers through new multichannel environment. Services such as IT and digital technology may be retained in house due to their new importance but, equally, strategic use of third parties can provide equal or better service and expertise. Some banks are rethinking their support model entirely to enable them to focus on core differentiators and customer service elements only, and allowing far more transactional elements to be handled by other providers.

Over the following pages we will explore how digital innovation is changing how customers engage with their banks, and the impact on sourcing and outsourcing models.

A new customer engagement model in retail banking

Other industries have already experienced the drive towards digital and this has led to increased retail banking customer expectation

Over the last decade, industries such as retail, media, advertising and travel, along with many others, have felt the impact of digitalisation. Customer expectations in retail banking are being set by the increasingly positive experiences with in these industries.

Retail banking is rapidly changing, driven by digital transformation and customer demand

We see three fundamental shifts taking place in the retail banking sector, driven by customer demand and digital challenger brands:

  • The way in which customers interact with their banks is shifting from physical channels to digital channels: In the not-too- distant future, one can envisage that the majority of bank customers in developed economies will carry out their banking needs almost exclusively via their mobile phones, or other personal device. Gartner concur with this observation and predict that 50% of all bank customers will use mobile banking as their primary channel by 2016. Juniper Research similarly forecast that over 1 billion mobile phone users will use mobile banking by 2017, compared to just over 590 million users in 2013. Banks need to develop coherent banking applications and services across all their channels, while at the same time optimising the existing branch network to reduce the number of under-utilised branches.
  • Better service is being demanded across all channels: Typically retail customers are not looking for complex banking products – they are looking for simple solutions that support their desired banking objectives. This offers an opportunity for disruptive organisations, who are able to provide more focused solutions to customer needs (for example PayPal, Square, Google Wallet and m-pesa in Africa). The onus is now on banks to simplify their portfolio of products and services, not only to ensure they are understandable, but also to ensure that they meet customers’ specific needs. Banks need to integrate their services to support improved, “multi-channel” customer experiences, across all channels including branches, contact centres, online, mobile and ATMs. Additionally, it is also clear that in the future multi-channel in itself is only a stepping stone towards “omni-channel”, where customer interactions are truly integrated across channels and an interaction started on an application has the potential to be completed online or on through a contact centre
  • Better analytics and use of big data to drive more customer-centric service: Customer analytics functions are being established to seek actionable insights from big data. In the future real-time analytics will be used to understand and respond to specific customer objectives, allowing banks to innovate around lifestyle events, such as shopping, travel and entertainment, as well as customer lifetime events, such as university enrolment, new employment, buying a house and retirement. It is through these experiences that customers can truly derive value from their banking provider, and this advice should be offered via any and all available channels – including contact centres, mobile, ATMs, social media and potentially branches. In fact, within the next decade, banking advisory may be entirely replaced by algorithms; a digital platform, with access to customer data, market data and financial algorithms, could be able to provide financial advice to customers.

Emerging disruption in financial services

In recent years, the industry has seen the emergence of disruptive business models at the fringes of Financial Services. Companies such as Wonga, who provide instant, short-term loans over the internet, and Kickstarter, who provide a crowd- funding platform, are redefining traditional approaches to financial services.

Additionally, we have seen new entrants to the banking industry such as Metro Bank, Britain’s first new bank in over 100 years, who operate a small number of branches but differentiate with their internet and telephone banking services. Metro makes heavy use of outsourcing providers to allow them to focus on customer experience, and not on supporting a core banking platform.

The changing face of customer interaction

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Change in customer expectation

The digitalisation of retail banking has a profound effect on customer management. For many years, customer expectations of channels, particularly the indirect banking channels, were largely met. Due to customers’ experiences in other industries, a step-change in expectations has placed banks in a position whereby their quality of service provision does not currently meet customer expectations.

Customers demand more innovative and convenient methods of banking, with expectations being driven by other industries. Customers expect to be able to access their bank anytime, anywhere, through a multitude of channels, and are moving away from some channels such as branch.

This sector-wide gap between what customers expect and what the sector can offer, is why there is such a competitive focus on digital; closing this gap, before competitors do so, is a strategic imperative. The question is, what role does outsourcing play?

Sourcing and business models

Increasingly, new channels are becoming more strategically important, and with new channels, different areas and services within the business are moving into customer-facing roles. Some of these areas of the bank would have previously been considered part of the “back office”. So whatever sourcing decision is taken, banks are looking for best-in-class solutions, whether that means outsourcing, specialist suppliers, or retaining (or moving) in-house.

