Regulatory Compliance & Analytics in Cap Markets ITO Contracts | Market Insights™
Capital markets ITO contracts scope characteristics: Regulatory compliance and analytics highest; digital components on the rise
Capital markets ITO contracts scope characteristics: Regulatory compliance and analytics highest; digital components on the rise
Capital markets applications outsourcing (AO) activity doubled in 2013
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As margin pressures rain down on financial institutions in the aftermath of the financial crisis, many take shelter in BPO, driving overall uptake and increased adoption across all geographies and buyer sizes, as well as increased inclusion of complex processes in contracts to address regulatory compliance and long-term risk issues
Increased focus on value-added services above and beyond cost arbitrage drives adoption of complex services
Increased activity from small & mid-sized players has resulted in declining ACVs in both banking and capital markets BPO
Regulatory pressures have driven increased BPO adoption in Europe, while the unstable macroeconomic climate has dampened adoption in the US market
The banking BPO growth rate slowed in 2013 due to a variety of macroeconomic factors. Capital markets BPO, on the other hand, saw accelerated growth as buyers increasingly recognized the benefits of outsourcing to both enhance their existing capabilities and manage costs. We expect the banking BPO market to recover in the coming few years, boosting its growth, while the capital markets space is expected to maintain its current pace.
US$9 billion up for renewal in European banking and capital markets space
About US$9 billion in large AO contracts are up for renewal by 2016 in Europe (74% of the renewals in banking; 26% in capital markets). The biggest chunk of renewals for banking, 37% of the subsegment total, is in 2014; for the capital markets subsegment, the largest renewal year is 2015, with 42% of the subsegment total.
Europe dominates global banking and capital markets ITO transaction activity
With 74 banking and capital markets ITO transactions in 2012, Europe saw more activity than all other geographies combined (68 transactions). Although transaction activity has been on the rise in Europe prior to 2012, spending levels saw only a modest rise in 2012. However, in the same time period all other geographies saw declines in publicly announced banking and capital markets ITO transactions.
A couple of years ago, we wrote a blog on the common pitfalls of a broad-brush sourcing strategy for Europe. At the time, we talked about the variations in ITO demand profiles across different Continental European markets such as France and Germany. Examining the vertical-specific demand structure for IT services in Europe today, we discovered that the market in Europe remains distributed across various countries instead of being concentrated in any one. This is especially true for the banking and capital markets space, as illustrated in the figure below.
Delving deeper into the nuances of the banking and financial services (BFS) industry in Europe, it’s clear that the need for a customized strategy for this space has become increasingly relevant. There are multiple reasons driving this:
To address these variances across different European countries, both buyers and service providers must be more mindful of geographic dynamics. Buy-side banks and financial services companies need to ensure that they maintain a balanced localized focus, while also maintaining global synergies and leveraging best practices from global operations. And to succeed, service providers must understand the unique demand profile and nuances of each individual European geography, and target each one accordingly to accommodate geographic interests.
Everest Group recently completed a PEAK (Performance, Experience, Ability, Knowledge) assessment of 30 leading service providers for the banking and capital markets domain in Europe. Following is a snapshot of the assessment’s key results:
Additional insights are available in the full report, IT Outsourcing in European Banking and Capital Markets – Service Provider Landscape with PEAK MatrixTM Assessment 2013.
We believe the service provider landscape will continue to further evolve. That said, the mantra for success is adopting a bespoke approach to serve the diversified European region!
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