Banking BPO Insight
NelsonHall's Banking BPO Insight newsletter provides commentary and insight on key banking industry developments and vendor actions which impact your sourcing decisions.
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Latest Edition - January 2012
Contains commentary and insight from NelsonHall analysts on key banking outsourcing industry developments that impact your sourcing decisions.
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BNY Mellon Announces Q4 2011 Revenues Down 5.6% to $3,540m
BNY Mellon has announced Q4 2011 revenues, for the period ending 31 December 2011, of $3,540m, down 5.6% year-over-year.
Q4 2011 revenues (and y-o-y change) by activity were:
- Investment servicing fees: $1,584m (-8.4%)
- Investment management fees: $730m (-8.8%)
- Trading services: $228m (-11.6%)
- Securities finance: $38m (-20.8%)
- Distribution fees: $42m (-23.6%)
- Investment gains: $138m (+82.5%)
- Net interest revenues: $780m (+8.3%).
Analyst comments:
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State Street Announces Q4 2011 Revenues Down 4.6% to $2,315m
State Street has announced Q4 2011 revenues, for the period ending 31 December 2011, of $2,315m, down 4.6% year-over-year.
Q4 2011 revenues (and y-o-y change) by activity were:
- Servicing fees: $1,157m (-1.0%)
- Investment management fees: $202m (-8.9%)
- Trading services: $273m (-11.9%)
- Securities finance: $90m (+30.4%)
- Processing fees: $45m (-36.6%)
- Net interest revenues: $606m (-7.6%)
- Investment gains: $42m (+n.a.%).
Analyst comments:
State Street's revenues tend to follow the market, as it did this year. The first half of the year showed revenue gains, but the second half of the year was weak, as was the market. Overall State Street grew earnings by aggressively cutting costs.
The fourth quarter showed revenue declines across all business lines, exccept securities finance, which reflects the interest rate environment the authorities have imposed to support banks.
For State Street to succeed in the long term, it will need to reduce its sensitivity to market conditions in a few large, mature securities markets, by growing its business in emerging markets. To accomplish that it will need to repair the brand damage incurred by several large suits brought by pensions funds over fees charged.
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Euronet Partners with MCB to Offer EMV Debit Cards in Pakistan
Euronet has partnered with MCB to offer EMV debit cards in Pakistan. Euronet Pakistan is the first EMV certified processor and gateway for EMV VISA debit services in Pakistan.
MCB is a vendor of electronic banking services in Pakistan. MCB has an ATM network with 650 ATMs and a debit card base of 2.5 million cards.
EMV cards provide a higher level of security for payments and are useable in many mature markets around the world.
Analyst comments:
This is a key expansion of payment services in Pakistan. EMV cards, in common use in most advanced countries, provide significantly higher levels of security. By expanding into Pakistan with this offering, Euronet, MCB, and Visa are establishing an early mover advantage in this market. Also, it opens this market EMV cards, and encourages other Asian and African markets to follow suit, if they have not yet done so.
Banking BPO Insight - October 2011
Contains commentary and insight from NelsonHall analysts on key banking outsourcing industry developments that impact your sourcing decisions.
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Visa Announces Fiscal Q4 2011 Revenues Up 12.6% to $2,383m
Visa has announced fiscal Q4 2011 revenues, for the period ending September 30, 2011, of $2,383.0m, up 12.6% year-over-year.
Fiscal Q4 2011 revenues (and revenue increase) by activity were:
- Service fees: $1,105m (+21.1%)
- Data processing fees: $925m (+10.1%)
- Volume and support incentives: -$576m (+36.8%)
- International transaction fees: $758m (+22.5%)
- Other revenues: $171m (+1.8%).
Visa has improved its operating income in Q4 2011 by 22.4% to $1,362m.
Visa posted year-over-year increases across many transaction and dollar value dimensions including:
- Payments volume grew 14.0% on a constant dollar basis at $941 Bn
- Cross border volume grew 15% on a constant dollar basis
- Total processed transactions grew 9%to 13.0 Bn.
Analyst comments:
Visa is growing rapidly due to very aggressive marketing of its services (as evidenced by its 36.8% increase in incentive fees paid out). It is also growing its international business, which grew 22.5% in the quarter over prior year.
