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Outsourcing Transactions, Global In-house Center Setups Grew in Q4 2018 According to Everest Group Report on Top Trends in Global Sourcing | Press Release

By | Press Releases

Digital services—especially automation, analytics and cloud—continued to dominate outsourcing activity

The global sourcing industry posted healthy numbers for Q4 2018, marked by an 8 percent increase in outsourcing transactions and a 13 percent increase in Global In-house Center (GIC) setups and expansions over the previous quarter, according to Everest Group.

Digital services continued to dominate the outsourcing activity in Q4, with 74 percent of all outsourcing transactions comprising digital-focused services as compared to 26 percent of transactions focused on pure traditional services. Cloud services were included in 44 percent of all digital-focused transactions for the year.

  • The majority (55 percent) of offshore and nearshore service delivery centers set up in Q4 were focused on digital services. Fifty-six percent of new centers established in Q4 supported automation and 33 percent included analytics services.
  • GICs were increasingly leveraged for digital services in Q4, with 59 percent of GIC setups and expansions including digital services in their scope. Automation continued to account for the maximum share (63 percent) of the total digital-based GIC setups during Q4, reflecting the significant degree to which enterprises are seeking to leverage automation to improve efficiency, deliver business value and reduce cost beyond traditional means.

“The global services industry enjoyed a fourth consecutive quarter of growth in Q4 2018, with digital services activity continuing its upward trend,” said H. Karthik, partner at Everest Group. “Two key areas of service provider activity in Q4 demonstrate this strong emphasis on digital services. First, service providers such as Accenture, DXC Technology and TCS announced acquisitions of startups to enhance their interactive digital content capabilities. Secondly, several service providers announced innovative partnerships with educational institutions in their attempts to bridge the digital skills gap. For example, Accenture announced a partnership with Georgia Institute of Technology, IBM is teaming up with IIT Delhi, and Infosys is joining forces with Cornell. We will continue to see service providers investing in acquisition and partnership strategies to strengthen their digital services capabilities in the year ahead.”

Everest Group discusses these and other fourth-quarter developments in its recently released Market Vista™: Q1 2019 report. The quarterly report highlights the trends in the fast-evolving global sourcing market, exploring the key developments across outsourcing transactions and Global In-house Centers (GICs), as well as location risks and opportunities, and service provider developments.

Additional highlights from the Market Vista: Q4 2018 report:

  • Themes such as design, customer experience, automation and cloud were prominent in Q4 2018.
  • The uptick in outsourcing activity was led by the Banking, Financial Services and Insurance (BFSI) sector.
  • Q4 saw substantial growth in adoption of GICs by small enterprises, with a particular focus on specific services rather than multi-functional centers.
  • The Asia Pacific region witnessed a significant rise in research and development (R&D) GIC setups by manufacturing enterprises, demonstrating a preference to insource next-generation engineering services.
  • To build niche capabilities, service providers focused on the acquisition of startups as opposed to partnerships. As many as 70 percent of acquisitions in Q4 were startups compared to 50 percent in Q3.
  • Key location risk/opportunity trends identified for Q4 2018 include South Africa announcing a new GBS incentive scheme to improve the country’s value proposition; Lithuania attracting a multitude of players looking to innovate and deliver FinTech services, increasing competition from service providers for engineering services sourcing, and significant investment from the Canadian government, likely to boost attractiveness of British Columbia for digital services delivery.

Learn More

  • Download a complimentary 16-page abstract of the report findings here.
  • In the recent webinar, “The 5 Most Important Global Services Trends for 2019,” Everest Group experts shared the context for many of the highlights of the Market Vista™: Q1 2019 report as well other key market trends. Watch the replay or download the webinar deck here.

FinTech Sandboxes: Good for Business Growth, Good for Countries’ Economies | Blog

By | Banking, Financial Services & Insurance, Blog

Since the early part of this decade, when technology-backed disruptions started knocking on businesses’ doors, FinTech – or financial technology – transformation has been one of biggest opportunities for BFSI companies. But while they’ve consistently accelerated their transformation journeys, BFSI firms and the FinTech providers themselves have been impeded by multiple complex challenges. These include stringent regulatory requirements, exposure to cyberattacks, lack of customer trust, limited government support, and, most importantly, limited opportunities to refine and train their analytics engines in real environment.

