Tag: BFSI

BigTechs in BFSI: The Pragmatics of Co-existence for Market Expansion | Blog

Google recently announced that it is teaming with eight US banks to offer checking accounts powered by its Google Pay product and built on top of the banks’ existing infrastructures. Google is not the only BigTech firm that is pushing its play in the Banking, Financial Services, and Insurance (BFSI) industry. Facebook recently launched a new unit called Facebook Financial that consolidates all its payment products under David Marcus, the former President of PayPal. In a call with investors in July 2020, Tesla announced that it is planning to launch a major insurance company.

Eyeing the prizes

The transformation of the BFSI industry is powered by the ability to create innovative products and experiences using digital capability platforms and data. The BigTech firms see this as a massive opportunity to use their digital platforms and data processing infrastructures to gain a significant share of this transformational opportunity in the BFSI industry.

Additionally, the emergence of a globally connected ecosystem and ambient technology have led end customers to demand seamless experiences to manage their lifestyles and finances. Realizing yet another opportunity, BigTechs such as Amazon, Ant Financial, Apple, Facebook, Google, and Microsoft entered the BFSI industry to offer complementary financial services to support the BFSI firms’ core businesses. They gradually started providing technical capabilities to enable BFSI firms to enhance their operations, products, and experiences, eventually offering competing products and services. In fact, today, BigTech firms are at the epicenter of accelerating a shift in both demand and supply ecosystems, blurring traditional industry boundaries.

In our recently released report, BigTechs in BFSI Industry: The Theory of Co-existence for Market Expansion, we analyzed BigTech firms’ investments in the BFSI industry to dissect their strategic bets and provide recommendations for BFSI firms.

Building technological capabilities to compete

Traditional BFSI players are understandably concerned about BigTechs’ increasing sphere of influence, but their complex relationship with BigTechs makes it difficult for them to devise a focused strategy – to compete or collaborate – with their new peers. While some BFSI firms are expecting regulatory scrutiny and industry watchdogs to keep BigTechs away from their turf, others are developing technologies in-house and in collaboration with enterprise technology firms such as SAP, Salesforce, and Oracle to shore up their capabilities. For example, the top five banks in the US recently increased their technology budgets by more than 10 percent, with a large proportion focused on building proprietary technologies and platforms, as well as R&D, to better compete with BigTechs and FinTechs. In 2019, Bank of America alone filed 418 technology patents.

Our viewpoint

We believe BFSI firms should find a fine balance of working with BigTechs as fellow ecosystem players to leverage synergies and create a win-win for all stakeholders.  Here’s why.

A look at BigTechs’ scale of technology investments and R&D reveals that they heavily outperform BFSI firms in their technology capabilities. In 2019, AWS obtained 2,400 US patents and IBM obtained 9,262. These numbers indicate that their technology and research prowess position them as strong allies of BFSI firms. BigTechs have further strengthened their foothold in the industry through open banking and asset and data monetization models. FinTechs are already disrupting BFSI incumbents, with BigTechs powering many of them with technology and funding.

Thus, partnerships with BigTechs and other players in the ecosystem can help BFSI firms strengthen their role as orchestrators of customer lifestyle experiences. Armed with large technology investments and R&D budgets and a wide range of technology and IT infrastructure offerings, BigTechs have a lot to offer to traditional players. Cloud computing services such as Amazon AWS, Google Cloud, and Microsoft Azure can help – and are helping – BFSI firms improve their operational efficiencies and reduce costs. For instance, financial institutions in China are leveraging Ant Financial’s ZOLOZ platform for biometric authentication of customers.

Add to this BigTechs’ data and analytics capabilities, and the value they bring to the table increases manifold. BigTechs are not only helping incumbents manage and analyze their own data, but also offering aggregated data from various sources to support BFSI firms and deliver value to their customers.

And that’s not all. BigTechs enjoy a loyal customer base, and BFSI firms can tap into this vast pool. In fact, customers want to see their favorite banks and BigTechs come together to make their lives easier –the launches of Apple Card and Amazon Visa Credit Card are testimony to this fact.