Caps on interchange fees will impact revenue growth, but still Visa should be able to continue to grow its revenues and profits faster than the overall market for the next three years.
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Euronet Announces Q3 2011 Revenues Up 15.1% to $299.5m
Euronet has announced Q3 2011 revenues, for the period ending 30 September 2011, of $299.5m, up 15.1% year-over-year.
Operating income was $20.1m down 1.0% from $20.3m in the prior year quarter.
Q3 2011 revenues (and y-o-y change) by activity were:
- EFT processing: $50.2m (+2.0%)
- ePay processing (formerly prepaid processing): $174.3m (+18.0%)
- Money transfer: $75.1m (+18.5%).
Q3 2011 results, as compared to Q3 2010, were impacted by:
- EFT: developing and selling value added products, renegotiating contracts with ATM service providers, expanding into new markets and increasing ATMs under management. The change in German ATM rates had the effect of reducing revenues from this segment
- ePay: primarily driven by the acquisition of cadooz, a German vendor of vouchers and payments.
- Money transfer: transactions grew in all markets (by 13% overall).
Analyst comments:
Euronet continues to aggressively grow revenues by:
- Increasing transaction volumes within markets due to new product introductions and the recovering consumer
- Increasing new market entry.
Margins have narrowed due to fee caps from regulators and costs of new market/product introductions.
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LPS Announces Q3 2011 Revenues Down 13.8% to $532m
LPS has announced Q3 2011 revenues, for the period ending September 30, 2011, of $532.1m, down 13.8% year-over-year.
Q3 2011 revenues (and revenue increase) by activity were:
- Technology, data, and analytics: $193.7m (+3.1%)
- Loan transaction services: $340.2m (-21.1%)
- Corporate and other: $1.8m (n.m.).
Analyst comments:
Loan transaction services revenues continued to decline due to lower industry volumes and fewer loans outstanding.
To overcome what is likely to be a multiyear mortgage industry downturn, LPS will need to focus on its transaction processing services, which are not tied to labor input and therefore can show increased margin as transactions drop (if LPS manages costs well). Also, there is a growing demand for analytics, which LPS supplies from its transaction processing unit.
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TSYS Announces Q3 2011 Revenues Up 6.1% to $460m
TSYS has announced Q3 2011 revenues, for the period ending September 30, 2011, of $459.7m, up 6.1% year-over-year. Revenues excluding reimbursables were $390.2m.
Q3 2011 revenues (and revenue change) by activity, excluding reimbursables, were:
- North America: $243.9m (+5.4%)
- International: $99.9m (+17.3%)
- Merchant services: $93.2m (-25.6%).
Analyst comments:
TSYS' international business is its growth engine. TSYS will need to continue to grow its international business by increasing market penetration in countries where it has established a presence over the past few years.
The U.S. market grew revenues for the first time in several quarters. This was accomplished by a large increase (12.9%) in card transactions and some new account acquisitions.
TSYS' merchant business shrank this quarter, for the first time in several quarters, due to deconversions (loss of processing contracts). This is not good news where the merchant business has been so strong for so many of its competitors.
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Alliance Data Announces Q3 2011 Revenues Up 20.4% to $844.8m
Alliance Data has announced Q3 2011 revenues, for the period ending September 30, 2011 of $844.8m, up 20.4% year-over-year.
Q3 2011 revenues (and yoy revenue growth) by activity were:
- Loyalty Services: $209.7m (+14.0%)
- Epsilon Marketing Services: $248.3m (+46.1%)
- Private Label Credit Services: $389.1m (+11.3%)
- Intersegment: $(2.5)m (n.m.)
Revenues by segment were impacted by:
- Loyalty Services: revenue increased by $12m due to the strengthening Canadian dollar. Revenues were increased by increasing usage of cards in Canada and rollout of the DOTZ program in Brazil
- Epsilon Marketing Services: the primary growth driver was the acquisition of Aspen Marketing Services. Ex the Aspen acquisition, revenues increased c. 6% due to a 15% increase in database revenues
- Private Label Credit Services: growth was driven by a $38m increase in finance charges.
