Traditional providers such as State Street, HSBC and Citigroup are demonstrating a keen interest in taking over entire back-office operations of asset managers. While BPO threatens to erode the addressable market for back-office application vendors, it is simultaneously creating a new one in the form of service providers who are in need of scalable migration platforms to take on clients.
European asset management back-office BPO will be worth $758m by 2006 according to Datamonitor.
Most European large scale lift-out deals so far have involved large asset managers, including transfers of staff often going into the hundreds. The next stage for business process outsourcing (BPO) providers (custodians) will be to take on additional clients and capitalize on the economies of scale of these operations and platforms. However, most are still faced with the challenge of integrating acquired systems and operations in order to develop a feasible migration platform that can serve several clients.
In addition to these major technology and integration projects, they will also have to develop ‘consulting capability’ by building up business transformation expertise and developing migration frameworks as part of their offering.
Whilst there is most definitely a thirst amongst BPO providers from a technology background, such as IBM and EDS, to get a slice of this new market, it is questionable whether they can catch up with the developments of the past two or three years and enter the market with standalone offerings.
However, there is a viable case to be made for partnerships between custodians and BPO providers from a technology background. A combination of custodians’ experience in running operations and the technology and transformation expertise of technology vendors would bring together a full set of capabilities that could further shape the BPO market going forward.
The sudden emergence of large scale BPO deals in asset management is as much a result of custodians aggressively pushing the market into this direction as it is a result of mere demand from the asset management community. The fact that banks need to expand their custody business to evolve into a wider BPO offering has unnaturally accelerated the development of this young market, leaving other BPO providers to stand and watch as it has unfolded.