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Process Innovation in the Indian Banking IndustryJanuary 2009
ValueNotes
Arun Jethmalani, Managing Director, ValueNotes
Process Innovation in the Banking Industry
© ValueNotes 2009 2
About ValueNotes Outsourcing Practice
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Process Innovation in the Banking Industry
© ValueNotes 2009 3
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Process Innovation in the Banking Industry
© ValueNotes 2009 4
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Process Innovation in the Banking Industry
© ValueNotes 2009 5
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Process Innovation in the Banking Industry
© ValueNotes 2009 6
Executive Briefing – An outline
Process Innovation in the Indian Banking Industry: Overview
Drivers & Constraints
Services Outsourced by Indian Banks
Market Size & Opportunity
Service Provider Landscape
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 7
International Banks – Early Adopters
Globally, BFS sector accounts for nearly 60% of the global offshoring market. In contrast, the Indian banking sector has been slower to outsource.
But Indian Banks Lag Behind…Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
Process Innovation in the Banking Industry
© ValueNotes 2009 8
Executive Briefing – An outline
Process innovation in the Indian Banking Industry: Overview
Drivers & Constraints
Services Outsourced by Indian Banks
Market Size & Opportunity
Service Provider Landscape
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 9
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
Outsourcing of processes is largely constrained by the RBI regulations
Drivers & Constraints
Unlike the offshore BPO market, labor arbitrage is not a key driver for growth in the domestic BPO market.
Aggressive adoption of IT and centralization of operations has served as a key enabler to outsourcing of business processes in the banking industry.
Growth in the banking industry, deregulation, increasing competition, consolidation and improving benchmarks in the industry are driving the outsourcing of business processes.
Process Innovation in the Banking Industry
© ValueNotes 2009 10
Executive Briefing – An outline
Process innovation in the Indian Banking Industry: Overview
Drivers & Constraints
Services Outsourced by Indian Banks
Market Size & Opportunity
Service Provider Landscape
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 11
Services Outsourced by Indian Banks
The outsourceability of processes is determined by two factors: their classification as core service and the strategic value of the process.
Core Processes: Classified by
RBI or categorized under KYC
norms
Strategic Value Processes:
Activities / Processes with strategic
importance to banks
Core Processes Non-core Processes
Stra
tegi
c Va
lue
Product Strategy and Policy, New Product Development & Planning, Advertising, Credit Collateral Evaluation, Risk Management, KYC Norms, Anti-Money Laundering, Alliances
Document and reporting, International Banking, Value-Added services, IT services
Non
- Str
ateg
ic V
alue
Payment Processing, Collections, Accounts Closure, Check & Loan Processing, Lease Management, Reconciliation, Transfer Pricing, Asset Management, Funds Management, Account Transaction Monitoring
Data Entry, New Account Opening, Loyalty Programs, Corporate Communications, Sales and Marketing (Inbound customer care, Outbound Sales), Reconciliation
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
“We will look at outsourcing activities like
tech-enabled customer service delivery
that are not core to our business.”
- Head CBS, Leading Bank in Maharashtra
Large banks currently outsource non-core, non-strategic value processes
Process Innovation in the Banking Industry
© ValueNotes 2009 12
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
Banks typically outsource IT systems and process implementation
Services Outsourced by Indian Banks
Current Level of Outsourcing
Other
Services
Regulatory
Compliance
Treasury Transaction
Processing
Sales and
Marketing
Product
Development
Product Strategy and Policy
Advertising Payment Processing
Reconciliation KYC Norms Alliances
New Product Development and
Planning Loyalty Programs
Corporate Communications
New Account Opening
Credit Collateral Evaluation Collections,
Accounts Closure
Check and Loan Processing
Reconciliation
Lease Management
Asset Management
Funds Management
Transfer Pricing
Risk Management
Anti-Money Laundering
Account-Transaction Monitoring
Document and Reporting
Forex Management
International Banking
Value Added Services
Data Entry
Core ProcessesNon-Core Processes
Low High
HR
IT Services
Majority of the banks typically outsource some of their non-core activities with strategic value like IT systems and process implementation to third party service providers.
