Banking has become a fundamentally more difficult practice in the wake of the 2008 financial crisis, note Celent analysts in their annual discussion of the trends in global banking. Banks in North America and Western Europe remain under pressure, while banks in Asia, Australia, and Canada are beginning to do much better.

“China, Canada, and Australia seemed well positioned for 2011,” says Bart Narter, senior vice-president of Celent’s Banking Group. “The United States has benefited from stabilizing of loan losses, but regulatory pressure on retail revenues loom large. Europe is mired in the crisis.”

The group sees two key business drivers:

1. Many economies are in low-to-no-growth mode: Banks must do more with existing customers in order to grow, and must reduce costs in order to improve profit.

2. Digital channels are taking on new importance in all geographies with smartphone penetration increasing everywhere.

The drive to reduce costs and the reality of the huge growth in mobile and smartphone usage is driving banks to think even more about digital channels. Digital channels can mean internet banking, personal financial management, mobile banking, mobile marketing, and tablets. All have been changing (and will continue to change) the shape of banking. Banks across the globe are building-out mobile capabilities and investing in improving the internet banking experience on both the retail and commercial sides.

Another consequence of huge cost pressures is the increased appetite for outsourcing, which manifests itself in many ways, including:

1. Replacing internally developed systems for off-the shelf systems.

2. Using SaaS through an external provider, perhaps in an external cloud, perhaps in an internal cloud, or perhaps in a bank-dedicated outsourcing facility.

Outsourcing means more than just business process outsourcing. It can mean shared systems in a service bureau, software as a service, internal clouds, or external clouds. It can also mean new business models in existing spaces, or using off-the-shelf software instead of internally developed systems. Banks are more willing to use other parties to solve their technology and operational challenges.

The continuing focus on risk and compliance is putting more emphasis on analytics. That means understanding the customer better through data the bank already has or can acquire. This insight can be used to better retain customers, better market to them, better understand their risk to the bank, and better predict when they will visit a branch.

In markets where economic growth is low, such as the United States and Western Europe, banks need to gain greater wallet share of existing customers. In both areas, banks are realizing that they have lots of data that can inform risk, pricing, cross-selling, and staffing. That realization has yet to turn into reality in most cases, however, but this is an area that is becoming strategic for banks across the globe.

Source:Celent

By Pradeep Khanna

Sovereign debt issues in Europe have again made investors risk averse the world over. US$ has now become a safe haven currency. The impact is being felt in emerging economies as funds are being pulled out of these markets. There has been a general trend of depreciation of emerging country currencies.

In so far as Australia is concerned, the Indian Rupee (INR) and Philippines (PHP) are two important currencies from a globalised services delivery perspective – INR as India has a dominant position in services globalisation, and PHP as Philippines is now also an important services delivery centre, especially for BPO. How these currencies move has an impact on the cost of a globalised service delivery model.

Since 02 Aug 2011, against the US$, the INR has depreciated 20% and PHP has depreciated 5.14%. Against the A$, since 01 Aug 2011, INR has depreciated by 13.29% and PHP has actually appreciated by 0.08%. It’s obvious, INR has depreciated significantly more than PHP against both US$ and A$ in the last five months.
All things being equal and looking at only currency exchange rates, in US$ and A$ terms, cost of delivering services from India should have becoming significantly cheaper in the last 5 months. In the case of Philippines, cost of delivering services in A$ terms would have increased marginally (0.08%) and in US$ terms decreased slightly (5.14%).

Whether, customers actually got the benefits of a depreciating INR depends on a number of factors including the hedging strategy of the customers, their vendors and offshoring contract provisions in regard to currency movements. Customer currency risk management strategies and information on currency hedging positions/strategies of major global and Indian vendors like IBM, Accenture, Infosys, TCS, Wipro etc. would be covered in later bulletins in 2012. Also note – currency movements are just one of many variables impacting services globalisation.

Coming back to exchange rates, while exchange rates between two currencies are determined by interest rate differential, Inflation differential, current account deficits/surplus, public debt, terms of trade, general economic performance etc., – its interesting to see how people of Indian and Philippines origin living overseas (outside of India and Philippines respectively) are impacting their currency movements.

India is currently estimated to have a ‘stock ‘ of around 25million + people living overseas. These people are commonly referred to as Non Resident Indians (NRIs) and account for 2.1% of India’s population. In comparison, Philippines is estimated to have a ‘stock’ of around 9.5+ million living overseas. These people commonly referred to Overseas Filipino Workers (OFWs) account for 9.4 % of Philippines population.

