Financial Services Sector BPO Contracts Rise, Outpacing ITO

MBA (4/11/2008 ) Palaparty, Vijay
Business process outsourcing accounted for 52 percent of total outsourcing contract value in the last year, growing 118 percent, while information technology outsourcing fell 24 percent, said BPO analyst firm Nelson Hall. The financial services sector took the lead in overall activity along with government sector.

“Overall BPO TCV in 2006-2007 was $60.8 billion; in 2007-2008 it grew to $71.6 billion,” said John Willmott, CEO of Nelson Hall, Berkshire, United Kingdom, in a quarterly BPO Index webinar. “Total change in outsourcing value in the U.S. grew to $39.1 billion last year from $18.6 billion in the year prior—a 110 percent gain.”
The financial services sector took the lead in driving TCV along with government sector. Last year, financial services’ TCV was $5.6 billion, up $0.6 billion from the year prior. Europe revealed a significant gain last year, growing from $2.5 billion to $4.1 billion. In the sector breakdown, the U.S. TCV in financial services TCV was $1.4 billion, down from $2 billion the year prior.

“Payment processing activity took the lead in BPO, despite consolidation among vendors, to building more global capacity,” Willmott said.

The European banking subsector within the financial services area remained the same—TCV totaled $0.6 billion last year and the year prior. The U.S. banking sector fell from $1.4 billion in 2006-2007 to $0.7 billion.

In the mortgage space, Willmott said there are early signs of mortgage processing activity in BPO. IBM, Armonk, N.Y., recently made a deal with Coastal Federal Credit Union, Raleigh, N.C., for mortgage processing services—one of the significant events and contracts cite for the first quarter this year. New York-based Zenta’s expansion of mortgage processing services made the list as well.

“Maybe it [mortgage processing service] is on its way back—there are certainly signs,” Willmott said. "Prospects for 2008 show good promise with steadily increasing supply majority. However, a potential inhibitor of BPO activity could be the impact of the U.S. presidential election . In 2004, the election affected activity for a nine month period. But the election may also not produce an inhibiting impact this time.”

During the first quarter 2008, back-office outsourcing dropped in both the U.S. and Europe. However front-office activity is on the rise, Willmott said.

In terms of IT outsourcing, the U.S. experienced a gain in TCV, growing from $11.3 billion in 2006 to $11.8 billion last year. European contract value dropped from $26.5 billion to $18.4 billion in the same periods.