Process Innovation in the Banking Industry
© ValueNotes 2009 13
Executive Briefing – An outline
Process innovation in the Indian Banking Industry: Overview
Drivers & Constraints
Services Outsourced by Indian Banks
Market Size & Opportunity
Service Provider Landscape
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 14
The total opportunity for outsourcing in the banking sector is estimated at Rs. 11.2 b for FY08. Our research suggests that little over one-third of this opportunity (Rs. 4.08 b) is currently being met.
Outsourcing estimated to grow at a CAGR of 47% over the next 4 years
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
Market Size & Opportunity
Majority of the revenues are earned from voice-based services in sales and marketing. Apart from sales and marketing related services, the Rs. 4 b market is spread across processes like payroll outsourcing, recruitment outsourcing and research and analytical support.
“Completion of Core Banking System
projects by large banks will exponentially
increase the outsourcing potential in
domestic Banking sector.”
- Head CBS, Large PSB in India
Process Innovation in the Banking Industry
© ValueNotes 2009 15
In case of rapid deregulation, the market has the potential to triple by 2010.
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
We believe that there are two key determinants to outsourcing in the banking Industry - regulatory framework and the ability of banks to refine their strategy while adapting to changing business conditions.
The growth post 2010 will primarily depend on the government elected at the center and its success in pushing reforms in the banking industry.
Future Opportunities: 3 Scenarios
“De-regulation especially in KYC norms
can trigger the next wave of outsourcing
by domestic Banking Sector”
- Pralhad Tembhe, DGM Central Bank of
India
Process Innovation in the Banking Industry
© ValueNotes 2009 16
The complexity of operations will substantially increase – new opportunities for banks/BPOs: Will provide a boost to low value activities such as data entry & validation, CRM services like telesales, SMS based support, chat, Internet support, etc.
With increased use of new delivery channels (Internet, mobile, ATM), multi-product delivery and cross-selling will enhance scope of BPO services.
Enhanced penetration and usage of IT will propel greater usage of BPO, as banks seek to leverage IT investments to improve RoI
Expansion of IT into non-core areas will increase demand for related BPO
Captives will continue to grow, especially for PSBs
Key Trends & Insights
Process Innovation in the Banking Industry
© ValueNotes 2009 17
Executive Briefing – An outline
Process innovation in the Indian Banking Industry: Overview
Drivers & Constraints
Services Outsourced by Indian Banks
Market Size & Opportunity
Service Provider Landscape
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 18
With increased automation of back office services, scope for outsourcing will widen…
The Banking industry was one of the first to outsource business processes to third party service providers in
the Indian market. Banking is also one of the largest segments in terms of total outsourcing opportunity the
domestic BPO industry.
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
Service Provider Evolution
Process Innovation in the Banking Industry
© ValueNotes 2009 19
Source: ValueNotes’ report on Outsourcing in the Indian Banking Industry
We have categorized the service providers into the following four groups:
Service Provider Landscape
Majority of the large service providers in the domestic market have a substantial focus on the banking industry
Out of the 60 large Global leaders (total 10,000+ employees) serving the international Banking and Financial Services vertical, <10 BPOs actively cater to Indian banks
Vendor Group Vendors Key characteristics
Global leaders
IBM-Daksh, Intelenet, HTMT Global, MphasiS BPO, FirstSource, HCL
Established BPO vendor with total employees > 5,000 Primary focus on international markets Presence across multiple locations Typically <20% revenues from domestic clients
India leaders
Aegis BPO, Andromeda, InfoVision, Omnia BPO
Established BPO vendor with total employees > 5,000 Primary focus on domestic markets Typically >60% revenues from domestic clients or substantial scale of domestic operation (comparable to top domestic BPO vendors)
Emerging Companies
ATS Services, CareTel, Intouch, Kankei, Magus, Spanco, vCustomer
Employee size 500 to 5,000 employees; emerging BPOs Limited to specific verticals or horizontals; Specialized offerings on a small scale only Cater to domestic and/or international clients
‘Me-too’ players GK Management, Access Systems
Typically <400 employees Offering undifferentiated low value services Limited presence in terms of delivery centers and marketing setup.
