Introduction

The Banking, Financial Services, and Insurance (BFSI) industry is one of the largest adopters of IT application outsourcing (AO) services. To cater to this large market segment, a number and variety of service providers have developed capabilities to deliver AO services to BFSI companies.

Market growth objectives post the economic recession, increased competitive intensity, advent of new technology paradigms, and the rapidly evolving regulatory environment, are placing demands on financial institutions to ensure that their applications portfolio is aligned to industry best-practices. As financial institutions strive to maintain and modernize their applications portfolio, they are consolidating their IT service provider base and are looking to identify strategic partners that can sustain the pace of technological advancement in this rapidly evolving industry. As a result of this consolidation exercise, financial institutions are signing larger and more strategic AO contracts with a fewer number of service providers, a phenomenon that is expected to meaningfully alter the AO services landscape in the BFSI segment.

In this research, we analyze the current trends and the future outlook for large, multi-year application outsourcing relationships for the global capital markets sector. We focus on:

• Trends in AO in the BFSI segment
• Market trends and activity for large AO relationships in capital markets
• Drivers for change and future outlook for AO in capital markets
• Implications for capital markets buyers and service providers

Scope of the analysis

• Industry: Capital markets (Investment banking, asset management custody and funds administration, and brokerage services); excludes retail and commercial banking, and insurance (life, annuity, pensions, and P&C), and healthcare payers
• Services: Large (TCV >US$25 million), multi-year (>three years), and annuity-based application outsourcing
• Geography: Global
• Sourcing model: Third-party AO transactions; excludes shared services or captives

Content

This report is structured across three key sections, each containing insights on application outsourcing in BFSI and capital markets sector, with a specific focus on large-sized contracts:

• BFSI ITO market overview: Analysis of the overall BFSI IT Outsourcing (ITO) market and transaction trends:
  • Market size and growth
  • Adoption drivers
  • Transaction characteristics (e.g., transaction volumes, value, frequency, scope)
  • Market activity and adoption trends (e.g., by geography, sub-verticals, functions)
• Capital markets AO overview: Analysis specific to the capital markets AO industry with a focus on large transactions:
  • Transactions activity and growth trends
  • Demand characteristics for capital markets AO services by:
    • Geography
    • Line of business: Investment banking, asset management custody and funds administration, and brokerage
    • AO sub-functions
    • Buyer size
  • Offshore leverage
  • Global delivery locations
  • Renewal activity
• Emerging themes and implications: Analysis of emerging trends and their influence on the future of capital markets AO:
  • Factors altering the demand profile for capital markets AO services
  • Major technology investment themes in the capital markets sector
  • Implications for key stakeholders - buyers and service providers

Some of the findings in this report, among others, are:

• The US$72-80 billion BFSI ITO market played a key role in the recovery of the global ITO industry post the economic downturn. Buyers’ focus on managing costs, tighter regulatory controls, and the need to have centralized IT environments are the key drivers for increased BFSI TO activity
• Within BFSI, the banking sub-vertical accounts for the majority of contracts. Capital markets ITO transactions have longer average duration but lower average TCV as compared to banking
• Application outsourcing is included in the scope in over 60 percent of all BFSI ITO transactions. Nearly half of capital markets’ ITO deals are pure-AO transactions
• Emerging business trends across five dimensions (line of business, trade-life cycle, asset classes, regions, and regulatory environment) are changing the IT priorities for capital markets buyers. Risk and complexity in the macroeconomic environment is impacting most lines of business, and managing trade volatility has become a key front-office priority; while mid- and back-office are more focused on modernization of the clearing and settlement function