Analyst comments:
Alliance Data has continued the trends of the past several quarters where it has increased revenues from acquisition and database/marketing services. Marketing support for merchants seems to be the future for Alliance Data. As merchants increase their marketing campaigns to counter the weak economy Alliance should be able to continue its strong revenue growth.
Banking BPO Insight - September 2011
Contains commentary and insight from NelsonHall analysts on key banking outsourcing industry developments that impact your sourcing decisions.
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BNY Mellon to Provide Direct Settlement and Clearing in Netherlands
BNY Mellon has launched a direct settlement and clearing service in the Netherlands. The new service is enabled by a direct contractual arrangement with Euroclear Netherlands.
The new service allows BNY Mellon's Broker-Dealer Services clients:
- Faster turnaround times due to pre-matching
- Later deadline for security instructions
- Quicker updates for transaction reporting.
Analyst comments:
Securities processors are entering more markets overseas on a direct basis to offer their clients:
- Lower cost, mostly from the benefits from single vendor management
- Reduced turn around times
- Fewer intermediary links in the processing chain.
The Netherlands market is a large mature market, but not one that is currently growing fast. The primary benefit for BNY Mellon will be to provide standardized access to its existing clients for the Netherlands marketplace.
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Euronet Launches Mobile Payment Service To Enable Consumers Prefering Cash To Use Mobile Payments
Euronet has launcheed a mobile payment service, wipit, to enable consumers who prefer using cash to use mobile payments. The wipit service is available via Google Android and Apple iOS smart phone applications.
Consumers will use wipit accounts, which are funded by credit cards or prepaid cash. To use the service, consumers:
- Download the wipit mobile application
- Establish an account via their handset or on the wipit website
- Use the store locator to find a Euronet-enabled retail location to add funds to their account.
Analyst comments:
Mobile payments are rapidly coming to market. The focus for most vendors is on getting the unbanked market (either cash usage of banked consumers or consumers without ay banking relaitionship). This is an entry in that competition.
Most vendors have targeted the unbanked market in emerging economies. This offerings is targeting the U.S. market. If it is successful it could be a model for how to adopt mobile banking in mature markets.
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Citi GTS Launches Corporate Transaction Connectivity Solution So Corporates Can Integrate Payment Processing Across Markets and Activities
Citi GTS has launched a corporate transaction connectivity solution, CitiConnect, so that corporates will be able to integrate their payment processing across markets and activities (both treasury and securities).
Corporates will be able to exchange messages and files for
- Cash
- Trade
- Card
- Citibank WorldLink payments
- Securities.
Analyst comments:
Corporates have had to manage multiple banking functions with separate, non-integrated systems. This is a step in the right direction to consolidating those systems and reducing the cost of management for corporates.
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State Street Agrees to Acquire Pulse Trading to Expand Institutional Trading Capabilities
State Street has agreed to acquire Pulse Trading to expand its institutional trading capabilities. The acquisition is expected to close in Q4 2011 subject to regulatory approval.
Pulse Trading has :
- Electronic trading capabilities including block crossing and blotter scraping
- Institutional equities business
- Offices in Boston, New York, St. Louis and San Francisco.
Analyst comments:
As regulatory oversight aggressively looks to reduce costs charged by securitie processing vendors in the capital markets space, vendors will have to increasingly automate transaction processing. This acquisition will enhance State Street's ability to meet those requirements, and reduce cost of institutional securities processing, going forward.
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Visa Awarded Mobile Payments Solution Contract By Google
Visa has been awarded a mobile payments solution contract by Google. The solution, Visa payWave, enables consumers to make payments at retail locations by waving their mobile phone in front of a payment terminal. This will allow Visa-issuing banks to enable Visa account holders to add their credit, debit and prepaid accounts to Google Wallet.
Analyst comments:
This is a key contract that helps to change the dynamics of the payments marketplace. Payments have been the domain of banks for centuries. The move to mobile payments has just begun, and for the most part remains in beta testing.
This contract will bring in Google as a key direct vendor of mobile payments capabilities to consumers. At this stage Google will still have to partner with banks to execute payments, but in the future Google, and other like it, may be able to provide the entire range of payments capabilities to consumers. Key likely competitors for consumer payments are likely to come from the retailing, on-line, and financial sectors.