These people living overseas maintain strong links to their mother countries (India and Philippines in this case) and remit significant amounts of money. As per World Bank figures, remittances by NRIs to India were around US$55 billion in 2011 – and India was the highest remittance recipient country in the world. India’s gross export of goods and services in FY 2010-11 were US$382.5 billion giving it a ratio of Inward remittances /Export of Goods and services of 14.38.

In comparison, OFWs remittances to Philippines were around $21 billion in 2010 – and Philippines was the fourth highest remittance recipient country in the world. Philippines gross exports of goods and services were $65.10 billion in FY 2010 giving it a ratio of Inward Remittance/Export of goods and services of 32.25.

While there could be minor differences to the above numbers due to different data sources, the trends are quite clear – Inward remittances play an important role in the economy and currency movements of both these countries – the impact is much higher in case of Philippines as compared to India as evidenced in the summary table below:

Both India and Philippines have well defined policies to cater to this overseas resident segment – more so as this is a steady and growing stream of inward remittances. No wonder India recently (in Dec 2011) decontrolled interest rates on NRI deposits resulting in a sharp rise in some NRI deposit rates. Also realising there may be hesitancy in investing in a depreciating currency, India also recently allowed NRIs to hedge currency risk.

So, will it stem the INR exchange rate slide. Financial analysts believe the fall in INR exchange rate has been more sentimental than fundamental. Of course, structural issues being faced by the Indian economy, slower GDP growth (India’s GDP growth is now forecast to grow at around 7% as per India’s PM statement on 09 Jan 2012) and relatively high inflation rates have also impacted on the INR exchange rate in addition to global risk aversion.

Interesting to note, how in a flatter world, the cost of delivering services for Australia could potentially be impacted to some extent by people of Indian and Philippines origin living outside their home countries.

Pradeep Khanna – Chief Executive and Managing Director
GLOBAL MINDSET

A précis of an article that appeared in the Straits Times in Singapore.

The year 2020 may have once sounded more like the stuff of science fiction novels. But it is only eight and bit years away now. In a new report “Imagining Asia 2020” a team of researchers and analysts from DBS Bank look into their crystal balls to see what 2020 might hold for Asia

1. GDP growth: Asia will surpass the US in economic size.

Asia has long been the fastest growing region in the world. And last year it overtook the United States as the main driver of global growth.

Mr. David Carbon, managing director of economic and currency research at DBS said “This is the biggest structural change going on in the global economy today. Asia has been getting a little bigger and bigger, and is now at the point where it is big enough where it matters. 5 years ago, 10 years ago, 15 years ago, it was not big enough to matter, not big enough to drive its own recovery, but today it is.”

By 2016, Asia will catch up in size with the US. By 2020, it will be 17% larger than the US economy.

The speed of growth has been simply breathtaking. In 2000, Asia was only 40% of the size of the US. By 2010 it was 80%.

China will contribute 64% of this growth over the next eight years, and India 17%, making them the two most important drivers of growth by far.

2. People power: Asia will add another US to its population.

We have just had the 7 billionth person born and by 2020 Asia will have added another 220 million people, almost the entire population of the US. “That is 10 times more than the US population is going to grow by. For every single new person we have in the US by 2020 we are going to have 10 new people in Asia,” said Carbon

Mr. Bhaskaran Manu the chief executive of Centennial Asia advisors and vice president of economic Society of Singapore, said: “if the population growth occurs in countries with endemic political and economic problems, these problems could perhaps get even worse. But if the growth is in rapidly growing economies, which can provide good jobs for the additions to the workforce, then the impact is likely to be positive.”

3. Urbanized nation: China will have over 100 cities with more than 1 million people each.

China will have seven megacities by 2020. There will be more than ½ a dozen mega cities with a population of over 8 million each. However China will also have a whopping 130 other cities with populations of more than 1 million people each.

It’s not just all about China and India, in Southeast Asia, over 20 secondary cities across Indonesia, the Philippines, Thailand, Vietnam and Malaysia also behind the growth of people by 2020, said the DBS report

The demand for infrastructure development and urban makeovers is therefore immense. “Urban centers offer economies of scale and make it more efficient to provide services such as education, healthcare, clean water and safe sanitation,” said the DBS report

“A skilled labor force attracts investments that generate more employment and prosperity, setting off a virtuous circle of economic gain.”

