Tag: BFSI

Generative AI and Cloud Integration Keep Mainframes Alive in the BFSI Industry | Blog

Though a recent Everest Group survey revealed the pressing need for mainframe modernization, the technology is far from dead in the banking, financial services, and insurance (BFSI) industry. The rise of generative AI (gen AI) will encourage more BFSI firms to adopt a comprehensive technical architecture, integrating cloud and mainframe technology at its core. Read on for insights from the survey or get in touch. 

Are BFSI firms really ditching mainframes? The BFSI industry is indeed grappling with the prospect of abandoning this approach. According to an Everest Group survey, about half of the respondent firms have shifted their peripheral tasks away from mainframes.  

Concerns about mainframe system scalability loom large for more than 50% of sizable BFSI firms, while about 60% of smaller firms struggle primarily with finding talent skilled in older programming languages such as COBOL.  

Operational complexity with mainframe systems is also reported as a challenge by over 90% of BFSI respondents, underscoring the pressing need for mainframe modernization. Evolving priorities such as building data-driven workflows, digitalization, and enhancing customer experiences further fuel this urgency. 

Cost efficiency and talent unavailability are the main drivers for mainframe modernization, closely followed by the imperative for innovation. North American firms prioritize core banking and CRM workloads over modernization, while European players emphasize digital channels and payment infrastructure. 

Despite these challenges, mainframes are expected to remain integral to BFSI operations. A significant majority, about 60% of the respondent firms, have not yet started modernizing their core systems. In the coming years, non-core applications will continue to have a higher migration rate than core applications.  

However, industry research underscores that BFSI enterprises optimize and enhance their mainframe ecosystems, presenting a promising opportunity for service providers to assist. Let’s explore this further.  

Capturing cloud value through a hybrid infrastructure

With mainframes here to stay in the BFSI industry, enterprises can gain a competitive advantage by investing in the private cloud to capture the underserved and large demand for hybrid IT. Hybrid cloud is a constant across all our BFSI industry enterprise conversations.  

Of the respondent BFSI firms, 35% utilize private cloud for their modernization initiatives — mainly in a hybrid cloud environment — while 65% rely on a multi-cloud strategy.  

IBM’s focus on transforming the mainframe’s interface to other environments validates this trend. The launch of z15 and z16 is the company’s answer to the age of cloud computing. It is an evolution to meet the needs of hybrid cloud deployments, leveraging investment in data, generative Artificial Intelligence (gen AI), and applications, adding features and functionality to complement this strategy. IBM is focusing its messaging on rightsizing over downsizing. The strategy to provide more flexibility, predictability, and cost-effectiveness is evident in the company’s push for tailored fit pricing.   

The survey reveals many firms believe the disconnection between mainframe environments and new cloud-native systems and applications is a big challenge. Further investments in technologies like application programming interfaces (APIs), in collaboration with technology and service providers, will help bridge this gap in the coming years. 

Will banking’s AI revolution enable cloud-based modernization? 

We expect a symbiotic relationship between gen AI and IT modernization, each complementing the other’s growth. Cloud computing is the foundational block providing the right computational power to run AI applications, while AI’s enhanced speed and efficiency will support cloud migrations.  

BFSI firms are channeling investments into gen AI, crafting use cases to support their modernization initiatives and business operations. The survey found that 40% of the BFSI firms have proof of concepts or use cases for gen AI to support mainframe modernization.  

Firms have moved beyond experimenting with gen AI. Goldman Sachs and Deutsch Bank have started using gen AI to generate code and refactor their modernization initiatives, closely watching the impact. They are building and rolling out use cases to improve operational efficiency. We believe that the banks poised for future success are identifying use cases that solve specific business problems aligned with their organization’s strategy. This can enable them to measure the results easily and encourage leadership buy-in.  

With mainframe modernization services growing at a steady 4-5%, the ability to adapt and innovate using newer technologies such as gen AI will drive more BFSI firms to adopt a more robust and holistic technical architecture with both cloud and mainframes at its core. 

However, the question remains: will gen AI bring exponential change in the next three years? There is one certainty: the need for a strong IBM, service provider, and hyperscaler value proposition will continue to grow for BFSI clients. 

To discuss mainframe modernization further, please contact [email protected] and [email protected]. Understand more about the future of the enterprise mainframe, or watch our on-demand webinar on the future of generative AI implementation at enterprise level.

Wipro Acquires Capco Creating End-to-End Digital Consulting Services | Blog

Since Wipro’s March 4, 2021, announcement to acquire Capco, the London-based global management and technology consultancy that provides digital, consulting, and technology services to financial institutions, for US$1.45 billion, reaction has been mixed as to whether it will deliver the synergies and earnings growth Wipro expects. However, Wipro’s consulting-led offerings matched with Capco’s digital capabilities appear to be poised to deliver a powerful, end-to-end service for clients.

