Outsourcing contracts awarded, extended, and implemented in the first quarter of the year 2010 have witnessed a rise. As per industry analysts and leading financial firms, only slightly more than a third of the outsourcing service providers have managed to meet buyer objectives satisfactorily. At the same time, the companies looking at lowering their costs while managing their risks are showing an emerging interest in maintaining multiple service providers. The impact of this emerging interest is reflected in the volume and the value of the deals. It is also observed that deals are signed for a shorter period of time, thereby, which may increase outsourcing contract volumes in the coming months.
Evidently, this creates tough competition among financial service providers, and at the same time develops opportunities; consequently the larger contracts signed before the economic downturn will be subdivided and awarded in smaller transactions.
Organizations looking for low-cost means to modernize their business processes are expected to boost outsourcing, especially in the fields of Compliance and Risk Management.
Outsourcing in Capital Markets Picking Up
According to FSOkx’s deal database, the Banking industry recorded the highest number of deals in the first, second and third quarter of 2009. However, in the last six months, the number of deals in Capital Markets seems to have surpassed the deals in Banking and Insurance. Managing liquidity risks, preparing for new regulations, repositioning the workforce for growth, harnessing alternative technologies are some of the aspects which gained importance in Capital Markets. Consequently, the industry has witnessed an increase in back office outsourcing in the past few months.
IT and Technology represents the Largest Share
In the field of IT and Technology, with the growing acceptance of E-Commerce, application architecture and application support/operations are the major areas of outsourcing for organizations across the financial service industry.
Sluggish Growth of Outsourcing Deals in Insurance Industry
Though recession has had an impact on the Insurance industry, it is on a relatively smaller scale as compared to the BFS Industry. Insurance companies have been sub-contracting their support functions such as accounting, payroll and human resource management, not considered critical to their core businesses. However, outsourcing mission critical functions has gradually been initiated by many companies.
The rising volume of insurance business due to globalization promises greater opportunity for outsourcing vendors.
Deal Analytics depicts the global framework of client’s and service providers’ region. The numbers here represent deal statistics regarding the specific region. A substantial boost is observed in the number of deals in North America and Europe. North America enjoyed a share of almost 43 percent of overall deals.
Reduction in Offshore Outsourcing
A decrease in offshore outsourcing deals was observed in the first quarter of 2010, especially in the North American region. More than 75 per cent of deals in the financial sector in North America involved onshore service providers. Industry experts attribute this high participation to outsourcing regulations. Correlating this with the sub domains, most of the North American onshore financial deals were in the IT and Technology sector. Almost 90 per cent of these IT deals were undertaken for the purpose of technology upgrades.
Payment Services in Banking and Trading Platforms grabbed most of the IT and Technology Deals. At the same time Credit Unions are adopting technology solutions to upgrade their services. Trading Platforms along with Securities Exchange are transacting for better Network Management. The increasing volume of offshore transactions in North America as well as Europe (almost 60 percent of offshore deals observed were from Europe) ensures increasing opportunities for technology service providers.
Subsequent to the dropping numbers of Risk Management deals in the first quarter of 2010 (especially with regard to Enterprise Risk Management) the deals in this area may show an upward trend in the coming months. Consequent to the increasing importance of risk management given the recent economic turmoil, more and more financial firms are investing in technology upgrades for risk management solutions to better hedge market opportunities in times to come.
Methodology
Deal Analytics is prepared from FSOkx Deal Analytics Tracker, where financial deals are tracked daily for the Banking, Capital Markets and Insurance industries. Deals within the functional domains of IT and Technology, Outsourcing, Risk Management, Compliance and Regulations are followed. Both the value and the volume of the deals along with the functional domains are considered.
The Banking industry is bifurcated into domains such as Commercial, Wholesale, Retail and others. Capital Markets includes Advisory services, Investment Management, Asset Management, Wealth Management and others comprise Trading Platforms, Security Exchanges etc. The Insurance industry is further branched into Health and Life Insurance, Business Insurance and Property Insurance among others.
