Kiranjeet Kaur, Senior Analyst, Everest Group, Author At Everest Group

Banking AO Services: The Big Bang Expansion in the Major Contenders Category! | Sherpas in Blue Shirts

July 30, 2014

As the global banking industry continued to recover through 2013, several service providers ramped up their scale, invested in innovative technologies, and built a global delivery footprint. These initiatives have notably expanded the Major Contenders category on Everest Group’s Banking application outsourcing (AO) PEAK Matrix™. Indeed, three service providers (ITC Infotech, Luxoft, and Mindtree) joined this group from the Emerging Players category.

While the market continued to be dominated by select global and offshore majors (Accenture, Cognizant, IBM, and TCS), a number of relatively smaller and specialist players successfully created a niche for themselves by catering to the specific needs of banking AO buyers. These service providers partnered with banks, understood their business, took risks by offering performance-linked pricing, and successfully demonstrated capabilities to offer them innovation, to create differentiation in the market.

Below are some of the key highlights of this year’s banking AO PEAK assessment:

The Banking AO Leaders (Accenture, Cognizant, IBM, and TCS) continue to hold solid position on this year’s PEAK Matrix. While Wipro entered the Leaders quadrant this year, posting strong ACV growth for Banking AO services, it still lags behind the other Leaders on capability and market success.
The Leaders continued to hold the highest market shares in terms of ACV and number of deals across all geographies. Strong execution and delivery, ability to offer thought leadership, and consistent investments in developing innovative solutions for BFSI vertical were some of the key areas of strengths that led to their consistent growth in the Banking AO market. Their future success will be driven by their ability to explore new pricing models (gain-share) and expansion of nearshore and onshore delivery presence in order to stay ahead of the competition.
The Major Contenders consisted of providers across all categories: global majors (Capgemini, CSC, Dell Services, and HP); offshore majors (HCL, and Infosys); regional players (CGI, Luxoft, Softtek, Unisys, and Virtusa); and tier-2 Indian players (iGate, ITC Infotech, L&T Infotech, Mindtree, MphasiS, Polaris, Syntel, and Tech Mahindra). Service providers in this category were willing to take risks, and were more open to exploring new outcome-based models to create differentiation in the market. While these providers have built credible scale, they need to significantly expand their nearshore presence, focus more on innovative solutions, and invest more in sales/account management teams to further improve their market positioning.
The Emerging Players consisted of select regional and tier-2 Indian players. These providers must continue to expand their Banking AO scale, invest in emerging technologies, and demonstrate ability to offer innovation/improvements in clients’ business areas to break into the Major Contenders category. Their success will be driven by their ability to move beyond traditional AO work (application development, maintenance, and testing) and build capabilities to support transformation initiatives of banking AO buyers.

While each category on the PEAK Matrix has unique strengths and challenges, one key theme for all companies was the declining share of pure AO deals, which is in line with the growing trend of integrated IO and AO deals. Additionally, as banks continue to focus on managing regulatory compliance and enhancing the customer experience, all providers have begun to look more seriously at the opportunities in the regulatory and risk management, analytics, and mobility spaces. While analytics was the dominant theme for the Leaders and Emerging Players categories, Major Contenders announced the greatest number of contracts in the regulations and risk management area.

Overall, 2013 was an interesting and eventful year for banking AO services, and 2014 promises to be every bit as exciting! For more information, download a complimentary preview of “IT Outsourcing in Banking – Service Provider Landscape with PEAK Matrix™ Assessment 2014.”

Photo credit: Pranav Yaddanapudi

CSC-HCL Partnership – A Big Deal or Much Ado About Nothing? | Gaining Altitude in the Cloud

January 16, 2014

On January 15, rival IT service providers CSC and HCL made an announcement that they were joining hands to deliver application modernization services. The partnership entails modernizing legacy applications (the HCL angle) and hosting them on cloud platforms (the CSC slant). CSC and HCL will open delivery centers in Bangalore and Chennai as part of this alliance, with a CoE for banking, and will share equally all revenues and costs of these operations.

The announcement sounds a lot like the one from Accenture and Dell a month ago where the two companies teamed up along similar lines. Read the release here. So what makes the CSC and HCL announcement more interesting? For starters, the simple fact that it is not the announcement we were anticipating (or were made to believe). The anticipation was for a broader alliance for infrastructure services, which would have had far significant implications on the supply landscape.