4. Hey big spenders: Asia will be the next big consumer.

Americans are not the only big spenders. Asia is expected to at least double its current level of consumption and will consume 80% as much food as the US.

It will more than triple the growth rate of private consumption of the US over the next 10 years said the DBS report.

Food will be a large part of that spending. One out of every four dollars spent by each household will be on food.

5. Wealth creation: Asian incomes have lots of room to rise

Between the mid-1960s and today, income levels in most Asian nations have grown by 5 to 8 times. But most of Asia is still far behind developed Western nations such as the US and Europe in terms of household income levels.

So while income levels have grown rapidly in Asia, there is still a lot of catching up to be done and it means “fast growth in Asia should be able to continue for a long time”, noted the DBS reports.

Financial Services outsourcing industry sector to grow by 7.5%

By Mark Atterby – Senior Staff Writer

Due to the flat forecast for retail banking over the next 18 months, financial institutions are looking at outsourcing to deliver cost savings while maintaining and enhancing customer service levels. The financial sector has used outsourcing to manage standard business processes and mortgage processing, but is expanding its deployment to other critical areas of the business.

The Australian banking industry has remained rock solid over the last few years during the various global economic turmoil, according to research from IBISWorld, while other global banking markets have faltered considerably. Although profit dropped between 2008-2009 as margins slipped and revenue fell, the industry’s overall profitability and the profitability of individual banks compares very favourably to some of the catastrophic events across the globe.

Despite its ability to weather the recent storms, the forecast for the retail banking industry globally as well as in Australia is fairly flat for the next 12 – 18 months. According to Maickel Sweekhorst, MD Financial Services Capgemini Australia, the banks will be looking for greater flexibility in the way they manage costs, improve the customer experience and perform better in a market with tighter margins.

Banks and Insurance Companies are increasingly engaging in BPO and IT outsourcing to reduce costs and to enhance the experience of customers. Sweekhorst comments, “We saw in Australia the Initial push for outsourcing in terms of infrastructure and mortgage processing some years ago. The industry is in preparation for the second leap forward which will be driven by the increasing pressure on margins and the need for the banks and insurance companies to keep a handle on fixed costs”.

Financial services organisations are increasingly using outsourcing, in an attempt to reduce costs and attain strategic aims. A report from the BIS Joint Forum Financial Services Outsourcing, highlights that financial firms are outsourcing significant parts of their business. These outsourcing arrangements are also becoming increasingly complex and covering critical processes.

“Horizontal business processes such as HR, Finance and Accounting, and call centres have all been done before. Even mortgage processing is well and truly covered. The new areas will include captial management for banks or claims processing for insurance organisations”, says Sweekhorst.

Strict regulation of data controllers by national regulators (as well as the threat of private litigation) will make security compliance a key differentiating factor between outsourcing providers. Sweekhorst warns, “Data and the exporting of data will remain a key issue in outsourcing projects for the financial services sector, and will be given even more prominence by the growing use of cloud computing”.

Last year British Financial Services Authority fined three HSBC firms a total of $5 million dollars for inadequate security controls over the management of customer data, where the account details for 15,000 customers were stolen. As well as the fine, the bank incurred more significant costs in terms of damage to their reputation and upgrading their systems.

The penalty for mishandling customer data can be harsh. Due to the global nature of the cloud and of the outsourcing industries, the ability to keep track of what data is being stored where and ensuring that appropriate safeguards are in place, will be a challenge.

Despite the challenges, outsourcing will always be a major aspect of the financial services industry, particularly as the smaller credit and financial institutions such as super funds and credit unions make greater strategic use of outsourcing. Sweekhorst comments, “The size of the Financial Services outsourcing industry is expected to grow from a current $12 Billion to $17.5 billion $AUD in 2015, where the Australian market is expected to grow by 7.5%.”

IBISWorld

Recruitment was one of the first business processes outsourced by industry and it is tied to the cyclical nature of the business cycle. As an extension we will see growth in employee benefits administration. Australia bypassed the worst of the global financial crisis, which meant its effect on the Australian employment placement services industry was mild compared with its international counterparts.

Australia’s rise in unemployment was small and quickly began to reverse, with demand for employment placement services continuing to grow in 2010-2011 and expected to continue in 2011-2012.

