IT Outsourcing Hottest Trend in Financial Services

Business process outsourcing is rapidly expanding into areas once off limits just a few years ago.

With at least seven outsourcing megadeals worth more than an estimated $20 billion, IT outsourcing and business process outsourcing (BPO) are the fastest-growing service lines in the financial services sector, according to research firm Gartner .

Although Gartner analysts say that while BPO has emerged as one of the fastest growing service opportunities in the financial services market, BPO is not a new service area for financial services. Check-processing services, for instance, have been around for decades, and payment processing showed steady robust growth through the 1990s.

According to Gartner, what is different now is that BPO is rapidly expanding into areas that were off limits to outsourcing just a few years ago. Increasing acceptance is also driving expansion in the number and scope of deals, which, in turn, increases the market size.

"An important element in many of the megadeals is a focus on IT infrastructure and operations. Many of the mega-outsourcing contracts involve substantial consolidation and centralization of IT assets on a global basis," said Susan Cournoyer, principal analyst for Gartner's IT Services group. "Yet the outsourcing megadeals also represent a look ahead. Outsourcing providers promise to meet IT and business needs through new technology and new business models, particularly the on-demand model that appears to promise relief from fixed costs."

Demonstrating strong technical skills and application expertise are the top factors in choosing IT services providers, in financial services and across all vertical markets. However, financial services providers differ from other industry IT buyers when it comes to cost and industry expertise.

"Reflecting the industry's price sensitivity, cost ranks higher in IT buyer's decision making in financial services than in other industries," said Cournoyer. "Industry knowledge is also more important to financial services IT buyers, which likely accounts for the trend toward more in-depth verticalization among top-ranked providers."

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