In reality, the announcement is not that big of a deal.

In our opinion this is more of a sales and marketing alliance versus a strategic re-alignment. But since it did catch our attention, here’s a brief analysis:

So why is this important?

Our research on cloud services shows that buyers place a high value on application modernization. While clients acknowledge the value of cloud adoption in order to transform their operating models and save costs, cloud-incompatible legacy applications limit the ability to harness this value. But oftentimes they are reluctant to make significant monetary investments for this pursuit and are looking for self-funding mechanisms. CSC and HCL, exploring mutual synergies, will theoretically be able to lower the risks and costs for clients transitioning to the cloud.

How does it benefit CSC and HCL?

CSC will get an additional channel for its cloud platform (BizCloud, a private cloud offering for the enterprise) and gain access to HCL’s offshore delivery capabilities in applications services. Also, this alliance will enable CSC to offer Proof of Concept (PoC) for its cloud platform to its clients at a lower price, something not feasible earlier with its U.S.-centric workforce.

For HCL, the alliance promises to:

Strengthen its presence in the financial services sector to match up with peers (HCL currently gets only 26% of revenues from BFSI, which is lower than that of its larger peers)
Boost its applications services business, which has been struggling for a while (infra business is driving growth) and position it well for potential downstream maintenance work
Allow it to offer a complete modernization solution across the application and infrastructure stack

Interestingly, CSC and HCL have been rivals traditionally with HCL being highly vocal about being a “replacement” for the likes of CSC. Like shrewd warring factions, CSC may have just married its enemy, turning it into an ally. The alliance likely enables CSC to not only protect its market share but also offer a compelling alternate proposition, to existing and new clients.

Key questions that this alliance raises

CSC has been aggressively investing in augmenting its cloud and big data capabilities. The company, already a leading provider of cloud services will now be able to offer these services at a much reduced cost. Is there a possibility of market disruption?
Will HCL Technologies continue to be platform-agnostic with respect to its cloud offerings? Can there be a clause for an exclusive CSC-HCL partnership? We think there is little likelihood of this scenario, but it will be interesting to see how HCL manages demand for competing cloud platforms including IBM, Force.com, Rackspace
Will HCL be demanding a premium price from some of its traditional buyers as it gains access to CSC’s strong technological competency and knowledge of transformational solutions?
The alliance will enable HCL to augment its capabilities for application-related services, bringing it in head-on competition with the likes of TCS and Cognizant. So far HCL’s USP was its infrastructure management capabilities. Will the combination create a formidable competitor among the offshore majors?
Will the two rivals be successful in scaling up this alliance? How will the enterprise buyers react to this changed dynamic?

It is still too early to answer any of these questions. But one thing is clear – cloud and next-gen IT certainly create some strange bedfellows.

Who Are the Winners in the Intensely Competitive Capital Markets AO Space? | Sherpas in Blue Shirts

November 19, 2013

The results of Everest Group’s recently released research study, IT Outsourcing in Capital Markets – Service Provider Landscape with PEAK Matrix™ Assessment 2013, make it abundantly clear that intensifying competition is putting unprecedented pressure for innovation on IT service providers catering to capital markets. Indeed, this year we saw considerable shake-up among the Leaders, the Major Contenders, and the Emerging Players.

The most notable highlight of this year’s PEAK Matrix is the reshuffle in the Leaders category, with Infosys dropping back to the Major Contenders category due to its shrinking capital markets AO revenue and client concerns around leadership talent retention. In fact, the total market share held by the Leaders category was negatively impacted by Infosys’ departure. On the other hand, ongoing provider portfolio restructuring by capital markets buyers to address concentration risks and to counter the complacence of incumbents drove growth in market share for Major Contenders.

As service providers of all sizes continue investing in next generation themes and honing their transformational value proposition, it is becoming increasingly critical for buyers to look beyond scale alone. This also opens up the opportunity for buyers to diversify their provider portfolio by including mid-sized firms that can play the role of a “challenger,” thereby enabling them to manage concentration risks and foster healthy competition among providers.

To cater to the needs, demands, and increasing sophistication of buyers, service providers need to develop customized solution frameworks per buyer requirements, because a one-size-fits-all approach is unlikely to succeed in this evolving AO marketplace.