IBISWorld estimates that industry revenue has increased at an average annualised rate of 0.6% during the past five years.

In 2011 the industry is expected to generate $2 billion in revenue, up 4.5% on the year prior. Profit will climb by 4.0% to $59 million.

Following the economic downturn revenue grew 2.2% for 2010-2011.

Despite uncertainty among international global clients and reduced business confidence the employment placement services industry will grow as it anticipates increased demand in permanent recruitment services and an increase in client-paid net fees.

As the Australian economy hits full health industry revenue growth will accelerate to average 2.9% per year over the next five years and is forecast to total $2.3 billion by 2016-17.

That will be driven by increased economic activity, a strengthening labour market and the potential for providing services online.

Industry Outlook

With the Australian economy having held up well amid the global financial crisis and unemployment remaining relatively low growth in the employment placement services industry will continue to strengthen in 2012-13, with revenue forecast to rise by 2.7%.

Although declines in unemployment tend to lag behind growth when an economy is emerging from a downturn the composition of unemployment tends to move more toward people who are switching jobs, while the proportion of people that have been laid off or are long-term unemployed declines.

Continued solid growth is anticipated during the five years through 2016-17 as unemployment gradually decreases. By 2016-17 IBISWorld estimates that industry revenue will reach $2.3 billion.

Job vacancies and new hirings will increase as the economy begins to achieve relatively strong results. Businesses will again turn to employment placement service providers as their recruitment needs expand and the right applicant becomes more difficult to find as competition for workers heats up.

During the five years through 2016-17 industry revenue is forecast to increase at an average annual rate of 2.9%.

Aside from the level of unemployment and general economic conditions other factors driving growth, once the recovery begins it will include the expansion of major operators into new services such as employee process outsourcing and administering WorkCover, superannuation and other compulsory and statutory payments to employees on behalf of clients.

Outsourcing recruitment by business and government will continue. IBISWorld expects profit margins to remain low due to ongoing high levels of industry competition.

After-tax profit is forecast to grow at an average rate of 2.9% per annum to $79.4 million over the five years through 2016-17. Profit will be more volatile than revenue as it comes off a lower base following the downturn.

A strong recovery in profit is expected as margins recover although overall that remains a relatively low margin industry due to its highly competitive nature.

International risks and opportunities

The Australian economy has dodged the worst of the global economic downturn so far but risks of further global financial shocks remain.

When many nations’ governments bailed out financial institutions and increased spending to stimulate their economies the effect was a shift of some private sector debt burden onto government balance sheets.
Many governments were already heavily indebted prior to the crisis and the additional burden, coupled with investors’ reluctance to continue to provide cheap credit, have strained the finances of some nations, particularly Greece, Spain, Italy, Ireland and Portugal.

Any problems in global credit markets will potentially affect Australia’s banks, which are heavily reliant on offshore funding. That may flow through to Australia’s economy and the employment placement services industry.

The industry has a small but growing number of large companies with international links and many small operators, some providing niche services in specialist industries or markets.

Some providers are now critically dependent on government contracts under the Job Services Australia program.

A shake-up of those contracts occurred as part of the transition to Job Services in mid-2009, with some providers losing contracts and others gaining them. That led to office closures and staff lay-offs among those who lost contracts.

It is expected that major domestic operators will expand internationally due to limited revenue growth opportunities in the domestic market.

Further growth opportunities still lie with providing online services to employers and job applicants, and with expanding into providing a totally outsourced human resources service to clients, covering aspects from staff selection to payrolls and claims for Workcover.

Recruitment broker firms that sign up a number of recruitment agencies then offer their databases to client firms are a growing sub-segment in the United States and Australia.

Key Success Factors

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Having contacts within key markets: Developing contacts in a wide variety of companies and industries is essential for identifying suitable job candidates.

Ability to communicate and negotiate effectively: Good communication and interpersonal skills combined with industry knowledge are important to retain clients and for interviewing job applicants.
Production of premium services: Maintaining quality staff, service and high client satisfaction levels are important in retaining and attracting clients.

Capacity to objectively assess new investments: Medium and large companies need funds to acquire other companies in the industry.

Effective product promotion: The capacity to present a professional image and to market to appropriate clients is important in attracting and retaining clients.