Here’s our take.

What’s in it for Wipro?

Wipro, a leading, India-based global IT, consulting, and business process services company, has acquired numerous companies in the last few years, such as Appirio for cloud services, Opus CMC for the mortgage industry, Designit, Syfte, and Cooper for design thinking and strategy, and International TechneGroup (ITI) for its industrial and engineering services. The Capco deal, which is expected to close at the end of June, stands apart from the other acquisitions not only because it’s Wipro’s largest to date but because it will greatly improve Wipro’s digital offerings in the BFS space, Wipro’s largest business unit. This will narrow the gap between Cognizant, Infosys, and TCS, Wipro’s three biggest competitors in the BFS arena.

Also, in 2020, digital contributed to nearly 40 percent of Wipro’s total revenue, making Capco’s digital capabilities integral in positioning Wipro as one of the market leaders.

The Wipro/Capco acquisition will deliver improved benefits to clients, including:

  • Superior capabilities in consulting and advisory: With this deal, Wipro will join a small group of service providers that bring integrated end-to-end solutions at scale to their customers. Wipro and Capco’s collective capabilities include high-value, upstream activities like consulting and advisory, and design and build, as well as downstream activities such as implement and manage
  • Better access to newer geographies and clients: With more than 40 percent of Capco’s US$700 million revenue coming from Europe, this acquisition will help Wipro strengthen its foothold in that market. In addition to the larger strategic benefits that the deal aims to provide, it will also add 30 new BFS logos to Wipro’s portfolio and could bring in more business from the company’s existing clients
  • Balanced shoring mix: Capco’s high leverage of onshore and nearshore delivery centers nicely complements Wipro’s offshore-heavy delivery footprint, which will give Wipro the opportunity to handle judgment-intensive work for onshore-heavy clients
  • Technology synergies: A blend of Capco’s multiple point solutions and Wipro’s digital investments will help Wipro strengthen its asset management, custody, and prime brokerage offerings, and develop niche, targeted next-gen solutions for its client base
  • Domain depth: Capco will deepen Wipro’s capabilities in digital banking and payments, as well as the asset management, custody, and prime brokerage spaces. This is critical at a time when financial services firms are looking to engage with providers with more domain depth
  • Augmented risk and compliance offerings: Wipro will be able to augment its current risk and regulatory compliance offerings on its Wipro Holmes platform by leveraging Capco’s extensive Finance, Risk, and Compliance (FRC) offerings and solutions portfolio

Large-scale acquisitions are not new to Wipro or the BFS industry; however, success from such high-value acquisitions are not always guaranteed. It is, therefore, no surprise that this announcement was received with mixed reactions and speculation from the market as to whether it will deliver the synergies and earnings growth that Wipro has promised.

Overall, we remain optimistic about the deal and believe this acquisition will equip Wipro to better solve BFS clients’ challenges through Capco’s future-ready digital capabilities. Most importantly, the acquisition is complementary in nature and will help Wipro gain scale, speed, and stature.

How will unities like consulting and digital end-to end services affect the broader BFS market?

Wipro’s consulting-led services, together with Capco’s digital capabilities, will provide more meaningful end-to-end long-term support to clients. It would not be surprising to see similar deals coming up across various segments of BFS with the aim of providing bundled offerings, as products lose their charm when offered on a standalone basis. Complementing service offerings with consulting-led delivery capabilities is being seen across various BFS industries, including mortgage and FCC. These capabilities are being acquired not just through acquisitions but also through partnerships, such as the recent one between Genpact and Deloitte in the financial risk and compliance domain.

Though this trend witnessed a slow start, especially for the Indian IT firms, it looks promising and rewarding in the long run and is only expected to gain momentum. Through end-to-end consulting and digital service offerings, enterprises get access to a compelling combination of digital talent at scale with a consulting-led delivery approach, which helps achieve greater business value and gains.

Success hinges on successfully executing consulting-led digital transformation

Generally, the value addition to enterprises entirely depends on the speed at which service providers can utilize the enhanced breadth and depth of their offerings post-acquisition. Having said this, the key to achieving significant value addition for both Wipro and Capco’s clients would eventually lie on smooth integration and flawless execution.

For the returns to outweigh the risks, a superior execution policy needs to be in place. The key to inspiring its BFS clients will be to align consulting, design, build and operate capabilities around solving some of the industry’s biggest challenges. For BFS clients, this is namely modernizing legacy systems, providing innovative product and service offerings, ensuring a delightful customer experience, and effectively managing the ever-evolving regulatory landscape. For Wipro’s enhanced capabilities to be successful, it should help reinvent the client’s journey through a rare combination of consulting-led digital transformation.