Following are other highlights from the research:

The Leaders (Accenture, Cognizant, IBM, and TCS) have the largest scale in terms of revenue, FTEs, and number of clients, as well as a wider global footprint, than the other providers. TCS and Cognizant emerged as the “2013 Star Performers” within this group
The Major Contenders reported the highest average revenue growth in 2012, and expanded their market share led both by growth in existing accounts and aggressive acquisition of new clients. EPAM and L&T Infotech strengthened their Major Contender positioning, and emerged as “2013 Star Performers” within the category
The Emerging Players are gaining prominence via their strategic investments in ramping up their capabilities, and per the increasing relevance of the nearshore model. Within this group, Luxoft emerged as the “2013 Star Performer” through increased focus on large deals and a growing client base.

Given the stiff competition among service providers in terms of market share, it will indeed be interesting to see how these service providers will respond to the challengers, and how the new evolving business models will shape the industry.

Is Mobile Banking the New Banking Reality? | Sherpas in Blue Shirts

August 8, 2013

Move over, Angry Birds. Your standing as “the largest mobile app success the world has seen so far,” (as stated on February, 18, 2011 in MIT’s Entrepreneurship Review) is giving way to mobile banking apps.

Indeed, apps from American Express, Bank of America, Capital One, Wells Fargo, Westpac, and others rank among the top apps on iTunes and the Android play store, with tens of millions of downloads already under their belt! And there’s little surprise about that…photograph your check and then have it deposited directly into whatever account you want, or send money to people via their email addresses or mobile phone numbers. Isn’t that cool?

Thanks to the increased adoption of smart phones and innovative technology, banking today has become so convenient. With innovations such as near field communications (NFC), mobile wallets, and a number of customized applications being developed and adopted, the mobile banking landscape has undergone a rapid transformation. In fact, according to The Federal Reserve Board, as of November 2012, 28 percent of all mobile phone users and 48 percent of smart phone users in the U.S. had used mobile banking in the past 12 months, an increase of 7 percent from December 2011.

Here’s a brief overview of the current state of mobile banking:

Current adoption and growth:

The past year saw a number of banks expanding and upgrading their mobile banking application features to keep up with extremely strong and growing demand. For example:

Bank of America recently launched new services such as mobile remote deposit capture, person-to-person payments, expanded contactless payment functions, and a mobile component to its BankAmeriDeals merchant rewards program. It also recently began testing payments executed via QR codes with five merchants. In fact, its mobile banking app (Bank of America – Version 4.3.229) was among the top 10 Android apps upgraded by customers during the week of July 29, 2013. The new version allows customers to:
1. Make payments to credit cards using checking accounts at other banks
2. Add/edit/delete bill pay accounts
3. Add own email/mobile number to receive money from others
4. Send money to people and small businesses via their email addresses or mobile phone numbers
5. Utilize the Call Me Now feature (for Platinum Privileges clients)
BNP Paribas recently announced that it will be launching a full-service mobile bank in Germany, Italy, France, and Belgium. Its Hello Bank is the first bank designed specifically for mobiles, and BNP aims to have 1.4 million customers for Hello Bank by 2017
Citibank is the first financial establishment to put up a mobile banking app in the Asia Pacific region. Initially launched in Hong Kong in 2008, the app is now available in 12 regional markets. Citi is also looking to invest in improving its mobile banking capabilities in 2013

So how exactly are people using mobiles for banking? While some of us stick to basic services such as checking bank statements and paying bills using our smart phones, “smart banks” have started using mobile banking for marketing their products and services. As mobile phones become more functional, they have evolved from being tools to enhance customer service to being vehicles for revenue growth.

But there are some barriers to adoption. Concerns about the security of mobile banking and the possibility of hackers remotely accessing consumers’ phones have been the two major reasons which have limited the use of mobile banking. While consumers are slowly building trust and becoming more open to adopting mobile banking, the possibility of a new mobile deposit fee some banks are considering might be off-putting to end users.

Having said that, Everest Group believes more customers will use mobile banking applications as the explosive growth of smart phones and tablets continues. As banks evaluate the level of investments they must make to keep pace with customer expectations, they will also need to identify key opportunity areas, use mobile channel functionality as a competitive differentiator to attract new customers and retain existing ones, and ultimately expand market share.

