Category: Banking, Financial Services & Insurance

Capital Markets BPO: Provider Selection Pricing Considerations | Sherpas in Blue Shirts

Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.

Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.

Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?

What to consider when selecting a Business Process Outsourcing provider

  • Specialists come at a premium: Specialist providers typically charge a premium price. The premium is nominal for low complexity processes such as static and dynamic data management, client onboarding, low value reconciliations, trade capture, and exception matching. Yet, it rises considerably for high complexity capital markets BPO processes such as OTC derivatives, syndicated loans, and alternative investments. Specialist capitalist providers’ expertise in niche and complex services gives them significant pricing power leverage over pureplay BPO providers.
    BPO-Business-Process-Outsourcing
  • Pureplay BPO providers on the move: However, pureplay BPO providers over the last couple of years have moved swiftly, and gained meaningful ground in terms of building competence in high value services. This increased, more head-on competition has reduced the pricing differential to some extent.
  • Pricing model induced rate differential: FTE-based pricing is most common in capital markets BPO contracts, closely followed by the transaction-based model. Typically, contracts with transaction pricing have a higher Annual Contract Value (ACV) per FTE, as the service provider agrees to share some of the buyer’s risk, and thus bakes the risk premium into the pricing. Additionally, the scope of work for capital markets BPO deals with transaction-based pricing is usually higher value and more complex, pushing up the average ACV per FTE further.

Pureplay BPO providers VS. specialists

Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.

Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers –  both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.

Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?

 

Bitten by the Blockchain Bug | Sherpas in Blue Shirts

The business world is abuzz with the potential benefits of blockchain distributed ledger technology and the wave of disruption it will bring in not just payment transactions but also sharing information of value to participants in a distributed ledger. The media are already referring to it as an “internet of value.” Even though Blockchain is still nascent, a research report predicts the blockchain market will be worth $5.4 billion by 2023. In this blog post, I’ll highlight how some organizations around the world have decided to capture value from blockchain.

Although blockchain first captured attention of banks and other financial institutions, the use cases have expanded far beyond the BFSI industry. In all corners of the world, organizations have been conducting blockchain pilots and proofs of concepts, evaluating its validity, security and how it stacks up against delivering on their business objectives. Need evidence? Look at the following examples.

Blockchain use cases

Secure Communications. Since they invented the internet, you probably remember DARPA (Defense Advanced Research Projects Agency) the research unit of the U.S. Department of Defense. Now DARPA is funding startups to develop blockchain to ensure secure communications in the area of weapons systems development and in storage. In the intelligence arena, blockchain could help determine data integrity and whether hostile players have viewed or modified information.

Discover Issues in Mission-Critical Process. Lockheed Martin recently announced it is incorporating blockchain into its operations to improve efficiency and cybersecurity in its systems engineering processes, supply chain risk management and software development efforts. In addition to its operations in developing military weapons, the firm is involved in several NASA space projects requiring smaller, nimble operations.

Improve Transparency in Internal Workflows. Software giant Oracle was granted a patent to use blockchain to improve real-time transparency and keep data on employees’ tasks in a workflow. Another benefit? Protecting proprietary or sensitive information in workflows.

Raise Funds. Crowdfunding is an obvious use case for blockchain. But the World Bank is taking this application further. It plans to use blockchain in issuing bonds to help Kenya’s government. The concept was already tested by Australia’s Commonwealth Bank regarding a provincial treasury service.

Sharing Medical Information. In April 2017, a Japanese insurance company, Tokio Marine & Nichido Fire, won the second annual Efma-Accenture Innovation in Insurance awards. The company created a blockchain-based platform for sharing patient’s medical information among relevant parties. It’s being touted as a “new best practice.”

Healthcare Incentive Programs. I blogged before about blockchain being ideal for incentive programs. That use application is now evident in healthcare. Healthcoin is a blockchain-enabled platform focusing on insurers and employers incentivizing people to make lifestyle changes to prevent diabetes. Patients earn tokens they can cash in for rewards.

Reconciliation Among Reinsurance Companies. The reinsurance business involves complex relationships among insurance companies, a tedious, multi-ledger process of calculating multiple exchange rates and currencies, transaction costs – those aspects that I refer to as “friction” in a business process. Currently, a group of 15 of the world’s largest insurance companies are working on a blockchain-based prototype designed to simplify the process. The group hopes to reduce the transaction time from seven weeks to almost instantly. One of the companies had already completed its internal blockchain pilot for handling bonds for catastrophic events.