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HML Awarded Mortgage Servicing Contract by U.K. Bank
HML has been awarded a mortgage servicing contract for a £1bn portfolio by an unnamed U.K. bank. It has also been awarded a contract for standby servicing of a mortgage loan portfolio with £27bn outstanding.
Analyst comments:
HML has faced a difficult past two years as the mortgage market has contracted in the U.K. These contracts are the first growth in its contract base announced in the past year.
This could represent the bottom of the contract cycle for HML as it has invested in consolidating its delivery capabilities into lower cost delivery centers and there are fewer competitors left in the market.
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State Street Enhances Derivatives Trading Platform To Support Compliance With Dodd Frank Regulations
State Street has enhanced a derivatives trading platform, futures commission merchant (FCM), to support compliance with the recently enacted Dodd Frank regulations.
Functionality for processing derSatives includes: srvicing; Custody; Accounting; Collateral management; Valuation; Risk management; Analytics.
The regulations will drive most derivative transactions onto exchanges and will impose collateral requirements and require real time reporting.
Analyst comments:
We expect to see many new solution and service offerings as the result of the Dodd Frank regulations. This is the first, for State Street, of many such offerings. Competitors, such as BNY Mellon with its DM Edge Connect portal, are introducing similar offerings.
Vendors early in coming to market with Dodd Frank compliance offerings are likely to end up with dominant marketshare for this round of regulations and maintain a high marketshare (assuming continued investment in R&D) during the inevitable subsequent rounds of regulatory reform.
Reporting is the critical element of this solution, because the taxonomy of compliant reporting for derivatives remains uncertain at this point. Staking out a preferred taxonomy of reporting will (likely) heavily influence final market standards.
Banking BPO Insight - May 2, 2011
Contains commentary and insight from NelsonHall analysts on key banking outsourcing industry developments that impact your sourcing decisions.
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LPS Announces Q1 2011 Revenues Down 6.1% to $556m
LPS has announced Q1 2011 revenues, for the period ending March 31, 2011, of $556.2m , down 6.1% year-over-year.
Q1 2011 revenues (and revenue increase) by activity were:
- Technology, data, and analytics: $199.2m (+11.0%)
- Loan transaction services: $358.4m (-13.7%)
- Corporate and other: $37.2m (+118.0%)
Analyst comments:
Loan processing has been declining over the past year due to:
- Increasing writeoffs
- Aggressively declining loan origination
- Lender consolidation as banks have merged or exited lines of lending.
LPS has done well to manage its business in this declining environment. Analytics and automation is the only area of growth in this market. LPS has focused on this segment of the market and it is a growing part of LPS' business.
LPS will need to continue to continue to manage declining transactions in its business. It should also be able to continue to grow its analytics and automation business for the foreseeable future.
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Fiserv Announces Q1 2011 Revenues Up 3.9% to $1,048m
Fiserv has announced Q1 2011 revenues, for the period ending March 31, 2011, of $1,048m, up 3.0% year-over-year.
Q1 2011 revenues (and revenue increase) by activity was:
- Processing and services: $862m (+3.7%)
- Product: $186m (+5.1%).
Fiserv added in the quarter:
- 100 electronic bill payment solution clients
- 53 debit payment solution clients.
Fiserv made 3 acquisitions in the quarter:
- Credit Union On-Line, Inc., a provider of outsourced processing solutions for credit unions
- Maverick Network Solutions Inc., a provider of prepaid and reward incentive card programs
- Mobile Commerce Ltd., an international mobile banking and payments provider.
Analyst comments:
Fiserv continues to migrate its business into services and payments processing. Fiserv is focusing on emerging payments technologies such as mobile and prepaid payments. As the banking industry de-emphasizes risk based businesses and turns to transactional business, Fiserv's investments today should aggressively accelerate its growth.
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Euronet Announces Q1 2011 Revenues Up 5.0% to $262.6m
Euronet has announced Q1 2011 revenues, for the period ending 31 March 2011, of $262.6m, up 5.0% year-over-year. Operating income was $17.2m down 5.5% from $18.2m in the prior year quarter.
Q1 2011 revenues (and y-o-y change) by activity were:
- EFT processing: $44.4m (-8.6%)
- ePay processing (formerly prepaid processing): $145.3m (+6.7%)
- Money transfer: $56.1m (+12.7%).
