Live Markets »News & Advice»Market News»Market News Details
Market News Details

Client insourcing hits BFSI revenues of big IT services companies

Debasis Mohapatra/Bengaluru 07 Nov 18 | 05:30 AM

IT services companies are starting to see moderation in growth in the BFSI (banking, financial services and insurance) segment with more financial services clients intensifying insourcing by setting up their own captive units. This is also resulting in large IT outsourcing contracts in this space breaking into smaller deals.

For example, Switzerland-headquartered UBS has reduced its outsourcing exposure to Cognizant and HCL Technologies sharply this year after setting up its captive centres in Pune, Hyderabad, and Mumbai.

Related Stories

    No Related Stories Found
Widgets Magazine

Sources also say Deutsche Bank, which invests close to $6 billion in technology, has insourced part of the outsourcing works from IT services firms such as Infosys, Wipro, and IBM. Bank of America is also learnt to have started insourcing to its own units, impacting its existing vendor base, including TCS and Infosys.

A couple of years ago, Danske Bank, which operates in the Nordic region, had transferred much of its backend tech support works from ITC Infotech to its own captive unit that the Copenhagen-headquartered bank had set up in Bengaluru.

“There is clearly a ‘do it yourself’ (DIY) movement going on at large global banks. All the incumbent Indian service firms that serve banking are being affected due to this," said Peter Bendor-Samuel, founder and chief executive officer of global research firm Everest Group. 

“This has been one of the main reasons for the slow recovery in the banking services sector over the last three years with both TCS and Cognizant being impacted the most."

While market leader TCS saw its overall revenues in dollar term growing 10 per cent YoY in Q2FY19, the BFSI vertical, which accounted for more than 31 per cent of the company’s revenues, grew just 6.1 per cent.

Similarly, the financial services business of Cognizant, which accounted for 35.9 per cent of its overall revenue in the September quarter, saw a YoY growth of 2.6 per cent as compared with a 8.3 per cent rise in overall revenue.

ALSO READ: From Infosys to Wipro, US visa rules start to pinch Indian IT companies

In an interaction with Business Standard, Rajeev Mehta, president at Cognizant, hinted that client insourcing was a concern for the IT services major. “Despite the insourcing by banking clients, we have found a balance in North America," he said.

Analysts are also of the opinion that increasing insourcing initiatives by the  clients are resulting in smaller value deals in the outsourcing market. “Mega deals in the BFSI segment have not been seen after the recession, except for maybe a handful, and deal sizes are expected to remain small," said Hansa Iyengar, senior analyst at Ovum Research.

She said the focus in the banking sector has shifted to leveraging technology to drive incremental revenues and these kind of engagements are not likely to become mega-billion, multi-year opportunities for the IT services players.

With the absence of large IT outsourcing contracts from big banks, mid-tier banks and fintech companies are seen filling the gap. “While big players are reducing their spends through insourcing, fintech, retail and telcos are coming up with many smaller size contracts in digital services space. So, overall market size of BFSI segment is not shrinking," said Pareekh Jain, an IT outsourcing advisor.

Interestingly, while Indian IT services players are losing out due to insourcing initiatives, the country is emerging as the preferred destination for setting up captive centres by these multinational banks.

Widgets Magazine


Company Price Gain (%)
Larsen & Toubro1,529.150.80
Sun Pharma.Inds.392.350.58
Power Grid Corpn194.600.44


Currently No Poll Available.

Online Portfolio

You can create Online Portfolio here using the below button.

Widgets Magazine