Topic: Capital Markets Business Process Outsourcing (BPO) Banking, Financial Services, and Insurance (BFSI) Outsourcing Report: February 2012 Preview Deck
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Table of contents (page 1 of 2) Topic Page no. Background and context 5 Executive summary 9 Section I: Market size and growth 12 Summary 13 Market size 14 Market growth 15 Market potential 16 Adoption by region 17 BPO drivers and challenges 18 Section II: BPO maturity by LoB, trade-lifecycle, and asset classes 21 Summary 22 BPO maturity by LoB 25 BPO maturity by trade lifecycle 29 BPO maturity by asset class 32 Section III: Solution characteristics 34 Summary 35 Scope and term of BPO contracts 36 Technology models 37 Pricing structures 38 Key performance metrics 39 Global sourcing 40 3
Table of contents (page 2 of 2) Topic Page no. Section IV: Service provider landscape 42 Summary 43 Classification of service providers 44 Assessment by scale 47 Assessment by scope 48 Assessment by delivery footprint 49 Key investments 50 Key success factors for the future 52 Appendix 53 Service provider investments 54 Glossary of terms 57 Q1-Q2 2012 BFSI Outsourcing research agenda 60 Research references 63 4
Background and scope of the research Background of the research The global capital markets BPO industry is growing at a fast pace of 25 percent annually. This is despite the downturn in capital markets around the world after the financial crisis of 2008-09. Regardless of the pressures that financial institutions face in a volatile macroeconomic environment, the key benefits of capital markets BPO, such as cost reduction, operational excellence, and improved regulatory and risk management, remain strong attractions. However, changing global economic conditions and buyers priorities are leading to differences in adoption across various geographies, asset classes, and lines of business. Solution characteristics are changing along multiple dimensions such as average term, use of technology, and use of global sourcing to respond to changing demands. Service providers are also innovating to increase their capabilities to serve this growing market which has a large untapped potential. In this research, we analyze the current trends and the future outlook for third-party BPO services for the global capital markets industry. We focus on: Market size and growth trends in capital markets BPO, market potential, and key drivers and challenges BPO maturity by LoB, trade-lifecycle, and asset classes Solution characteristics including scope and contract term, technology models, pricing structures, performance metrics, and global sourcing Assessment of global third-party service provider landscape by scale, scope, delivery footprint, and investments Scope of this report The focus of this report is on the global third-party capital markets BPO industry This report focuses on third-party capital markets BPO and does not include shared services or captives From a scope perspective, this report provides coverage of the non-voice and industry specific BPO in capital markets across the back, middle, and front office. It does not include horizontal business processes, such as horizontal F&A, HR, and procurement This report leverages the following sources of information: Operational profiles of 11 capital markets BPO service providers including Capgemini, eclerx, EXL Service, Genpact, HP, HCL, Infosys, Syntel, TCS, Wipro, and WNS Executive-level interviews with leading capital markets BPO service providers and buyers More than 100 publicly announced capital markets BPO contracts signed up to September 2011 Everest Group s experience and IP in the capital markets BPO industry 5
Overview and abbreviated summary of key messages (page 1 of 2) This report examines the global third-party capital markets BPO industry. It focuses on market size and growth trends in capital markets BPO, market potential, key drivers and challenges. It also looks at BPO maturity by LoB, trade-lifecycle, and asset classes, solution characteristics including scope and contract term, technology models, pricing structures, performance metrics, and global sourcing. It also provides an assessment of the global third-party service provider landscape by scale, scope, delivery footprint, and investments. Some of the findings in this report, among others, are: Market size and growth Capital markets BPO is a US$4-6 billion market growing at 25 percent annually, making it the fastest growing BFSI BPO segment, albeit at a smaller base The current penetration levels for capital markets BPO are extremely low, implying significant value creation potential BPO maturity by LoB, tradelifecycle, and asset classes Adoption by LOBs. There is a near equal split of capital markets BPO across the four LOBs in capital markets Adoption by trade life cycle. Back-office processes are most mature from a BPO perspective. Several mid-office processes are also maturing. Front-office processes are the least mature, though research and analytics related processes are increasingly outsourced Adoption by asset class. Equities and fixed income are the dominant asset classes in terms of BPO adoption. Adoption in FX trading is also increasing. BPO adoption in money market securities and OTC derivatives is low 6
Overview and abbreviated summary of key messages (page 2 of 2) Solution characteristics Role of technology in capital markets BPO is limited services are primarily delivered using existing client technology. However, demand for integrated technology and operations is increasing While input / FTE-based pricing continues to be dominant, adoption of output-based pricing is showing a rising trend in capital markets BPO contracts Service provider landscape The service provider landscape for capital markets BPO is fragmented and includes players with a FTE-centric delivery model (ITO-centric players, BPO-centric players, and KPO specialists) and technology-centric model (diversified financial institutions and platform-based providers) The people-centric and technology-centric delivery models are also starting to converge, with most BPO providers investing in building holistic people-processtechnology solutions 7