In all, we expect new, innovative banking business and operating models to emerge over the next two to five years. Progressive retail banks, as well as disruptive entrants, will seek differentiation and growth via digital means. As a consequence of such competition, we are likely to witness profound structural changes in the retail banking sector.

This will mean radical change to banks’ operating models and sourcing strategies.

Changing retail banking outsourcing models

Outsourcing services in the two sides of a bank, customer-facing and transactional, are being affected by the changes in the retail banking landscape in very different ways. Throughout this report we have laid out how traditional BPO and ITO providers are moving into higher value service provision in order to provide specific skills, flexibility and expertise, while also continuing to deliver reduced costs as banks feel the pressure of reduced margins and increasing stringent regulation. In retail banking we are seeing this trend continue. The transactional segments of the retail bank will continue to seek low cost solutions to its back office processes. The customer facing elements of retail banks are struggling to match service expectations, so are experiencing some unique sourcing challenges. We see several key possible solutions and trends emerging:

  1. Improve customer service through regaining control of customer service channels: In the short-term, with rising customer expectations of direct channels, banks are recognising the value of traditional retail banking channel capabilities, such as contact centre services. As such, the lowest cost option (potentially outsourced or offshore) may not be delivering acceptable customer service. For example, Santander moved its UK call centre back from India in 2011 in an attempt to boost customer service. Across channels, including some previously not regarded as customer facing, we will see a trend towards insourcing of functions, or use of strategic outsourcing to high-quality, specialist firms who will likely shirk antiquated metrics (such as average handing time in call centres) in favour of superior customer experience.
  2. Outsource more, or the whole of, the transactional elements of the bank to focus on customer service: Being a ‘custodian of customers’ is critical for competition, and hence should be the bank’s core focus. Many banks are divesting control of the operational elements of the bank in order to focus on the customer facing elements. Metro Bank in the UK has outsourced the majority of its back office activities/operations to a selected few outsourcing providers.
  3. Alternatively, if customer management is not a core strength of a bank, use outsourced providers to deliver personalised customer service: In the extreme, “outsourcing of customer relationships” may appear like a radical departure from banks’ historical strategies. However, for many banks, burdened with legacy technologies and constraining organisational silos, retaining relevance in the digital economy may require exactly such a radical decision. Should a retail bank seek an outsourcing partner for a customer facing role, the nature of the outsourcing deal would need to be heavily value-oriented and focused on closing the customer experience gap. We expect that there will be an increase in such partnerships and outsourcing arrangements in the future, and we have already begun to see examples such as, an American startup bank who have formed an innovative partnership with Bancorp. To Bancorp, the impact of this is to remain a “custodian of transactions”, and allow to focus on the customer management, an area that plays more readily to their strengths.
  4. Use outsourcers to fast-track innovative solutions and technologies that retail banks may not have the capability or resources to deliver: Some providers are increasingly opting to use smaller, more agile providers to meet their digital needs. This is particularly the case in retail banking where online services are becoming the main channel of customer interactions. As Barclays’ partnership with Tech Hub in Manchester shows, banks are turning to start- ups to help them solve strategic challenges. However, careful management of suppliers is required for banks seeking to achieve a consistent “omni-channel” customer experience, as using a larger number of small suppliers can cause unwanted integration requirements.

Future of outsourcing in retail banking

Retail banks moving forward

The digitisation of retail banking presents profound opportunities, but also challenges, to banks. A new set of technology tools and a changed customer mindset are potential sources of business inspiration. However, to monetise any inspiration, banks need to:

  • Define a common vision of how digital will change the bank
  • Innovate around customer objectives, not banking products
  • Transform the operating model to instil new capabilities and customer objectives at the heart of the organisation
  • Focus on certain crucial capabilities and initiatives – ‘Custodian of customers’? ‘Custodian of transactions’?
  • Source appropriately to ensure that the best suppliers are working with you. In particular banks will need robust sourcing and vendor management processes to ensure that they can choose the best suppliers and get the most value from their selection, given that ranking suppliers by lowest cost will not necessarily be the best approach to access the new skills and capabilities required.

