12.31.2012
By Terry Flanagan

Move to Outsourcing Gathers Pace

As the global economy continues to stumble out of one crisis to the next, it is perhaps unsurprising that 2013 could become the year of the outsource provider as hard-pressed financial services firms look to cut operational costs and turn to cheaper third-party vendors to provide many vital business functions.

Not so long ago, outsourcing was simply viewed by financial services firms as a way to reduce operational spending but with spiraling costs and squeezed budgets, as well as an array of new regulations to contend with, outsourcing is now being viewed as a way not only to reduce costs but also add value.

“The financial services industry is expected to increase its spending on outsourcing of services and technology at a rate more than two times that of traditional onsite IT spending through 2015,” said Rodney Nelsestuen, senior research director at CEB TowerGroup, an advisory firm.

“Drivers of this growth include the need to update technology despite tight budgets and deferred investments, vendor innovations in both pricing and the delivery of more bundled IT and service options, and increases in the business value that vendors offer through expanded domain expertise.

“Technology and operations will become more integrated, and software will be embedded with infrastructure, bundled with managed services, and provided through both on-demand cloud services and more offerings of platform-based business process outsourcing.”

Many outsourcers suffered in the wake of the global financial crisis as financial institutions pulled the plugs on many projects and froze external budgets. But as firms face up to the new trading realities of 2013 and beyond, where reduced volumes may be the new norm, new and complex projects are having to be started so as to keep a competitive edge and third-party vendors are optimistic that they will be the beneficiaries in this new landscape.

For example, Pershing, part of custody bank BNY Mellon’s empire, has traditionally been viewed by many market participants as an outsource provider in the fields of trade execution and clearing.

“The move to outsourcing is definitely going in Pershing’s favor,” Michael Horan, director and head of trading services at Pershing, told Markets Media.

“Companies are looking to free up some of their cost base and capital and are using Pershing for that. But whether you are small, medium or large, it is going to be a massive challenge for everyone due to tsunami of regulation, lack of global economic growth and the resulting lack of investor appetite.”

And SunGard, which provides software and IT services to many financial institutions, recently identified 10 trends that it thinks will happen in the outsourcing and managed servicing spheres for 2013.

Among these, SunGard said that as outsourcing matures, firms will look to their service providers as partners for a complete solution. Outsourced cloud computing solutions are predicted to grow by SunGard as is the need to seek third-party help with IT infrastructure and application management services. Compliance with regulatory and operational risk requirements will also likely see outsourcers help firms out more in the coming 12 months, according to SunGard, while firms will increasingly look to outsourcers to help with their ‘big data’ requirements.

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