Partnerships can also help banks reach out to the underbanked and underinsured populations. A case in point is Goldman Sachs offering credit to Amazon sellers. Facebook, with its widespread reach, can also act as a liaison between customers in remote areas and financial institutions that do not have brick-and-mortar branches in such areas. Addressing the issue of financial inclusion will not only help BFSI firms and BigTechs increase their market size, but also benefit the lives of those who still do not have access to credit and insurance.

It’s actually an equal partnership

When striking a bargain with BigTechs, BFSI firms must remember that they are equally powerful in the partnership. Traditional BFSI firms command customers’ trust and are better equipped to manage risk and compliance requirements. In contrast, BigTechs are struggling to make a name for themselves in the financial space and are eager to partner with BFSI firms to leverage the trust they enjoy, their access to vast capital reserves, and to bypass some of the regulatory compliance issues.

This situation makes the alliance between BFSI firms and BigTechs an accord between equals, a relationship that is mutually beneficial and sustainable. BFSI firms should confidently partner, co-innovate, and co-exist with BigTechs not only to carve a bigger share for themselves but also to share the benefits with their customers.

If you’d like to learn more about the role of BigTechs in the BFSI industry, please read our recently released report BigTechs in BFSI or reach out to me directly at [email protected].

Can Your Shared Services Group Manage Enterprise Risk? | Blog

The financial crisis of the late 2000s, increasingly stringent regulatory requirements, growing competitive pressures, and a host of other factors have vaulted the risk management function to new heights of strategic importance for banking, financial services, and insurance (BFSI) companies. Our ongoing research in the sector shows that most enterprises handle risk management out of their onshore headquarters locations, rather than giving ownership of the function to their offshore shared services centers, or what we call Global in-house Centers (GIC). When we asked BFSI companies why they were keeping risk management on their home turf, they cited several reasons:
  • Because they’re still trying to streamline their risk management frameworks, structures, and processes, they’re unclear what to keep onshore and what to offshore to GICs
  • As risk management is becoming an increasingly critical component of the overall enterprise strategy, they view offshoring the function as a risky move
  • They’re concerned that the offshore talent lacks the needed business acumen and understanding of sourcing geography’s regulations
  • They feel constant interaction and frequent coordination with multiple business units and teams is the first line of defense for reducing risk at the origin
What’s the common thread behind all these rationales? They’re all perceptions, rather than reality. In fact, our research shows that GICs are particularly well-suited to deliver the risk management function. Why?
  • Many shared services organizations are the driving force behind their enterprise’s digital, automation, and analytics initiatives, and their deep knowledge in these specialized capabilities can be highly useful in the risk management function. And there are synergies in areas such as risk modeling, forecasting, scenario analysis, and reporting. For example, a leading bank’s GIC has successfully automated local regulatory reporting, and is transitioning to be a centralized reporting team
  • There is a dearth of risk talent globally, but offshore GIC locations, such as India and Poland, have strong, solid pools of talent with deep risk management knowledge. This talent is coming from their domestic market (e.g., local banks) and existing GICs that, over time, have scaled their risk management function
  • To deliver real risk management value to the business, the GIC and the group risk team must be integrated; shared services groups have already cracked this operating model way back in areas such as investment research (e.g., sell-side and buy-side) and actuaries (e.g., pricing and valuation).
How can your shared services organization assume responsibility for your enterprise’s risk management function? Like most GICs, yours was probably established to handle scale-oriented transactional work. But risk is about value, not scale. So, you need to change your parent company’s mindset about your group’s capabilities by proactively identifying, proposing, and demonstrating how you can add value and be a strategic partner in managing risk. Here are a couple of examples that may help get your creative juices flowing:
  • One GIC parlayed its experience with machine learning algorithms to build “Challenger Models” that significantly increase the precision of dataset validation for its company’s credit analysis
  • Another shared services group championed creation of its company’s “Operational Risk Center of Excellence” through process enhancements, global transformation projects, continuous process review and improvement mechanisms. This helped streamline and simplify various processes and risk frameworks.
Our two cents to enterprises: you stand to lose a lot if your risk management capability isn’t up to snuff. Your best solution may be right in front of you, even if not geographically right next to you.