From vendor to partner

It is within this transformational context that future outsourcing opportunities will be shaped. As banks, and disruptive start-ups, form new business models that deploy the power of digital technology, they will look to outsourcing providers and partner organisations to enable increased focus. These dynamics will create a raft of new opportunities, beyond the more traditional areas of retail banking outsourcing. In turn, to keep step with the digitalisation of retail banking, outsourcing providers will also have to innovate within their own capabilities and business models.

Moving up the value chain

The leveraging of transaction banks

As with other areas of financial services, outsourcing in corporate and investment banking has historically focused on the “low hanging fruit” of cost and headcount reduction. The industry is now moving beyond labour arbitrage opportunities to the creation and leveraging of utilities for processes and technology. This is driven by the changing appetite of investment banks who are increasingly looking for holistic solutions to their challenges from within the industry rather than piecemeal product-based approaches to remedying their cost issues. There is a substantial need in the industry to variablise cost. Pressure on margins is leading firms to reassess the need for large fixed cost infrastructure, particularly in an environment with the potential for highly volatile volumes.

There are recent examples of investment banks looking to outsource their entire operations function, extending far beyond the third party clearing and custody that many already outsource to transaction banks. This presents a strategic opportunity for transaction banks to broaden their remit beyond the traditional custody and clearing market, and to increase their client “stickiness” and resultant wallet share.

The benefits of this are threefold:

1. Outsourcing revenue is less volatile than traditional revenue streams. This is the case particularly for new entrants in the market who are more accustomed to making money across capital markets. Analysts place greater value on sustainable, repeatable sources of long-term revenue, with the associated positive impact on market value. Assessment of forecasts of the growth in securities processing (see figure 25), a mainstay of ‘bank on bank’ outsourcing underlines this position.

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Figure 25. Actual and forecast securities processing outsourcing performance 2009-2016

2. There is an increasing acknowledgement that, with EMIR and AIFMD regulations approaching, transaction banks’ traditional strengths in custody, administration and processing creates additional opportunities to service both the buy-side and sell-side. The changing market in derivatives, driven by increased transparency and regulation, is pushing market participants towards outsourcing their emerging trade processing requirements. Increased regulation on the buy-side is also drawing new participants into the collateral management process, creating a potential market squeeze for eligible collateral. Transaction banks with large amounts of custody assets have an easily accessible pool of high quality collateral, leaving them well placed to benefit from the current regulatory environment and the increased pressure on high quality collateral that greater central clearing is likely to cause.

“Providing outsourced services to other financial services institutions can deliver further revenue streams to those who capitalise on the trend”

3. Outsourcing is still an extremely profitable enterprise. Whilst the classic BPO model can provide profit margins of around 10%-20%, the incremental clearing, custody and settlement fees that transaction banks may be willing to provide to anyone with the wherewithal to package a single solution, makes this even more lucrative.

Banks with the capability to provide outsourced services to other banks – even their own competitors, who may wish to focus on other core areas of the trading and settlement value chain – can profit from the trend toward transformational solutions. However, if these banks do not capitalise on this trend, organisations that have not traditionally operated in this space may do.

The market for service providers is changing

Transaction banks are increasingly looking to exploit their existing custody and clearing client relationships when creating a holistic solution that extends beyond these traditionally outsourced processes. This is increasing competitive pressures on the transaction banking community, as those who are able to package a complete processing solution are likely to pick up the incremental clearing and custody business. Exacerbating these pressures, several third party service providers and technology solutions organisations are looking into the opportunity of providing these services and some have been successful in completing large, potentially industry changing deals. In response to the threat of competitors capturing market share, transaction banks need to determine which part of the spectrum of outsourced services they want to focus on.

Securities services outsourcing of post-trade processes is a well established market with a myriad of different service offerings from simple settlement and custody solutions through to traditional Model B clearing (see figure 26). Securities Processing accounted for nearly half (47%) of the Banking BPO market in 2012.

Figure 26. Examples of securities services outsourcing models

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However, the market is being shaken up by non- banks who, through technological innovation partnerships, find themselves able to provide the kind of services that the market is demanding.

In response to service providers like Accenture and Broadridge moving into securities processing (see figure 27), large transaction banks are also developing their offerings. The dynamics of the market for securities processing will shift with the entry of these new competitors, and transaction banks will be forced to act more like professional services firms. As a result this will increasingly lead to transaction banks focusing on efficiency, standardisation and technology rather than their historic emphasis on product-specific expertise and relationships.

An interesting twist on some of the more standard offerings in this space is demonstrated by the development of account operating models by various transaction banks in Asia. Here, a bank’s clients remain direct members of the central securities depository in their jurisdiction; however, the bank operates on their behalf rather than taking on the trade themselves.