Q1 2011 results, as compared to Q1 2010, were impacted by:
- EFT: lower ATM fees in Poland and Germany reduced revenues. Transactions increased 10% due to growth in India and cross border transactions in Europe
- ePay: acquisition of a processor in Brazil
- Money transfer: 10% increase in number of transactions. Increase of locations from 86,000 year ago to 107,000 as of March 31, 2011.
Analyst comments:
Euronet's improving performance reflects an improving global economy. However, Euronet will start to face a greater challenge of costs over the next year as changes in the market make margin control increasingly difficult.
The challenges include:
- Reduction in interchange fees (e.g., the Polish and German marketplaces (and potentially similar changes to interchange fee structures in other markets)
- Consumers are moving spending to lower value per transaction, which reduces merchant revenues and (to a lesser extent) processor revenues
- Less concentration of migrant workers in a few key markets to migrant workers working in more markets requiring larger distribution networks.
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TSYS Announces Q1 2011 Revenues Up 3.9% to $429.4m
TSYS has announced Q1 2011 revenues, for the period ending 31 March 2011, of $429.4m, up 3.9% year-over-year. Revenues excluding reimbursables were $3362.6m.
Q1 2011 revenues (and revenue change) by activity, excluding reimbursables, were:
- North America: $194.6m (-9.6%)
- International: $87.4m (+14.6%)
- Merchant services: $86.5m (+52.4%).
TSYS full year results were impacted by accounts on file increased from 323.3m Q1 2010 to 356.7 Q1 2011. This consisted of gains of 55.5m in new clients and internal growth and losses of 22.1m from deconversions, purges and sales
Analyst comments:
TSYS continues to face revenue challenges in its U.S. card issuing business. Its International segment seems to have turned around after declining last year.
TSYS is growing very strongly in its merchant acquiring business, albeit on the back of several acquisitions. TSYS future growth is very likely to come for the next 3 to 5 years from the merchant acquiring business.
TSYS will need to accelerate the organic growth of its international business to remain relevant in the marketplace. In 5 years' time we expect the vendors who have grown in emerging markets and payments will start to consolidate. TSYS will need to have staked out a large domain by then.
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Alliance Data Acquires Aspen Marketing Services for $345m To Build Agency/Creative Marketing Capabilities
Alliance Data has agreed to acquire Aspen Marketing Services for $345m to build its marketing capabilties by adding agency/creative marketing capabilities to its Epsilon business. Aspen Marketing Services is a marketing services agency founded in 1986 with 750 employees. It is headquartered in Chicago and has 10 offices across the Untied States.
Alliance Data has described its strategy to build out what it see as the five key components of a marketing offering in its Epsilon subsidiary:
- Agency/creative: working with chief marketing officers to develop customer acquisition, retention and loyalty programs
- Data: provide clients with insights into their consumers through transactional and demographic data
- Database: processing consumer data and populating marketing platforms to enable marketing initiatives
- Analytics: leveraging databases to develop segmentation models and optimize client dialogue with prospects and customers
- Distribution: optimizing customer communications across all channels.
The Aspen Marketing acquisition fills in the gap in Agency/creative capabilities.
Analyst comments:
Alliance Data has been building its marketing capabiltities in its Epsilon subsidiary for several years now. This has been the fastest growing business activity for Alliance Data and for the payments industry over the past few years. This segment of the payments business should continue to be the brightest opportunity for both revenue and profit growth for at least the next 5 years.
Fast growth has been driven by client demand to obtain actionable information to drive revenue growth. Many payment processors are building their capabilities in marketing support. However, Alliance Data's acquisition of a marketing agency is an aggressive step that competitors have not yet taken. This move, if successful, will allow Alliance Data to participate in the marketing strategy formation at client firms that underpins all sales and marketing efforts. Participation in the overall strategy formation in turn should lead to better development of data, analytics and distribution support for clients.
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Wipro Partners With Temenos To Offer T24 Core Banking Platform Via ASP Delivery in Europe
Wipro has agreed to partner with Temenos, a core banking ISV, to offer T24, Temenos' flagship core banking platform, via ASP delivery in Europe. Temenos estimates that there is an addressable market of 8,000 small to medium sized banks in Europe for this ASP offering.