What Analytics Hot Spot Is Right For Your BFSI Business? | Blog

Enterprises that operate in the BFSI industry are the biggest consumers of analytics services. They realized earlier than companies in other sectors how powerful analytics can be in offering targeted and customer-centric solutions, exploiting the massive amount of available data, meeting dynamic customer demands with their expectation for real-time solutions, and helping them adapt to changing business environments. There are four different regions around the world that provide analytics services to BFSI companies: India, Asia-Pacific (APAC,) nearshore Europe, and Latin America. Each has its own unique capabilities, characteristics, and value proposition. To help BFSI firms select the right delivery location for their specific needs, we recently completed a “Locations Insider Report” named Global Hotspots – Analytics in BFSI. Following is a look at the findings. To add context to them, we classify analytics solutions into four types based on their sophistication and business impact, as you see here. What Analytics Hot Spot is Right for Your BFSI Business?

India

India is the leading delivery destination for analytics services in the BFSI industry. It has a large talent pool (more than 65 percent of the global sourcing FTEs in nearshore/offshore locations,) and offers high cost arbitrage. Because of these factors, a large number of BFSI companies have chosen to set up analytics Centers of Excellence (CoE) in key tier-1 locations such as Bangalore, Delhi NCR, and Mumbai. While both tier-1 and tier-2 locations support traditional analytics services delivery, and largely support customer, fraud, and finance risk analytics functions, advanced analytics services delivery is concentrated in tier-1 cities. India is also seeing an uptick in start-up activity in analytics services delivery across multiple functions including customer, credit, fraud, and risk. Because these service provider start-ups can provide accelerated access to skilled resources either through partnerships or acquisitions, BFSI companies may want to factor this into their location selection strategy. In the PEAK Matrix evaluation included in our report, Bengaluru and Delhi emerged as “Leaders” because of their high cost arbitrage and significant talent availability. We identified Mumbai as a “Major Contender” due to its healthy mix of cost arbitrage and talent availability, and high maturity in traditional analytics services delivery.

APAC (excluding India)

Manila and Shanghai are the top locations in the APAC region. While services delivery is dominated by service providers offering traditional analytics services, a few locations also have a sizable shared services – or global in-house center – presence. The geography primarily supports finance and fraud risk management functions, and some companies are setting up analytics CoEs.

Nearshore Europe

In nearshore Europe, the top analytics services delivery locations are Budapest, Edinburgh, Prague, and Warsaw. While companies leverage the geography for both traditional and advanced analytics, advanced analytics services delivery for fraud and finance risk management is gaining traction, primarily due to region’s availability of high-quality talent and the ability to support work in many European languages. Certain nearshore locations, such as Belfast and Edinburgh, support high-end predictive and prescriptive analytics, not only because a highly qualified workforce is available, but also because of the need for advanced processes to be in proximity with business customers. Just like India, Poland is experiencing an uptick in start-up analytics service providers.

Latin America

Latin America is an emerging destination for analytics services. One of its key advantages is its ability to provide real-time monitoring and data analysis to the North American market due to its similar time zone. BFSI companies primarily leverage key locations in the region, such as Mexico City and Sao Paulo, for traditional analytics services across risk management functions such as credit and fraud. Because of all that’s at stake, BFSI companies need to carefully evaluate locations for analytics services delivery against their specific business requirements. To learn more about the global analytics services landscape – availability of both entry-level and employed talent pool, market maturity, cost of operations across top locations, and implications for stakeholders including service providers, GICs, BFSI companies, country associations, and industry bodies – please read our recently released report, “Global Hotspots – Analytics in BFSI.”

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

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

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.

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