Figure 27. Accenture post-trade processing deal

  • Accenture and Broadridge have created Accenture Post-Trade Processing, a Joint Venture exploiting Accenture’s traditional strength in BPO and Broadridge’s post-trade technology expertise.
  • They have signed up Societe Generale’s Corporate and Investment Bank as their first client and will insource their Back Office securities function, covering 50 markets. The financial terms of the agreement have not been disclosed.

Whilst there is innovation on the securities side, the increased financial and regulatory burden of operating in the derivatives sector should push more sell-side organisations into outsourcing post- trade processes to third party service providers. Indeed, the fundamental operating model of an investment bank may well only encompass execution and advisory in future, with their back office functions outsourced to whomever represents best value for money. For example, two major Swiss banks have released Request for Proposals (RFPs) for organisations to take on their global securities processing architecture.

Despite the positive picture painted by the development of new industry utilities and service offerings, there are some questions. It remains to be seen whether the sell-side is truly prepared to give up such a substantial portion of control over their back office processing, given the increased accountability but diminished control created by recent regulation over outsourced services. Similarly, it is open to debate how ready transaction banks are to actually service these needs in the short to medium-term.

“The increasing industry appetite for back office outsourcing is leading to a growing convergence of service providers with new service models”

Challenging times

In the Life and Pensions industry

A challenging environment

In an increasingly challenging market, we believe that now is a critical time for life and pensions firms. In order to protect and grow their bottom line they need to innovate and meet both internal and external forces head-on. Recent news of Old Mutual-Skandia’s commitment to a new 20 year (BPO) deal with IFDS (the State Street-DST Systems joint venture) indicates substantial confidence in the long-term ability of outsourced solutions to support their business and drive substantial cost efficiencies. On top of last year’s $2.2bn mega-deal between FriendsLife and Diligenta, this may be a sign that the life insurance and pensions market is set to see increased outsourcing activity.

Although many life and pensions firms were less impacted by the 2008 recession than other financial services companies, a number of internal and external forces have resulted in a challenging environment within which the industry needs to operate (see figure 28).

Figure 28. Drivers for a new approach

External Internal
Tightening regulation Inappropriate operating models
More demanding customers Information breakthrough
Results in decreasing margins

External forces

1. Regulation

Pending regulation, such as Solvency II in the UK, has forced insurance organisations to invest heavily in new IT and operating processes to provide the necessary controls and transparency.

2. More demanding customers

As in other industries, the introduction of new technologies, such as internet self-service, price comparison and social networking has raised demands of customer service. Customers are empowered by the wealth of information available, and are increasingly using their knowledge of the market to drive negotiations in the sales process.

Internal forces

1. Inappropriate operating models

Life and pensions firms are largely constrained by inefficient operating models and legacy systems, required to support their closed books long into the future. These portfolios are commonly outsourced to allow the firm to focus on core business requirements.

2. Information breakthrough

High-quality data is being supplemented with large quantities of unstructured profiling data from sources such as social media. Insurers will increasingly need to use advanced analytics and IT systems to know their customer, to better serve and to sell.

Decreasing margins

As the factors described combine, the industry as a whole finds itself squeezed at both ends. With capital requirements being further challenged by regulators and an increasingly tough market, both in terms of customer demands and industry competition, large firms in the industry are beginning to look again to outsourcing. A key driver is the desire to remove the costly administration burden of aging closed book policies in addition to unlocking capital. On the following page we begin to describe how these factors manifest themselves in the context of historical trends in the life and pensions BPO industry.

A changing approach to outsourcing

Early BPO in Life and Pensions

During the early 2000s we saw the first phase of early outsourcing deals in the life and pensions sector focusing around the offloading and aggregation of so called “zombie” funds to BPO providers. It was in this arena that firms such as Phoenix Life, Capita and Resolution found success. Policies transferred to providers were mature policies: premiums were being collected and very little real client interaction was required. Outsourcers, unencumbered by the large and expensive “parachute” of processing and support services, therefore had tremendous ability to strip away administration costs and build strong business cases for taking on these policies.