What’s your Policy to Serve Policy Providers? | Sherpas in Blue Shirts

November 15, 2011

Highlights of Everest Group’s Insurance AO Market Outlook and PEAK Matrix Assessment

2010-11 has been a trying year for global insurers. Even though the industry returned to growth in terms of written premiums, challenges abound. Increasing competitive pressures, changing consumer preferences, need for multiple distribution channels, and a stricter regulatory regime have created a complex operational environment for global insurance companies.

As discussed in one of our recent research reports, IT AO in Insurance – Trends and Future Outlook, outsourcing activity is picking up across insurance business lines (see Exhibit 1 below), with the consolidation in the life insurance segment, and increasing price competition in the property and casualty segment. At the same time, the industry has also witnessed a lot of M&A activity, and faced pressures on underwriting results – which is prompting investments in sophisticated analytics, business intelligence, and consolidation /rationalization initiatives.

Exhibit I:

With significant shifts in buyer adoption trends, the service provider landscape has changed as well. This evolution has presented insurers with a wide array of third-party provider options, as well as the need to assess provider capabilities across key dimensions. Our just published report on Application Outsourcing in Insurance – PEAK into the Evolving Service Provider Landscape evaluated 18 leading AO service providers specific to the global insurance sector. Analyzing the performance and capabilities of these providers, we identified the Leaders, Major Contenders, and Emerging Players on the Performance / Experience / Ability / Knowledge (PEAK) Matrix:

Exhibit 2:

Expectedly, the leading service providers dominate the insurance AO market in terms of revenue, depth of capability, and breadth of delivery footprint. The major contenders are witnessing strong growth in their insurance AO business by adding new accounts and expanding business with existing accounts over the last three years.

However, as economic conditions improve, we expect a much more competitive service provider landscape. Following are the themes we think service providers must focus on to gain and further solidify their leadership position in this marketplace:

Transform orientation to position themselves as “partners” rather than “providers”: With an increasing demand from outsourcing buyers to engage service providers in early product design and development activities, it is critical for providers to develop partnership-based engagement models. These could be in the form of creating joint Centers of Excellence (CoEs) to support product/channel transformation based on select “bleeding edge” technologies, or pursuing a combined go-to-market strategy in emerging areas.

Leverage M&A to build end-to-end capabilities in a market that is moving toward IT-BPO convergence: Outsourcing buyers are increasingly looking to execute broad-based, multi-tower contracts that have both IT and BPO services in scope. This trend is being driven by buyers’ sourcing strategy of forming strong relationships with providers in specific business lines, or portfolio clusters, rather than having different providers for different services. It is therefore critical for Major Contenders and Emerging Players to develop and enhance their domain expertise, scale (across IT-BPO functional areas), and products/services suite to provide end-to-end support. These providers must continue to focus on acquiring greater capability, solutions, frameworks, and tools through M&A activities, in order to address the specific needs of insurance outsourcing buyers.

Re-engineer pricing and engagement strategies to tackle uncertainty in the demand environment: Insurance markets around the globe are experiencing challenges that cause concerns about outsourcing demand. P&C lines are under pressure in the U.S., personal and automotive insurance lines are underperforming in Europe, and catastrophic losses in Asia Pacific (e.g., the earthquakes in Japan and New Zealand, and severe floods in Australia and Thailand) are burdening the bottom-line for insurance majors. While buyers need outsourcing support to effectively navigate through these situations, they have limited budgets and are apprehensive to participate in outsourcing deals that require heavy upfront investment or capex. Providers must therefore adjust their pricing and engagement terms innovatively to create a win-win situation for both buyers and themselves, e.g., pricing based on business outcomes, increasing deal terms in lieu of no upfront transition costs, and offsetting productivity-gain sharing with inflationary adjustments.

For more information, on this topic:

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Author: Kiranjeet Kaur, Senior Analyst, Everest Group

Banking AO Services: The Big Bang Expansion in the Major Contenders Category! | Sherpas in Blue Shirts

Who Are the Winners in the Intensely Competitive Capital Markets AO Space? | Sherpas in Blue Shirts

Is Mobile Banking the New Banking Reality? | Sherpas in Blue Shirts

What’s your Policy to Serve Policy Providers? | Sherpas in Blue Shirts

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