Analyst comments:
Wipro, unlike Infosys and TCS, does not have a proprietary core banking platform. The addressable market in Europe is large, but heterogeneous, making realization of economies of scale difficult.
Offering the T24 platform across Europe in an ASP fashion is likely to be difficult on a cost effective basis due to a limited ability for Wipro to deliver service from a single location (due to national regulatory requirements and consumer protection laws).
Standard practice in Europe has been to deploy platforms internally (or in a shared services environment with a leading national bank, not a non-domestic vendor). Changing local practice and custom is likely to be a long. slow adoption process.
Banking BPO Insight - February 2011
NASSCOM Conference: India Leadership Forum 2011
This month's Banking Insights Newsletter focuses on interviews and messages from the NASSCOM conference I attended last week. The key focus of the conference was on changes in the industry post economic crisis and what approaches and business models are likely to work in the new environment.
There were three key sets of participants in attendance:
Vendors, whose key issues were:
Reorganizations: Wipro, Infosys, IBM's IBPS among others, have reorganized and are emphasizing:
- Verticals (industries): vendors are starting with existing strengths (such as travel and financial services for WNS) and building capabilities where demand is highest (especially banking and insurance). Industry domain expertise is key to winning contracts
- Expansion of delivery capabilities in India, near-shore and especially onshore operations. Vendors are building capacity in anticipation of increasing business.
Achieving the next round of growth from:
- Changes in pricing models (from FTE to transaction based)
- Service expansion enabled by: domain capabilities from captive acquisitions, platform enabled BPO, and vendor consolidation (acquisition).
Customers, whose key issues were:
Creating value beyond per FTE cost savings: clients perceive the labor arbitrage opportunity in lower value processes to have largely played itself out. Future (large) value gains are likely to come from:
- Onshore delivery support: the outsourcing of processes that cannot be fully offshored and are typically higher cost processes
- Transaction pricing: shifting the pricing and delivery mechanisms to achieve greater operational flexibility in the face of fluctuating volumes. Creation of variable cost delivery to meet variable revenue businesses
- Process improvement: lowering cost of delivery by eliminating process steps and standardizing processes across geographies.
Building trust in suppliers: Effective governance and institutional support must be built first at the individual level. Accelerating outsourcing adoption must be built on accelerating and enhancing engagement interaction. Identifying successful project management structures that manage projects well and also enhance effective interaction is critical to success
Changing their own organizations to adapt better to current techniques of outsourcing: several customers stated they feel vendor organizations have developed greater organizational flexibility over the past 5 years, unlike their own organizations. The stress in client organizations has inhibited this development
Change in priorities: prior to the crisis cost reduction was the priority. Today revenue development is the top priority. Building scale is necessary to reduce overall cost of delivery. Emerging markets are the only place enterprises anticipate sufficient growth, and they are looking for help entering those markets
Government trade and investment missions, whose key issues were:
Articulating how they have matured as venues: government support (based on experience supporting vendor/customer entry), infrastructure (e.g., telecom to Europe and the U.S. in Nova Scotia), and workforce (e.g., Colombia has 3rd highest # of college graduates in Latin America and the lowest labor cost for computer scientists)
Changes in their competitive landscape: for example: Columbia has reduced its internal instability which has created a better alternative to Mexico (which suffers from increased political tensions due to drug gang wars).
Vendors are pursuing two key strategies to grow their businesses and deliver value to clients:
- Building domain expertise to enhance client comfort and value
- Developing platform based BPO offerings to create non-linear cost savings.
At the conference we interviewed many vendors on their latest activities and current client demand. I have grouped their responses by these strategies.
Building Domain Expertise to Enhance Value
Vendors are finding they have to develop domain expertise to be able to understand how clients are using their services to run their businesses and to make credible claims they can deliver value to the client. Vendors are building domain expertise in three ways:
- Captive acquisitions: acquiring the internal operations of clients with experienced management and workforce
- Employee certifications: for example series 6, 7, 63 in capital markets, actuarial in insurance, and legal in default management
- Client support: support for market dominant clients or industry utilities (such as exchanges) builds internal expertise (codified and enhanced by center of excellence initiatives) applicable to other industry participants.