The new shape of deals

We believe that we are beginning to see a new phase of outsourcing in the sector. In the wake of the financial crisis, life and pensions firms are regrouping and waking up to the complex and costly burden of policy administration costs that they carry, both for their legacy books as well as their new business. In order to focus on management of their assets, where the largest potential for profit in the industry lies, firms like BNP Paribas Cardif are leading the way to get these functions off their hands. In parallel, regulation in the industry is creating increasingly large pressure on capital requirements, leading firms to explore alternative ways to unlock capital from their businesses.

Most interestingly; in continental Europe, where regulators are more averse to outsourcing than in the UK, we foresee increasing industry and regulatory discussion around regulator reluctance to outsourcing. As capital requirements tighten, business’ desire to release capital and improve their P&Ls through offloading costly administration functions will only increase. Where the regulators will strike the balance, and the subsequent consequences on the outsourcing market, are yet to be seen.

Examples of some large outsourcing deals in the sector are described below:

$2.2bn 15 years New contract
Diligenta were last year awarded a contract with FriendsLife to provide administration for 3.2m policies. Policies include much of both the closed book protection business and the corporate benefits business.
Undisclosed 20 years New contract
Skandia and IFDS agreed a 20 year deal in Q3 2013 to outsource a number of its policy administration functions, starting in 2016.

In focus: Sri Lanka

Sri Lanka is becoming a favoured outsourcing location, rising up to rank 21st in the 2011 AT Kearney Global Services Location Index. With the ending of the civil war comes the opportunity to become a leading destination.

  India Sri Lanka
Ease of doing Business (rank) 132 81
Construction Permits (rank of ease) 182 112
Getting Electricity (average time for connection) 105 days 103 days
Labour Tax (%) 18.2% 16.9%
Enforcing contracts (rank of ease) 184 133
Recovery rate after Insolvency (% returned) 44% 26%
Literacy 62.8% 91.2%
University Education (people currently in tertiary education) 20,740,000 232,300
Junior BPO resource salary as % of US salary 10% 6.5 %

Source: Doing Business Rankings, UNESCO, CIA Factbook, SourcingLine Top Outsourcing Destinations


Sri Lanka offers significant labour savings compared to India and ranks well for ease of doing business. The island also has strengths in a number of more specialised services that outsourcing providers are well placed to deliver. For example, there is a wide finance and accounting outsourcing capability due to a readily available supply of chartered accountants trained on the same accounting standards used in the UK, in addition to strong analytics capabilities.

The government of Sri Lanka appears to have recognised that they do not offer the scale advantage of countries such as India and the Philippines, and as such is targeting key areas for growth in outsourcing, mainly centered around capabilities in IT including software development, training and IT enabled services. They also have a young but emerging KPO industry, driven by firms such as HSBC and WNS who have established a local presence. The government is currently offering significant tax and duty incentives, including tax holidays of 4-12 years, which are likely to contribute further to the growth of outsourcing providers on the island.


Infrastructure in Sri Lanka is often expensive and of low quality. Although property prices can be lower than in India, telephone charges are significantly higher and electricity tariffs charged to businesses are inflated to subsidise the general population. High speed broadband internet access also remains limited.

Additionally, the smaller population means large companies will be unable to achieve savings from scale. This is exacerbated by continued low rates of tertiary education (~10%-12%) and the lack of English speakers (~10%), particularly outside Colombo.


Several multi-nationals already have centres in Sri Lanka, including HSBC, who expanded their network of group service centres into Colombo in 2004, and WNS who use Sri Lanka as a base from which to deliver voice and multilingual voice support. There are also several established local providers such as BPO firm Hellocorp.

In focus: Colombia

Colombia is beginning to follow more established players such as Mexico and Chile to become a rising star of the outsourcing industry in South America. With North America the largest buyer of outsourcing services the Colombian government can see the potential economic opportunity and are strongly supporting the outsourcing and offshoring industry with various government schemes.

  Brazil Colombia
Ease of doing Business (rank) 130 45
Construction Permits (rank of ease) 131 27
Getting Electricity (average time for connection) 165 days 57 days
Labour Tax (%) 40.8% 18.2%
Enforcing contracts (rank of ease) 116 154
Recovery rate after Insolvency (% returned) 16% 76%
Literacy % 90.4% 93.6%
University Education (currently in tertiary education) 6,929,000 1,849,000

Source: Doing Business Rankings, UNESCO, CIA Factbook, SourcingLine Top Outsourcing Destinations


Despite its reputation for drug-fuelled conflict, Colombia has made significant steps to stability in recent years. The capital Bogotá has reduced its homicide rate by nearly 80% in the last ten years to become one of the safest urban areas in Latin America. Resuming in November 2012, peace talks between FARC rebels and the government promise to allow Colombia to fulfil its economic potential. However, the government will have to proactively challenge the world’s perception of Colombia and further encourage foreign investment.

