IT & Business Process Outsourcing in FS

Market context

OutsourcingOutsourcing in financial services in this report is concerned with infrastructure, application and business process outsourcing across retail banking, insurance and financial markets. Outsourcing differs from normal external sourcing most significantly in that it is a permanent or long-term service agreement, whereby the FSI secures delivery of services the sector has traditionally supplied internally. Alles zu Outsourcing auf CIO.de

Although there is still much reluctance among FSIs to outsource, see Datamonitor's IT Efficiency in Financial Services, the sector is as a whole becoming less reluctant, especially in the more established and mature outsourcing areas such as desktop, network and datacenter outsourcing. In the case of vertical BPO services, however, it is clear that FSIs are still largely skeptical, viewing it as an intrusion into core operations with the potential for third-party dependency and opportunism. However, this attitude is also changing and as the BPO proposition matures and reference sites develop, demonstrating real business benefits such as reduced costs, systems flexibility and improved service, Datamonitor believes that FSIs will increasingly embrace this market.

The infrastructure outsourcing market - desktop, network, datacenter outsourcing and hosting - represented 56% of the total financial services IT and business process outsourcing market in 2002 and is by far the most developed segment in terms of size and penetration as well as maturity of market proposition and clarity of business case. At the current stage of development its relative maturity and established market proposition are contributing to driving new business as conservative FSIs become less reluctant to adopt this type of outsourcing. In the current environment the absent returns in financial markets, liquidity problems in retail banking and life and pension and continued cost cutting in property and casualty, the need for relatively risk-less cost cutting is driving new deals.

Application outsourcing - on- and off-shore application development and management and application hosting - has been growing rapidly over the last few years driven by the realization that application development is primarily skill enabled area. With the developments in off-shore application development and maintenance it is becoming increasingly apparent that significant savings through economic arbitrage/ labor costs as well as improved work quality through affordability and availability of highly skilled developers are realistically obtainable benefits. As a result of what is seen as an improved business case, interest in this outsourcing niche has increased dramatically.