Shell Transource
Process Innovation in the Banking Industry
© ValueNotes 2009 20
Vendor Voice Non-voice Data Mgmt. Key Clients
HTMT Y Y Y ICICIIBM Daksh Y naIntelenet Y Y Y Citi, PNB, ABN Amro, OBC, BarclaysMphasis Y Y Y SBIFirstsource Y Y Y ICICIMinacs (Transworks) Y navCustomer Y Y SBI
Aegis BPO Y Y Y HDFC, Citi, ABN AmroInfovision Y Y Y Amex, ABN Amro, HSBC, ICICIOmnia BPO Y Y Y naAndromeda Marketing Y Y Y CitiCaretel Infotech Y Y Y ICICI, SBI, SB of Patiala
Allsec Y Y naShell Transource Y Y HSBC, Kotak, Deutsche BankKankei Y Y naATS Services Y Y Y Amex, Standard CharteredSpanco Y Y Citi, ABN AmroDatamatics Y Y Y HDFC, ING Vysya
Indian Leaders
Global Leaders
Emerging Companies
Service Provider Landscape
Process Innovation in the Banking Industry
© ValueNotes 2009 21
Frontrunners
Source: ValueNotes’ report on Outsourcing in the Indian Banking IndustryDisclaimer - Findings are based on secondary research combined with detailed discussions with service providers. Quality of information depended on the cooperation of respondents from the management of the companies. Where information was not disclosed by service providers, secondary data, internal analysis and other suitable criteria were used.
Vendors Key Positives
InfoVision Largest vendor in the banking industry (in terms of employees in banking vertical) Its clientele includes over 15 large domestic banks
Aegis BPO
Established and well-known brand in the Indian as well as international market. The company has a sizeable business catering to the domestic market (75%). Within the
domestic market, it has a substantial focus in the banking vertical and has several reputed clients like HDFC, Citibank and ABN Amro
Backed by a large diversified business group, Essar Global
FirstSource
Backing from ICICI Bank Large international clients in the banking industry Supports back office operations for ICICI bank and its subsidiary financial services
companies Prospective buyer in case ICICI bank plans to hive off its captive
Intelenet Serves the domestic as well as international market Largest vendor in the domestic market (in terms of total employees), which the company
was able to achieve with the acquisition of Sparsh
Caretel Backing from Dalmia group, a large manufacturing conglomerate Substantial presence in the domestic market with over 60 clients across various verticals Strong presence in the banking vertical with leading banks like ICICI and SBI in its
clientele
IBM-Daksh One of the first large BPOs in India to serve the domestic market Support from the parent company IBM Technologies, which has strong presence in
domestic banking industry. This helps the company provide end-to-end solutions
MphasiS With strong IT and system integration capabilities, MphasiS is uniquely positioned to
provide end-to-end outsourced solutions to large clients It has also built a strong leadership team and domain expertise, which will help the
company scale up its business while moving up the value chain
Process Innovation in the Banking Industry
© ValueNotes 2009 22
Executive Briefing – An outline
Process innovation in the Indian Banking Industry: Overview
Drivers & Constraints
Services Outsourced by Indian Banks
Market Size & Opportunity
Service Provider Landscape
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 23
Large scale, multiple city operations
Most of the mid-sized and large Indian banks have centers and market presence across cities and towns in India.
Most of the banks prefer to have distributed outsourcing delivery centers in each region close to their head quarter.
Ability to quickly ramp up operations will be critical for growth
Local language capabilities are required to serve the end clients (especially in non-metro towns).
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 24
The complexity of operations will substantially increase as service providers add new clients, manpower and new delivery centers over the next 2 years.
Integrating international operations with domestic operations will be a key challenge.
Developing and implementing new operations and solutions delivery mechanisms to improve quality of services while further reducing costs will become essential to acquire the leadership position.
Partnerships with other entities in IT-BPO supply chain (like IT services providers, hardware service providers) will provide greater value to the client.
Key Success Factors
Process Innovation in the Banking Industry
© ValueNotes 2009 25
Advisory capabilities to move up the value chain
Most of the Indian banks have relatively low (technology) maturity in their processes and are new to outsourcing. These banks are currently experimenting with outsourcing by outsourcing small volumes of low value work. With further de-regulation in the banking Industry, the scope for outsourcing will widen.
With increased complexity and scale, further outsourcing will require guidance in terms of process migration, best practices, benchmarking, etc.
Key Success Factors