The stabilisation of the political landscape is improving business in Colombia, ranking 45th worldwide in the World Bank’s ‘Doing Business’ rankings in 2013. Colombia has a well-enforced regulatory environment, particularly in financial services and also scored particularly highly for ‘protecting investors’, placing 1st in Latin America and 6th worldwide. For example, legal stability contracts are in place to protect investors. The government also offers generous tax incentives to encourage foreign investment, such as free trade zones.

Colombia has secured loans from the Inter- American Development Bank to develop their outsourcing and offshoring sector. The government has also set up free trade zones for BPO facilities to further incentivise the industry.


A challenge faced by Colombia in developing its reputation in outsourcing is the low percentage of English speakers. The government has implemented initiatives aiming to address this, such as the ‘National Programme for Bilingualism 2004-2019’, however the success of these programmes has been questioned. Nonetheless, there is a strong opportunity for Colombia to provide contact centre services for Spanish speakers from the US, Europe and the rest of Latin America.

Compared to other South American markets Colombia is less well developed, with fewer highly skilled workers. The Colombian outsourcing and offshoring market, as yet, has failed to attract the same high value BPO or ITO activities that Brazil or other South American countries provide, and the majority of current operators are providing call centre services.


There are a number of companies that operate in Colombia, for example CitiGroup, Siemens, Tata, Hewlett Packard (who run a BPO centre in Medellin which handles group back office) and Kimberly Clark (who operate their Global Innovation Centre from the country).



At the beginning of our report we asked ‘What next for the financial services support model?’ The answer is both complex and uncertain.

It is clear that service providers continue to drive substantial cost efficiencies in both ITO and BPO for the financial services industry, and as such we can expect to see a continued stream of high- value deals being agreed between the largest financial services institutions and multi-tower outsourcing firms. We believe that as the market matures we will see a new wave of deals coming through, as firms regroup following the financial crisis and can focus on tackling the cost burden of legacy systems and support processes. As a result we expect to see outsourcing moving deeper into core banking processes.

While the full impact of regulation is yet to be articulated across the board, it is certain to continue to place pressure on capital requirements across the sector. This will contribute further to the already existent pressure on margins and drive firms to approach outsourcing, both as a means to improve their balance sheets and to release capital. Finally, in the long-term it is clear that the financial services sector is changing. Firms are increasingly aware of the pressure that disruption places on their business models, and are waking up to the fact that the digital economy and a world of connected consumers have been built around them. Driven by what they are capable of doing through self-service channels in other industries, these consumers are demanding more of their financial services providers, and firms will need to innovate to catch up.

It is uncertain what shape outsourcing will take in this context. As previously back-office functions such as IT become core business competencies, we may see businesses looking to take greater control of the service and either bring it back in-house, or outsource to truly specialist providers who bring competitive advantage rather than lowest cost commodity service. Conversely, those processing activities once deemed core to financial institutions are increasingly seen as commodities.

In summary, ‘traditional’ definitions of outsourcing (ITO, BPO etc.) are becoming outdated and miss the diversification of offerings and providers, making generic market trend analysis increasingly difficult. What does seem certain is that as financial services institutions work through the long-term disruption to traditional business models as a legacy of the financial crisis, outsourcing services will continue to grow, evolve and play a strategic role in supporting the industry transformation.

Appendix: Top ten banking BPO deals 2012

The banking BPO market continues to be dominated by a small number of very large deals