We would love to hear your thoughts on this acquisition and or others that are following the same trend, reach out to [email protected].

Choosing the Right Partners in the Expanding Environmental, Social, and Governance (ESG) Product Ecosystem | Blog

The ESG platform/product vendor ecosystem is expanding at an exponential rate, with banks increasingly collaborating with the larger network following the pandemic. Large banks such as Citibank have collaborated with Truvalue Labs to accelerate their ESG research initiatives. Similarly, in the UK, Lloyds Banking Group has partnered with Sancroft to obtain insights and advice on the best ESG practices. US-based specialist asset manager Trillium Asset Management has collaborated with Trucost to conduct a carbon analysis of its sustainable opportunities strategy.

In our previous blog on ESG, we highlighted that – while the ESG ecosystem is evolving within the Banking and Financial Services (BFS) industry – firms fail to recognize its potential to generate long-term risk-adjusted returns. In this blog, we explain the evolution of the ESG product and platform vendor landscape. These products are helping BFS firms think and act on ESG proactively and tap into several opportunities that the ecosystem offers.

Decoding the ESG vendor landscape

In response to the demand for robust ESG integration, vendors are offering various products and services, ranging from raw data and reports across multiple ESG areas to extremely sophisticated analytics platforms. The focus areas for these firms include stock screening, portfolio construction and analysis, competitive benchmarking, risk management, green bond framework evaluation, second party opinions, scenario analysis, controversy analysis, ratings, and rankings.

The ESG vendor landscape itself can be broadly divided into three categories: data and data analytics providers, technology providers, and ESG advisory firms.

Data and data analytics providers use unique ways of sourcing, categorizing, and quantifying ESG data before building an analytics layer over it. Based on coverage, these providers can be further categorized as ESG market data providers, ESG exclusives, and ESG specialists.

  • Global and well-established financial market data providers now offer ESG data as well. Some of them even consider ESG factors when determining financial ratings.
  • ESG exclusives provide comprehensive ESG data solutions covering majority of asset classes. They extract data from multiple public sources and/or company interviews and apply subjective analysis using diverse ESG metrics to create a comprehensive solution.
  • ESG specialists cover specific ESG factors such as gender equality at companies or the company’s impact on climate and the environment.

Consulting and advisory firms assist financial services firms and other enterprises in building data and governance frameworks, integrating ESG, and facilitating their regulatory reporting strategies. In fact, taking note of ESG’s growing importance, firms such as esg.solutions, NEPC, Sancroft, Callan, State Street, Clearbrook, Goby, ASC Advisors, KKS Advisors, Canterbury Consulting, and Mercer have introduced ESG consulting as a separate arm within their consulting practices. We believe that the ability to highlight ESG issues that affect financial performance will be a differentiating factor in this arena.

The exhibit below showcases the vast and expanding ESG vendor landscape today.

Exhibit: Understanding the ESG vendor landscape

ESG Vendor Landscape

With such an expansive and thriving market for ESG services, it may be difficult for leaders to choose the best-fit vendors.

Selecting the right vendors and ecosystem mix will make a difference

Some characteristics that will help financial institutions distinguish among data and analytics vendors are market coverage, quality and quantity of ESG indicators, investments covered, methodology, sources, support to standard frameworks, and company involvement.

Also, market intermediaries such as stock exchanges, rating agencies, reporting and regulatory bodies, index providers, and ETF providers play an equally important role in developing the right ESG ecosystem. Hence, BFSI firms need to collaborate with the right mix of data, regulatory frameworks, and technologies. It is complicated, but ultimately provides a lucrative opportunity to IT service providers to offer innovative ESG products and solutions and provide custom-built solutions on partner products tailored to banks’ specific needs. This will ease the transition and change management process for banks and financial institutions. A few service providers, consulting leaders, and boutique consulting players have already created frameworks and solutions to help banks with their ESG needs.

We are confident that over the next decade, ESG will not be discussed as a standalone or secondary strategy but will be a mainstream financial services proposition, creating sustainable long-term value, not only for investors and BFSI enterprises but for the entire ecosystem.

If you would like to understand how a platform-centric approach can fast-track your ESG journey, reach out to [email protected], [email protected], or  [email protected].

We also invite ESG data and analytics providers, IT service providers, and consulting firms to reach out to us to get featured in our upcoming research assessing ESG vendors that serve BFSI enterprises. Please refer our Research Participation Guide to understand the scope, objectives, and participation process of the research.

