Offshoring Wave: Riding on Technology
Vamsi Karavadi
Senior Consultant,
Aon Hewitt
The last few years have been a tumultuous ride for the global financial services industry. The 2008
economic crisis has highlighted grave irregularities and exposed the loopholes in the overall regulations
governing the sector. One of the major reasons for the crisis was the lack of effective governance. The resulting
impact is federal authorities across countries have developed and implemented a far more stringent regulatory
framework.The theme of fast-paced regulatory change continued in 2013. In light of continued overseas instability
and an ambitious reform agenda, there is a concerted effort by regulators globally to:
-
Address the regulatory gaps and loopholes identified during the financial crisis
- Re-establish confidence in the financial system
- Focus on investor protection
- Promote local market transparency
As a result of these changes, banks have become extremely conservative resulting in limited room
for them to differentiate or grow. The differentiation in the product offerings across players is reducing and
thereby forcing the banks to revisit their business strategy. In order to focus on driving aggressive growth
plans; there is an increasing need for the banks to focus on their core business, drive internal efficiencies,
improve customer experience and ensure regulatory compliance.To ensure banksare able to achieve the above, many
of them are investing heavily in IT platforms. IT spending by the banking sector is expected to grow by 4.4%1in
2013 to reach USD 188.2 billion and touch USD 192 billion by 2015*. The majority of this growth is expected to
come from the Asia Pacific region, where spending by banks is expected to grow at 5.9% in 2014 to reach USD 66.5
billion1. The retail banking sector dominates IT spending, which has grown by 4.8% in 2014 and is
expected to touch USD 152.522 billion by 2018. Wholesale banking is the second most important segment,
where IT spending has grown by 5% in 2014 and capital markets IT spending is expected to grow by 4.8%3
This change in the business outlook has led the organizations to turn to larger talent catchment areas like India
to support their growth story.
BFSI Global In–house Centers (GICs) –Growth Story
India has played the role of an important facilitator in the transformation of the financial
services industry in terms of its transactions processing as well as technology systems. It all started with the
adoption of computers in the 90’s, then moving to application development & maintenance in the early
2000s and now we see a range of financial technology products for core banking solutions, e-Banking, treasury,
CRM, cash management, wealth management, etc. like Finacle, Flexcube, Reveleus for risk management solutions,
TCSBaNCS, Finnone for retail banking, TRADe Facto for trade finance, BankOnet for internet banking, Powercard for
credit cards and FMS for fraud management systems. From a technology perspective, there is a clear shift in the
expectations and deliverables from the India center
This change or evolution is clearly reflected in the headcount of the technology centers in
India. We have witnessed an increase in the number of financial services setting up their technology centers in
India. The last three years have not only seen six new centers being set up; but also a 20% growth in their
technology headcount of existing players in the country.Keeping in mind the increasing technology spend globally
and India’s successful performance in the delivery of the technology services, we expect the growth story to
continue. However, as technology centers have climbed up the value chain, their growth areas have also witnessed
change. They have moved from being a mere outsourcing center to an extension of the front office. Contrary to the
early days where these units were supporting the retail arm of banks, there has been a significant shift in the
past two years, where the focus of growth for most of the centers has been the investment banking domain
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