Assets Sales Transactions and Government Records. Malta plans to use blockchain in its Lands Registry and national health registries. Sweden, Honduras and Brazil are among the countries exploring how to use blockchain to track progress in real estate or other asset sales transactions.

Contributions Transactions. The United Nations has a cross-agency blockchain working group, which is analyzing the use of a blockchain distributed ledger system in international assistance. The UN is considering blockchain for the digital currencies, supply chain management, self-auditing of payment, identity management and data storage aspects of the potential system.

The United Nations is also studying how to rethink cash-based transfers. Within that study, the UN’s World Food Program is conducting a proof of concept (and an upcoming pilot) using blockchain to improve security and eliminate administrative fees in distributing humanitarian aid.

Service Providers’ Incubators. All major service providers have conducted in-house proofs of concept and pilots for various use cases. Some have taken this strategy a step further and are creating environments (or incubators) where their enterprise clients can experiment with blockchain technology for their own applications.

Blockchain as a Service (BaaS). IBM is one of the service firms providing client support of blockchain production pilots in a low-risk, fail-fast platform in its Bluemix cloud. Recently Big Blue boosted this Blockchain-as-a-Service platform to provide even more value by enabling multi-company blockchain networks across Bluemix regions and subscriptions.

What you need to know

So, what’s the big takeaway that emerges from this glimpse into current trends in blockchain adoption? The use cases are quickly expanding to more industries and governments, and I’m seeing a lot of activity across the board from different kinds of players. Yes, it’s still in an early growth stage. But if you were to ask me what’s really happening with blockchain technology now, I’d say organizations are finding more and more ways to capture business value from it. Creating new value is a prime focus for most companies, so I look for blockchain to be highly disruptive and the adoption pace to quickly grow.

Game on in P&C Insurance! Genpact Acquires BrightClaim | Sherpas in Blue Shirts

Challenging macroeconomic conditions, demanding digitally-savvy consumers, and rising fraud are pushing P&C insurance carriers to be more demanding than ever of their service providers. Carriers not only expect optimization of cost of insurance operations, but also assistance in gaining and retaining market and customer mind share. This is forcing service providers’ hand to move from an arbitrage-first to a digital-first model.

Meanwhile, insurance BPO service providers’ origins in the arbitrage-first world and their strategic choices in large P&C product categories, such as personal lines, worked well for a while. But with the U.S. and U.K. markets maturing, service providers are being forced to reconsider their strategy. They now not only need to focus on the customer experience, their digital footprint, and lowering TCO, but also on developing deeper domain expertise to drive growth and remain differentiated in the market.

As we talked about in our report, “Property and Casualty Insurance BPO – Annual Report 2016: The Dawn of Transformational Era – Adapt and Evolve to Succeed,” this leaves them with three options to avoid falling into the no-growth trap:

  • Develop capabilities in judgment-intensive processes (i.e., trod the path taken by Third-Party Administrators, or TPAs)
  • Take the plunge to develop capabilities for handling more “exotic” P&C product categories (such as insurance of dump trucks!)
  • Explore under-penetrated (emerging) markets

Genpact (a Leader on Everest Group’s P&C insurance BPO PEAK Matrix-2017) clearly decided to pull the trigger on this conundrum, announcing on 3 May that it had acquired BrightClaim. BrightClaim’s suite of services includes property claims management (including catastrophe claims), claims adjusting, TPA services, and contents pricing services.

With this acquisition, Genpact has gained deeper domain expertise in U.S. P&C insurance claims market, and has strengthened its portfolio of digital technologies and fraud detection capabilities.

The acquisition also includes National Vendor, a BrightClaim associated company, which has a nationwide network of contractors and offers carriers a direct repair program along with content fulfillment. Genpact can leverage this to provide cost-effective and faster claims settlement services, which is expected not only to reduce claims payouts for insurers, but also to improve the customer experience.

Genpact’s top competitors in the U.S. P&C market are Cognizant and EXL. With both of them continuing to augment their capabilities and developing deep domain expertise, it was imperative for Genpact to make a move. As a favorable by-product of this acquisition, Genpact has further strengthened its onshore delivery capability with centers in Atlanta, GA and Austin, TX.

Prima facie, the deal looks accretive and has the potential to enable Genpact to challenge other Leaders in P&C insurance BPO space.

How will other providers in this segment respond? Game on! We’d say….

How can we engage?

Please let us know how we can help you on your journey.

Contact Us

  • Please review our Privacy Notice and check the box below to consent to the use of Personal Data that you provide.