IT Application Outsourcing in Capital Markets

IT Application Outsourcing in Capital Markets

The IT priorities for global financial services firms are evolving due to emerging business trends across capital market lines of business (LoBs), trade lifecycle, asset classes, regions, and regulatory environment.

According to Everest Group’s study, BFSI Outsourcing: IT Applications in Capital Markets – Trend and Future Outlook, the total TCV of large-sized, active capital markets AO transactions grew four-fold from 2008 to 2010. Deal volume for such contracts also increased by almost three times during the same period. Most of these large capital markets AO deals continue to be structured around application development, ongoing enhancements and maintenance.

Michael Friedenberg, IDG Enterprise, said, “As demands of the organization shift from cost optimization to growth, ADM outsourcing now need to amend their solutions for deeper expertise for the concerned business process and customer engagement.”

Everest Group stated the key imperatives for capital markets firms today as a) Alleviating risk and complexity caused by uncertain global economic environment and wide scale regulatory reform. Investment banking and asset management are the most impacted LoBs, b) Managing trade volatility to streamline front-office operations; and modernizing the clearing and settlement function in mid-and back-office and c)Building “region-specific” expertise to drive the global growth agenda, given that capital markets’ operations across geographies are facing disparate challenges.

Amneet Singh, vice president, global sourcing, Everest highlighted, “Buyers’ focus on managing costs, tighter regulatory controls, and increasing volume and complexity of trades is driving outsourcing activity in the capital markets segment. Key emerging technology investment themes in the capital markets AO space include risk management and analytics, reference data management, regulatory compliance management and reporting, customer-experience management, and internal efficiency enhancement.”

In a companion research, BFSI Outsourcing: Application Outsourcing in Capital Markets – PEAK into the Emerging Service Provider Landscape, Everest Group identified Performance/Experience/Ability/Knowledge (PEAK) matrix, led by six PEAK Leaders – Accenture, Cognizant, IBM GS, Infosys, TCS , Wipro – that collectively account for over 70 percent of active annualized contract value (ACV) of large capital markets AO deals. PEAK Major Contenders are Capgemini, CGI, CSC, HCL, Headstrong, HPES, L&T Infotech, MphasiS, and Polaris. PEAK Emerging Players are Atos, Dell Services, EPAM, Hexaware, Luxoft, and Ness.

Talking about the mid size business, Brain J. Manning, President and Managing Director, CSC India, articulated, “There is a significant growing global market of mid size businesses who have now grown large enough to significantly upgrade their IT infrastructure or want to get there soon enough by leveraging best in class IT. Significant increase in IT spends in outsourcing are likely to come from these emerging companies and economies.”

Observations of the capital markets AO market and its service provider landscape in the research include:

  • Investment banking accounts for the largest share of AO contract signings. Asset management is particularly active in the ADM and testing space
  • North America leads in transaction activity as well as TCV share for large capital markets AO transactions
  • The delivery profile in capital markets AO evolved over the years – proportion of contracts with offshore delivery component increased though offshore leverage (percentage of resources offshore) decreased marginally.
  • Besides India, Mexico and China have emerged as important low-cost locations for capital markets AO delivery. Overall, Asian locations continue to be the most cost effective amongst the available delivery options
  • While global and offshore majors have well-evolved capabilities and success in executing transactions across all capital markets sub-segments/LoBs. Regional players and tier-2 Indian providers focus more on investment banking
  • Global and offshore majors typically focus on large global deals, while tier-2 Indian providers focus on their select portfolio of clients and serve their global operations. Regional players primarily serve the domestic and regional markets

Capital Market AO service providers are further building their regional market-specific expertise, aligning their capabilities and offerings to the evolving business requirements, and investing in building domain knowledge and proprietary solutions

Jimit Arora, research director Everest shared, “Given the ever-evolving nature of the service provider landscape (driven by M&A, IP investments etc.), buyers must familiarize themselves with service providers’ strategy, assess the impact on existing services, and prepare for changes in their sourcing portfolios,” said Jimit Arora, research director. Service providers on the other hand, need to protect and grow market share by enhancing their local/regional capital markets expertise, building in-depth business understanding, and capitalizing on emerging growth opportunities (by exploring new markets, new business models etc.).”


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