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Infosys Developing Client Boards to Aggressively Pursue Relationship Roadmap
Infosys has decided to set up "Innovation and Transformation Boards" (ITB) at client engagements to pursue relationship roadmap development. Infosys currently (as is standard industry practise) uses client engagement boards to address operational issues on a monthly and quarterly basis. The ITB will be composed of a different group of workers from the engagement board, from both vendor and client side, who have domain expertise, but look to develop initiatives that will transform the relevant business process to achieve aggressive business targets.
Analyst comments:
Offshore vendors have been very good at identifying additional work within existing clients, but to date mostly remains order takers. This type of initiative, the establishment of a formalized process for identifying and articulating changing operational methodologies with the cooperation of the client, could take offshore vendors to a higher level of involvement with their clients.
The number of clients who are likely to adopt this technique is small in the short run, due to the desire to keep internal process planning secret. However, for clients who are comfortable working this closely with a 3rd party vendor will be able to leverage external support and best practices to create a faster roadmap to adaptation.
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Sungard Global Services Awarded XBRL Coding Support BPO Contract By EDGAR Online
Sungard Global Services (SGS), services subsidiary of Sungard Data Systems, Inc., has been awarded an XBRL based filing services BPO contract by EDGAR Online (EOL). EDGAR (Electronic Data Gathering, Analysis, and Retrieval system) performs collection and processing of financial reporting by companies with the U.S. Securities and Exchange Commission.
Services to be provided include:
- Performing entire process associated with filing of financial statements with SEC in XBRL format utilizing EOL's XBRL platform and tools.
- Working with EOL's end clients, i.e. the public companies to facilitate the filing process
- Reviewing documents for errors/consistency GAAP standards
- Tagging documents in XBRL.
At present the filings are for U.S. based clients only and staffed by finance and accounting experts knowledge of US GAAP standards.
SGS will use EDGAR's software and platform to deliver service. SGS will deliver service primarily from its India based global solution center in Pune, with some support from onsite/onshore.
Information and Data security is a critical component of the delivery process. SGS has set up a secured delivery site within their offshore based location with dedicated secured connectivity into a data center located in the US. Multiple levels of logical and physical segregation of data and networks have been implemented to enhance security.
Vendor selection was from an estimated pool of five vendors. Key selection criteria included:
- Service quality
- Presence and experience in financial services industry
- Vendor size and stability
- BPO development strategy
- Global delivery capability and roadmap.
Analyst comments:
This is a significant win for SGS because it:
- Allows SGS to assist EOL with the scalability requirement related to this service offering in the US as well as international markets
- Positions SGS to expand its BPO and IT service offerings in the future to support enhanced analytics and risk management services based on XBRL
- Positions SGS to enhance their BPO capability around similar platform BPO services on their financial services products and solutions
SGS' network of international delivery centers include:
- Pune
- Bangalore
- Shanghai
- Tunisia
NelsonHall estimates these centers are staffed with c. 4000 FTE out of SGS' announced 5,000 FTE staff. SGS anticipates this contract will scale beyond initial staffing in the near future and SGS has invested heavily in infrastructure (delivery centers and network connectivity) in anticipation of future growth from both this contract and similar contracts.
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WNS Creating Vertical Offers For Each Industry Practise
WNS is continuing to implement its major restructuring plan instigated by the new CEO a year ago. In place are new business heads for each vertical practice, based in the U.S. or U.K. to be close to clients. In addition, the sales force has been restructured to report each SBU and the sales force hired in the past 12 months come with extensive relevant industry experience.
Vertical business leads are tasked with developing two to threee key offerings for their industry for the next year. Offerings will be targeted at addressing pressing industry challenges. WNS is creating technical enhancements to its BPO offerings, such as testing and custom BPM solutions, which can deliver custom value to a BPO engagement without requiring use of a platform based BPO offering. WNS is also delivering domain expertise to clients using licensed employees. For example, in capital markets, it has 30 employees with series 6, 7, and 63 licenses (one of all licenses). These employees are able to support processes which would otherwise require onshore delivery.