$220m 5 years New contract Back office processing, customer service management
HCL will provide back-end processes for loans, financial products and customer service for Citi HCL will employ approximately 800 personnel for the contract
$150m 15 years New contract Payroll, application hosting and mgmt, systems integration
HP has been awarded a 15-year payroll and IT outsourcing contract by UniCredit Services provided include payroll services and application transformation to support migration to SAP The contract will delivered via a jointly owned company called ES Shared Service Center SpA
$120m 6 years New contract Payment processing
TSYS has been awarded a credit card processing contract by Bank of America The retail portfolio will now be processed on TSYS’ platform, TS2 Processing was previously in-house on Bank of America’s proprietary system TSYS also processes the commercial credit card portfolio
$108m 2 years Extension Fulfilment, customer management services, front-office BPO
EDS has been awarded a 2-year contract extension by Bank of Queensland They will provide fulfilment for both consumer and business banking IT infrastructure management and application management services will also be provided
$90m 3 years Renewal Merchant processing
The contract is operated under a joint venture between the two entities The contract services 67,000 merchant locations and processes $29bn in card volume each year Services to be provided by First Data include payment processing, risk management and merchant sales activities
$75m 5 years Renewal Payments processing
The contract covers RBS’ UK, Irish and US consumer credit and commercial card businesses Services provided include: statement processing, card embossing, accounting and settlement, fraud prevention, member service, collection operating systems, correspondence and risk mitigation
$60m 3 years Renewal Securities processing
State Street has been awarded a custody contract by QSuper, a retirement fund in Australia with $32bn in assets Services provided include: custody, unit pricing, compliance monitoring, alternative asset reporting, tax and accounting services
$50m 10 years New contract Securities processing
BNY Mellon has been awarded a 10-year fund accounting contract by Thomas Miller Investment, an investment manager with $4bn in assets under management Services to be provided include: custody, fund accounting, fund administration and transfer agency
$50m 5 years New contract Payments processing
Degussa will migrate to TSYS’ TS2 processing platform in early 2012 Services to be provided include: credit & debit card processing, platform implementation, payment processing, statement processing, accounting and settlement, fraud prevention, collection operating systems and risk mitigation
$40m 8 years Renewal & Expansion Multi-process HR outsourcing
Services provided include: payroll, workforce administration, recruitment services and compensation administration

The business case for outsourcing back office processing remains strong, particularly in payments and securities processing

Appendix: Top ten insurance BPO deals 2012

Long-term insurance firms remain prominent in the top deals list, this year dominated by the $2.2bn Friends Life deal

$2.2bn 15 years New contract Life policy services
Diligenta has been awarded a contract with Friends Life to provide administration for 3.2m policies. Policies include much of both the closed book protection business and the corporate benefits business. Approximately 1,900 Friends Life employees will transfer to Diligenta
$330m 7 years Renewal Insurance business process services
Cognizant is to extend its services to include insurance BPO Cognizant previously provided specific technology systems management to ING U.S Cognizant is to take over 1,000 ING personnel and two centres
$263m 10 years New contract Life policy services & customer relationship management
The services to be supplied by Serco include: initial underwriting through to claims management for the AEGON Individual Protection (AIP) suite, and policy servicing and claims for some small ‘closed books‘. The contract involves the transfer of 330 personnel
$190m 3 years New contract P&C claims processing
Quindell will provide services to an intermediary to the policyholders of six of the largest UK insurers Services provided will include legal services, medical reporting, rehabilitation, accident management, credit hire, replacement vehicles, and credit repair
$168m 15 years Extension Life policy services
Capita has been awarded a 15-year life and pensions administration contract extension by Lincoln Financial Group The total contract is now worth £272m over 25 years
New contract $81m 5 years Finance & accounting
Suncorp has awarded Genpact a contract to provide finance and accounting services
$40m 5 years Renewal Finance & accounting
Capgemini will provide a range of F&A services for the US, the UK, Switzerland and Germany from its dedicated financial services BPO centre in Poland
$20m 7 years Renewal Multi-process BPO
Genpact will provide; underwriting support, claims processing, actuarial data analytics, technology, finance and accounting services. Services will be provided to Ironshore’s global operations in the United States, Canada, Bermuda, United Kingdom and Ireland with future expansion into additional regions
$15m 5 years Renewal Life policy services
CSC has been awarded a 5 year BPO contract extension by the insurance firm Northstar CSC will continue to provide back office services including policy administration, contact centres, commission handling, quality control and remote auditing
$11m 5 years Unknown F&A outsourcing
WNS has been awarded a F&A outsourcing contract by a leading APAC insurance company

There were only a limited number of large insurance BPO contracts in 2012. The top five deals make up 95% of the total contract value of the top ten deals

Appendix: Top ten banking ITO deals 2012

The top five banking ITO deals are worth over 2.5 times the top five banking BPO deals