This is the second blog in this series that explores the ESG space; read the first and third blogs for further insights.

The Importance of Integrating Environmental, Social, and Governance (ESG) Mandates into BFSI Enterprises’ Operations | Blog

Banking, Financial Services, and Insurance (BFSI) firms are under increasing pressure to operate more sustainably, mindful of their economic, social, and environmental impact. This implies conforming to  Environmental, Social, and Governance (ESG) regulations, which mandate enterprises to be conscious of: their impact on the environment; their relationship with employees, suppliers, clients, and communities; and robust standards on company leadership, risk management, and stakeholder rights. Further, voluntary guidelines such as the Equator Principles, UN Principles for Responsible Investment (PRI), and recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are forcing banks to incorporate ESG as part of their lending, investment, and financing decisions. We strongly believe that today’s voluntary commitments will soon be replaced by hard regulations, and, hence, organizations that embrace these mandates sooner will be ahead of the game, if that comes to pass.

Three aspects drive ESG integration in BFSI operations today: 1) reputation, marketing, and public relations; 2) growing client demand for ESG-conscious investment practices; and 3) regulatory burden. ESG enhances BFSI firms’ brand perception for all stakeholders, including millennial talent, which is more attracted to brands that take firm actions around ESG mandates. Advances in technology and the use of AI / big data / ML are further helping combat challenges related to ESG measurement.

However, these drivers fail to factor in the significant potential to generate long-term risk-adjusted returns through ESG compliance. Our research suggests that firms that can better navigate environmental and social disruptions, while incorporating good governance practices, will be able to mitigate risks and create long-term value.

The exhibit below highlights the various factors contributing to banks’ increased focus on sustainability or ESG.

Exhibit: Factors driving banks’ increasing emphasis on sustainability

Factors driving banks’ increasing emphasis on sustainability

The push of the pandemic

The COVID-19 pandemic served as the first real proof point that ESG investing can future-proof investments and boost returns even in uncertain times, with sustainable funds outperforming their more conventional counterparts. Consequently, ESG investing solidified its position as a dominant feature across the financial services landscape in 2020, with investments in sustainable funds in the US almost twice the previous year’s total.

Leading credit rating agencies such as S&P and Moody’s have indicated that innovative ESG initiatives will help BFSI firms improve financial performance, in turn providing the monetary resources to further enhance their ESG strategies. Further, large fund management firms such as BlackRock Inc., Vanguard Group, and State Street Global Advisors, are making ESG-focused investments. In February 2021, Vanguard appointed Fong Yee Chan as the firm’s first head of ESG strategy for the UK and Europe.

BFSI firms that can swiftly integrate a comprehensive ESG strategy into their investment plans will be able to capture a greater share of ESG asset flows. Such a comprehensive strategy would comprise five aspects:

  1. Developing the ESG strategy
  2. Engaging with different stakeholders across the ESG landscape
  3. Launching new products for the growing demand for ESG investing
  4. Creating the right ecosystem of data providers, requisite frameworks, and technologies
  5. Switching to responsible practices.

Asset managers should therefore think fast and come up with dedicated strategies to capitalize on the opportunities and gain competitive advantage in the long run.

Partnering with technology vendors to navigate the ESG space

Traditionally, ESG was incorporated through exclusionary screening, in which investments that did not align with an enterprise’s beliefs and values were dropped. Later, practices such as thematic investing (supporting a particular ESG area), impact investing (focusing on creating a positive change rather than only financial returns), and best-in-class selection (selecting investments with positive ESG performance relative to industry peers) emerged. Gradually, we are moving toward a comprehensive ESG integration model, wherein investors are systematically and deliberately including ESG-related factors into their complete financial analyses.

However, the lack of a standard taxonomy to capture ESG performance, low quality ESG reporting by companies, and the deficiency of robust ESG data pose major challenges to this integration. Technology vendors in the BFSI space can help enterprises understand ESG processes, ensure compliance, and generate optimal value. These partnerships are increasingly important at a time when corporate ESG disclosures are dramatically improving – 80% of the world’s largest corporations use Global Reporting Initiative (GRI) standards today. Further, the number of signatories to the PRI has increased from 63 investment companies in 2006 to more than 1,700 signatories with US$81.7 trillion in Assets Under Management (AUM) today. In recent times, the International Integrated Reporting Initiative (IIRC) and Sustainability Accounting Standard Board (SASB) frameworks have also been gaining enterprise attention.

We would like to hear your thoughts on ESG and its increasing importance in the BFSI industry. Please reach out to us with your inputs at [email protected], [email protected], or  [email protected].

This is the first blog in this series that explores the ESG space; read the second and third blogs for more insights.

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