The good news, however, is that now, even government bodies are starting to take up agendas to facilitate and foster FinTech innovation. Over the past two years, multiple countries, including Denmark and the Netherlands, have come up with their own versions of regulatory sandboxes to promote activity in the FinTech space. In addition to attracting a multitude of players looking to innovate and deliver FinTech services, these sandboxes have also contributed significantly to the overall business growth in the countries in which they’re located.

Lithuania’s FinTech Sandbox

Against this backdrop, let’s take a look at Lithuania’s newly-established FinTech sandbox through multiple lenses: what it means for the participants, how it will impact the country’s global services industry, and factors that BFSI and FinTech firms need to focus on to leverage innovation opportunities from these types of initiatives.

On October 15, 2018, Bank of Lithuania kickstarted a regulatory sandbox for FinTech start-ups and BFSI firms. The goal is to enable the companies to test their new products/solutions in a live environment with real customers, while Bank of Lithuania provides consultations, simplified regulations, and relaxations on supervisory requirements. After successfully testing their new products, the companies can implement them in a standard operating environment.

Key Highlights of the Lithuania FinTech Sandbox

Key highlights of the Lithuania FinTech sandbox

Impact on Lithuania’s Service Delivery Market

While the Lithuanian FinTech market experienced 35 percent CAGR growth between 2015 and 2017, we expect it to grow by an additional 35-45 percent in 2019-2020. The FinTech sandbox will contribute significantly to this growth. Other drivers will include:

  • A large, tech-savvy, and growing workforce with relevant skills and educational qualifications (e.g., advanced degrees in science, mathematics, and computing)
  • Unified license providing access to a large EU market across 28 countries
  • Favorable regulatory policies, including expeditious licensing procedures and regulatory sanctions exemptions (e.g., remote KYC allows firms based outside Lithuania to open an account in the country without having a physical presence there)
  • Proactive government policies, including creation of funding sources (e.g., MITA), and streamlining laws and tax relief programs for start-ups
  • A state-of-the-art product testing environment for blockchain, through the country’s LBChain sandbox, which is set to open in 2019

Here are several aspects of Lithuania’s service delivery growth story that we expect to see in the next couple of years.

  • Delivery region: While service delivery demand will continue to be strongest from Lithuania and the Nordic countries, we expect strong growth in delivery to other European and SEPA (Single Euro Payments Area) markets. This will be driven by players looking to hedge their post-Brexit risks of buying/delivering services from only London
  • Segments/use cases: Most of the growth will come from lending and payments platforms, with relatively lower growth in capital markets and insurance
  • Business model: While B2B will remain the dominant model, we expect a significant uptick in in “B2C & B2B,” due to increasing demand for a better customer/institutional experience
  • Collaboration between startups and financial institutions (FI): Startups will continue to leverage FIs as distribution partners, but we expect significant growth in models where FIs partner with start-ups as customers or sources of funding

How Should BFSI and FinTech Players Strengthen their Own Growth Stories?

As BFSI and FinTech continue to walk the transformation tightrope in the everchanging regulatory space (e.g., PSD2 and GDPR), they need to focus on the following factors to successfully grow:

  • Understand the need: Look across your existing and aspirational ecosystem of FinTech delivery, and zero in on key priorities (e.g., solutions, target markets, need for regulatory sandboxes) if any, to enable a future-ready delivery portfolio
  • Establish your approach: Tune your delivery strategy to progressive principles such as availability of talent and innovation potential, not just operating cost. This includes prioritizing geographies with high innovation potential and next generation skills (e.g., Denmark, Israel, and Lithuania) over low cost but low innovation potential alternatives
  • Brainstorm your scope: Build relationships with leading BFSI players and start-ups to share/learn best practices around efficient operating models and promising use-cases. This specifically includes liasing with incumbents operating in sandboxes to prioritize select use cases with transformative potential before testing in a real environment
  • Get ready: Selectively rehash your technology model to simplify legacy systems, become more intelligent about consumer needs, and reduce exposure to cyberthreats
  • Keep an eye out: Look for opportunities (e.g., sources of funding, sandboxes, and partnerships) to help you innovate, develop, test, or successfully implement solutions

The good news is that the push (or pull) towards FinTech transformation is in same direction for all leading stakeholder groups – service providers, buyers, collaborators, customers, and government bodies. But, because the least informed is often the most vulnerable, BFSI, FinTech firms, and companies seeking their services must stay informed and keep looking for opportunities and solutions.

To learn more about other key emerging trends in the FinTech space, please read our recently released report, FinTech Service Delivery: Traditional Locations Strategies Are Not Fit For Purpose.