This study offers a deep dive into key aspects of capital markets BPO Capital markets BPO snapshot over time BPO maturity assessment by LoB, trade lifecycle, and asset class Distribution of market size in capital markets BPO sub-segments US$ billion Brokerage XX% 100% = XX XX% Asset management Asset management trends and outlook: Trend of trading through portfolio of simple assets or through alternative investments rather than complex, structured products Greater investment in emerging economies Impact of regulation on reporting methods and taxes on offshoring Growing popularity of Exchange Traded Funds (ETFs) as they provide a lower cost, tax efficient, and transparent investment route Increasing M&A activity in the segment (Q1 and Q2 2011) XX% Custody and fund administration XX% Investment banking BPO implications: Greater demand for research into various asset classes, investment models, and alternative investments Development of greater onshore capability to meet regulations and save tax when disposing off U.S.-based investments (FATCA related) Need of capabilities for handling emerging economy regulations, besides those for developed economies Opportunities in the middle office for integrating reporting and operations with custodians, fund managers, clients, and regulators Key characteristics of capital markets BPO solutions Preferred technology models in capital markets BPO Larger, bulge-bracket financial institutions typically have more complex technology environments that are highly resistant to change Complexity of technology environment High Low Augmentation (Standardized boltons / technology wrappers ) Platform-Play (BPaaS / ASP) Low Tie-and-Run (Client / legacy environment) Hybrid (Mixed model) High Complexity of operating environment Complexity of asset classes, level of standardization, scale of trading portfolios influence preferences for technology transformation Typical for large financial majors Significant technology investments and reluctance to experiment with new solutions Typical for mid-market buyers Greater appetite to embrace BPO technology solutions However, lower scale does not necessarily translate to lower operating complexity Comprehensive service provider assessment along scale and scope dimensions Scale of capital markets BPO operations More than XX FTEs Less than XX FTEs Service Provider K Service Provider A Primarily focused on one LoB Service Provider G Service Provider F Service Provider B Service Provider J Service Provider D Service Provider C Scope of capital markets BPO operations Service Provider L Service Provider H Service Provider I Broad coverage across all capital market LoBs Source: Everest Group (2012) 8
Appendix: Additional BFSI BPO research references The following documents are recommended for additional insight on the topic covered in this Research Report. The recommended documents either provide additional details on the topic or complementary content that may be of interest 1. Role of Global Sourcing in FS BPO (ERI-2011-10-R-0529); 2011. This report examines the various global sourcing trends in FS BPO, across banking, capital markets and insurance. The report provides the reader with an accurate overview and clear identification of trends observed 2. FS BPO Service Provider Profile Compendium (ERI-2011-10-R-0523); 2011. This compendium provides accurate, comprehensive, and fact-based snapshots of 14 service providers in the FS BPO market. Each four to five page service provider profile provides a comprehensive picture of their service suite, scale of operations, technology landscape, recent developments, and delivery locations across all financial services segments including banking, capital markets, and insurance 3. Application Outsourcing (AO) in Capital Markets PEAK into the Evolving Service Provider Landscape (EGR-2011-11-R-0623a)2011. This research analyzes the capabilities of 21 leading AO service providers serving the global capital markets sector. These providers were mapped on Everest Group s Performance Experience Ability Knowledge (PEAK) Matrix, which is a composite index of a range of distinct metrics related to a provider s capability and market success. 4. IT Application Outsourcing (AO) in Capital Markets Trends and Future Outlook (EGR-2011-11-R-0621); 2011. This report focuses on trends in the BFSI vertical across three areas outsourcing transactions, captive market analysis, and service provider activity and deals For more information on this and other research published by the Everest Group, please contact us: Saurabh Gupta, Vice President: Rajesh Ranjan, Vice President: Rishabh Gupta, Senior Research Analyst: FS BPO Team: saurabh.gupta@everestgrp.com rajesh.ranjan@everestgrp.com rishabh.gupta@everestgrp.com FSBPOresearch@everestgrp.com Everest Group Two Galleria Tower 13455 Noel Road, Suite 2100 Dallas, TX 75240 Phone: +1-214-451-3110 Email: info@everestgrp.com 9
About Everest Group Everest Group is an advisor to business leaders on the next generation of global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research, and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies, and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms in six continents across all industry categories. For more information, please visit www.everestgrp.com and research.everestgrp.com. 10
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