Large Application Outsourcing Transactions in the Banking Sector Hit Five-Year High—Everest Group

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As global banking industry recovers, except in Europe, digital adoption goes mainstream, with 50 percent of large AO contracts including digital services

Banking AO deal volumes on the rise

Banking AO deal volumes on the rise

Banks need to move away from a product-centric view to a customer-centric view and provide a simple, easy-to-understand customer experience. This requires simplification... including shedding the burden of legacy systems and embracing new technologies.

Large application outsourcing (AO) transactions in the banking sector hit a record five-year high last year: 54 new transactions with a total contract value of US$5.9 billion were signed in 2015. AO transaction volume increased by an impressive 45 percent, and total contract value increased by 25 percent, according to Everest Group, a consulting and research firm focused on strategic IT, business services, and sourcing.

This growth in application outsourcing in the banking industry is reflective of the recovery in global banking. Global banking profitability hit an all-time high in 2015, recovering from the lows of 2009 in the aftermath of the financial crisis. The recovery was led by North America and China; however, the effects of the financial crisis can still be seen in Western Europe.

Amid tightening regulations, macro-economic uncertainty, and technological disruption leading to increased competition from non-traditional sources, banks are looking at new technology investments that yield cost savings and free up budgets to spend on change initiatives. Consequently, IT budgets in 2016 are expected to remain flat or witness a modest increase from the levels in 2015.

Everest Group also expects simplification to become a trend in 2016. Led by consumer demand for simplicity in financial interactions, easy-to-understand products, and the demand for speed, banks are now faced with the challenge of dealing with the new age consumer who is willing to switch his banking relationship more quickly than ever. Banks have started to recognize the threat of digital technologies and the rise of non-traditional competitors. In order to compete in a market that is becoming more crowded, banks need to simplify business operations, regulatory compliance, and user experience to reduce costs and remain competitive.

“Banking IT has become complex over the years, for a variety of reasons, not the least of which is a broad array of products that increases cost of sales and service,” said Jimit Arora, partner at Everest Group. “Banks need to move away from a product-centric view to a customer-centric view and provide a simple, easy-to-understand customer experience. This requires simplification across the bank, including shedding the burden of legacy systems and embracing new technologies.”

These findings and more are discussed in IT Outsourcing in Banking - Annual Report 2016: Simplify the Bank.

*** Download Complimentary, Publication-Quality Graphics Here***
High-resolution graphics illustrating key takeaways from this research can be included in news coverage, with attribution to Everest Group. Graphics include:

  •     For banks, simplification is the key
  •     Banking AO deal volumes on the rise
  •     Asia remains the most cost-effective destination for application outsourcing services

About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, and sourcing. We are trusted advisors to senior executives of leading enterprises, providers, and investors. Our firm helps clients improve operational and financial performance through a hands-on process that supports them in making well-informed decisions that deliver high-impact results and achieve sustained value. Our insight and guidance empowers clients to improve organizational efficiency, effectiveness, agility and responsiveness. What sets Everest Group apart is the integration of deep sourcing knowledge, problem-solving skills and original research. Details and in-depth content are available at http://www.everestgrp.com and research.everestgrp.com.

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Andrea M. Riffle

Robert Cathey
Cathey Communications
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