For immediate release (9 October 2008):
Financial services industry expert Tony Rawlinson (Managing Director, Financial Services Practice at business advisory firm EquaTerra) has hailed the recent purchase of Citigroup’s back office operations in India as a ‘fantastic move’ on the part of Tata Consulting Services (TCS), and predicts that the purchase will be replicated by other banks and service providers.
“In one fell stroke, this makes TCS a strong player in the banking BPO market with an acquisition on attractive commercial terms”, he said.
“Even before the credit crunch and then the global market meltdown, there was a definite trend developing in this area” he explained “Banks were asking themselves ‘are we in banking or running back office captives?’. They weren’t helped by the fact that they were looking to cut their costs due to losses sustained through investment in the sub-prime market. At the same time, service providers have matured enough to be able to take on the types of services which the financial services sector were looking to offload quickly. Although there will be a limited window of opportunity for offloading captives, I suspect we will see a few more sizeable deals like the Citigroup / TCS one done”, he explained.
Other trends Tony Rawlinson can see developing include:
- While banks will need to retain risk processes which regulators require them to own, it is now a ‘buyers market’ and it will be the service providers that will have a large say in determining which other services may be outsourced.
- Service providers will try to offer “utility” services across multiple banks but success will be based on their ability to develop common platforms and leverage scale benefits
- Certain banks will elect to sell their Captives to a service provider in entirety, but others will elect to keep certain process sets depending on their view of competitive advantage
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