Introduction

BFSI industry continues to be the largest adopter of IT application outsourcing services. However, the industry dynamics changed significantly over the last couple of years. BFSI buyers are facing increasing pressure to drive top-line growth, manage complexity arising out of wide-scale regulatory reforms, and improve profitability by driving greater cost efficiencies. Market movements, especially across the capital markets ecosystem in the last 12 to18 months, have transformed the IT priorities of buyers.

As financial institutions strive to maintain and modernize their applications portfolio, they are consolidating their IT service provider base. Buyers are also 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. This phenomenon 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 activities for large AO relationships in capital markets
• Emerging priorities of buyers and key investment themes in capital markets AO
• Outlook for 2012

Scope of the analysis

• Industry: Capital markets (investment banking, asset management custody and funds administration, and brokerage services); excludes retail and commercial banking, 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 the 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, and scope)
  • Market activity and adoption trends (e.g., by geography, subverticals, and 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 subfunctions
    • Buyer size
  • Offshore leverage
  • Global delivery locations
  • Renewal activity
• Emerging priorities of buyers and key investment themes in capital markets AO:
  • Factors altering the demand profile for capital markets AO services
  • Major technology investment themes in the capital markets sector
• Outlook for 2012

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

• The BFSI IT market overview:
  • The US$75-80 billion BFSI ITO market continues to be the largest industry segment of the global ITO industry. Capital markets segment (US$10-12 billion) grew the fastest in 2011, driven by buyers’ focus on managing costs, tighter regulatory controls, and the need to have greater control over utilization of IT assets
  • Majority of large deals were announced in relatively less mature markets such as Portugal, Norway, Spain, Canada, and India
• Capital markets AO overview:
  • Notable surge in the number and value of capital markets AO transactions in 2011, driven by financial institutions‘ imperatives to optimize costs and manage increasing complexity arising out of wide-scale regulatory reforms
  • Asset management and investment banking accounted for majority of capital markets AO contracts
• Market dynamics across capital markets ecosystem in the last 12 to18 months have transformed the IT priorities across various lines of business, asset classes, geographies, and functions
• A number of regulatory implementations were delayed in 2011, which made capital markets firms uncertain about their regulatory compliance investments