Analyst comments:
WNS has faced a difficult transition year in 2010. It is leveraging its strengths in specific verticals to create industry specific process offerings. Unlike many competitors, it is not developing platform based BPO offerings to replace client infrastructure. Offerings are heavily reliant on employee staffing skills and training. WNS will need to reduce turnover rates and attract additional workers to successfully drive this strategy.
Developing Platform Based BPO to Deliver Non-linear Cost SavingsBanks are struggling with capital impairment, the need to enter new markets and deliver new products. BPO vendors are keen to deliver platform based BPO services to help banks and to create value outside of labor arbitrage. While the offerings presented at the conference cannot solve all the industry's problems, they can free up resources to allow banks to focus on recovery. Examples of new offerings and strategies were presented by many vendors
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CSC Develops Web Based Core Banking Platform For Hosting and BPO
CSC has long been known for providing the Hogan core banking platform. Hogan is a leading core banking solution, but has not been sufficiently updated over the years and is heavily customized by each user. Now CSC is coming out with a modern core banking application suite, Celeriti, which is SOA, server based, and JAVA enabled. The suite provides functionality for core banking- both deposits and lending (previously Hogan), card processing- both issuing and acceptance (previously CAMS).
The key features of the Celeriti suite are:
- Web Portal User Interface
- SOA Business Processes and Web Services
- Business Intelligence and Data Warehouse
- Business Rules and Parameters
- Distributed Platform Architecture.
The suite can be delivered on a hosted basis or as a BPO service. The BPO service currently covers mortgage and loan administration. Over time it will expand into card processing services.
Currently Celeriti in testing and has 4 clients lined up when it goes live later this year. One client is interested in Celeriti as a BPO service. CSC is hosting an innovation community, so that all modifications will be put into the base product. CSC will also support clients with application services delivered out of India.
Analyst comments:
Hogan's drawbacks were heavy customization and lack of modernization (especially the inability to effectively pull apart modules). Celeriti has been designed to address these key issues, while building on the primary benefits of the Hogan suite (scalability and functionality). Multiple delivery formats, especially BPO, will be critical to pan-bank adoption (rather than the current practice of different systems in each geography and business).
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Mahindra Satyam Targets Application Security to Reduce BFSI Exposure to Loss
Tech Mahindra has focused on the telco industry since its inception. Satyam focused on the enterprise market. Mahindra Satyam is now applying its skills and lessons from telecoms to other industries, especially security services. In the BFSI segment, most security services target the network. Mahindra Satyam is offering security services to the BFSI sector that target applications, which are the primary source of data breaches and loss to date.
Mahindra Satyam offers banking BPO services, primarily KPO based to the capital markets industry. This vertical is especially sensitive to loss of proprietary information. Mahindra Satyam is injecting its security services into its own BPO offerings and offers security services as a platform-based service to clients.
Analyst comments:
As recent data losses at banks using disks and memory keys has demonstrated, securing the network will not prevent losses. Application access controls and analytics that identify suspicious behavior are critical to success.
Satyam had a large stable of global banking logos. Many of these remained clients during the transition to Mahindra, and some have grown their business with Mahindra Satyam in the past 12 months, although the footprint within these banks remains modest to date.
If Mahindra Satyam can demonstrate robust security capabilities, it should be able to aggressively grow its business in supporting banking clients increased their operations in less secure markets.
BNY Mellon's revenues, like other large custodians, follows the market. BNY Mellon, unlike State Street, also had lower earnings, due to a slower pace of cost cutting and the effects of acquisition consolidation. BNY Mellon was able to aggressively build capital (for Basel 2 and 3 calculations), which it holds as a high priority.
BNY Mellon was able to build revenues for the quarter in net interest revenues and investment gains, which tend to have temporary and volatile numbers for all vendors.
For BNY Mellon to succeed in the long term, it will need to accelerate its cost savings program. It is unlikely to increase over the course of next year its headcount, as it has done this year. It will also need to aggressively expand in emerging markets.
Finally, and most importantly, BNY Mellon will need to shift the mix of assets serviced from lower risk assets (such as money markets) to higher risk assets (such as equities) to increase servicing fee income. While investors are conservative today, BNY Mellon can still shift the servicing mix by shifting client mix, geographic mix, or services mix. BNY Mellon needs to be more aggressive with its restructuring efforts.