$1.3bn 10 years New contract Multi-scope IT outsourcing
Caixa has signed a 10-year contract with CPM Braxis Capgemini in Brazil, with Caixa’s investment arm CaixaPar acquiring a 22% stake Capgemini will become Caixa’s strategic IT services provider helping them to modernise current IT systems
$450m 5 years Renewal Multi-scope infrastructure management
Atos awarded IT infrastructure management renewal and expansion contract by its “first German bank” Atos will continue to provide managed desktop services, and will additionally provide storage, email and server management
$350m 5 years Renewal Application outsourcing & management
CGI has been providing National Bank of Canada (NBC) with application development and support services for over 10 years Under the terms of the new contract, CGI will continue to develop and maintain NBC’s banking information systems
$260m 7 years New contract Multi-Scope Infrastructure Management
Postbank has awarded Atos a $260m contract to provide infrastructure management services
$250m 5 years New contract Application outsourcing
HCL Technologies will deploy about 1,000 professionals globally to provide UBS application services HCL is also setting up an offshore delivery centre in Bangalore for UBS
$223m 5 years Extension Multi-scope infrastructure management
CSC has won an IT infrastructure management contract extension by Australian insurance and wealth management vendor AMP CSC will provide support to integrate infrastructure of AXA Asia Pacific Holdings which was acquired by AMP in March 2011
$200m 10 years New contract Multi-scope infrastructure outsourcing
IBM has been awarded a 10-year, $200m IT outsourcing contract by Public Joint Stock Company Ukrsotsbank, part of UniCredit Group Services to be provided by IBM include: application development and management, datacentre management, network and ATM management and end-user support
$140m 3 years Renewal & Expansion Multi-scope infrastructure management
Atos has been awarded an ITO contract renewal and expansion with Morgan Stanley The contract is estimated to be worth c. €100m (NelsonHall)
$100m 3 years Unknown Application testing Management
Infosys has been awarded a 3-year $100m testing contract by a US-headquartered financial services client Services to be provided by Infosys include performance testing and engineering and test environment management and release management
$100m 5 years New contract Multi-scope infrastructure management
Services to be provided by IBM include mainframe operations and midrange server and storage management

Infrastructure management accounts for almost 80% of the cost of the whole top ten banking ITO deal cost

Appendix: Top ten insurance ITO deals 2012

The total value of the top ten insurance ITO deals are worth only half of the equivalent ten in banking

$490m 5 years New contract Infrastructure management
Allianz has awarded HP a contract to manage its desktops, network and telecommunication services These services were previously delivered by Fujitsu As a part of the contract HP will take over 500 AGIS employees
$350m 7 years Extension Multi-scope IT outsourcing
Old Mutual has extended an ITO contract with TSYS, originally a 2008 5-year €150m contract Services include: service desk, mainframe services, storage, end-user computing, data centre outsourcing, mid-range outsourcing and remote infrastructure management
$250m 5 years New contract Multi-scope infrastructure management
Fujitsu will purchase the BCBSNC data centre and provide a variety of Information Systems (IS) support services to BCBSNC Fujitsu will provide functions such as mainframes, servers, PCs, telephone systems, networks and technology security
$220m 5 years Renewal Multi-Scope IT Outsourcing
BSC have renewed a contract with HP to modernise its membership and claims processing systems HP Enterprise Services will provide: hosted data centre services, applications development & management and network management
$142m 7 years Renewal Infrastructure Outsourcing
CGI will consolidate five data centres to two green, more cost effective data centres located in northeast U.S Applications used to manage day-to-day operations will be delivered in the cloud
$100m 3 years Extension Application management
Services to be provided to RSA UK include: application development, implementation and ongoing maintenance for customer relationship management, claims processing, commercial lines products, policy management and back- office operations
$80m 6 years Renewal Infrastructure management services
CGI has been awarded an IT infrastructure management services contract renewal by P&C insurer RSA Canada Services provided include: mainframe and mid- range equipment, in addition to data storage and recovery for RSA’s broker and customer programmes and services
$51m 4 years Renewal Application management
The contract involves the transfer of 25 personnel to Tieto Services to be provided by Tieto include management of the client’s central business applications Folksam is also a client of Tieto for IT infrastructure services and cloud computing
$47m 5 years New contract Network management
Services to be delivered by BT include: LAN management, WAN management, IP telephony, contact centre services and service management As part of the contract Standard Life will migrate its infrastructure to BT’s IP Connect network.
$46m 5 years New contract Multi-Scope infrastructure management
Services to be provided by Tieto include: server management, end user workplace services, network management and service desk 34 employees will transfer to Tieto Finland

The market is heavily skewed to the top five deals, which account for over 80% of the value of the top ten