Access to the latest available and most efficient technology and techniques: It is important for companies to be completely computerised and to have databases containing information on people and clients. The ability for e-mail lodgement of resumes and for clients to access them online is very useful for placing employees.

Production of goods currently favoured by the market: Companies must understand the work environment and culture of clients’ workplaces. Ultimate success will come from continually identifying and selecting the most suitable people for vacant positions.

Source: Smart Company

In March 2011 China released its 12th Five-Year Economic Plan, the underpinning philosophy of which is to create more socially inclusive and environmentally sustainable growth. The intent of the plan is to ensure that the benefits of China’s economic growth are shared amongst a greater proportion of Chinese citizens. The plan focuses on re-establishing a balanced economy, improving residual social inequality and adopting further environmental protection initiatives.

The “Twelfth-five Year Plan” will speed up the transformation of economic development whilst expanding the domestic market and develop the services sector to international standards.

The service outsourcing industry is an important opportunity for economic globalization.

China’s offshore outsourcing sector was impacted by the recent earthquake and tsunami in Japan as Japan is an important market of China’s outsourcing industry. The weakness of demand from Japan has had a negative impact on the development of China’s service outsourcing industry.

China’s service outsourcing industry is valued at about US$40 billion in 2010, which is up 35%, however the domestic market is responsibility for 87% of that, In the long run, there is still a very large potential market for outsourcing within China. The main sectors are finance, telecommunication, and government, other less mature sectors include pharmaceutical and e-commerce outsourcing

For Full Version, Please visit: http://www.chnsourcing.com.cn/research-insights/article/9266.html


By Martin Conboy, President – Australian BPO Association

At the start of June I wrote this in the Sauce

“I am worried, very worried. Something is not right. I am seeing a sort of a slowdown but I can’t put my finger on it. I am hearing about softness in some markets, retail is in the doldrums but we know what’s causing that – a very strong Australian dollar, a way to avoid the GST by shopping online, and what appears to be excessive retail mark-ups. The advertising industry is in the middle of a paradigm shift as the industry transitions to online, so there is confusion and uncertainty about the way ahead. Utility prices are going up and there is wholesale confusion about the government’s carbon tax. For the first time in a long time we are seeing industrial warfare breaking out on the waterfront. The papers are filled with gloom and doom, natural disasters of every shape and type, a middle east on fire with revolution and hideous human rights issues. Greece and possibly Italy are on the verge of collapse and an American economy that is mortgaged to the hilt and then some.

On top of all of this one must not forget that we are part of the natural world and there is definitely something very wrong with the planet. I have a vision in my mind of animals in the wild sniffing the air and sensing danger and that thing that they cannot see or hear changes their behavior and they become confused and erratic.”

Fast-forward to today – In the last week the global stock markets have been well and truly routed and there is blood on the floor. There are vicious riots in London and once greed turns to fear, as has been occurring for the past week and a half, it’s everyone for himself.

In the Global Financial Crisis Mk 1. The European governments and US bailed out the banks. The (Greed is good) financiers who engineered the problems and got us into trouble in the first place got away scot-free and even managed to make bonus. Private sector debt became public (taxpayers) debt and now the question is who will bail out the governments?

The developed world has not been prepared to or not able to do the same this time. The debts are staggering, while Australia has about 7% debt to GDP ratio, America’s is 70%, the UK 80% and Japan 130%. Governments simply do not have the cash and like it or lump it the US has to rein in it’s spending, the rest of us cannot afford their lifestyles.

And for all those who worry about a soft landing for Australia?

At the time of writing the stock market in Australia has bounced back. Although we are one of the most exposed nations on earth, a small economy that relies broadly on exports and trade, we are in pretty good shape compared to Europe and the USA and thankfully we are located in the best position on earth, on the edge of Asia.

For the most part we have “decoupled” from America and our relationship with China will work in our favor, although China is tied to the US, not I might add to the degree that it was say ten years ago as it has nurtured other markets in South America and Africa. Nearly 40 per cent of China’s exports went to the US in 2001. That is down to about 20 per cent and falling as a matter of government policy. It’s an obvious strategy as two-thirds of the world’s growth already comes from outside the G-7, the ”old world” major industrialised nations.

Leaving aside the disruptive impact on financial markets and concentrating on the real economy, America’s impact on Australia is filtered through Asia – a buffer that grows stronger every year.

What’s more, Beijing knows it has to switch from exports to domestic consumption to maintain the strong economic growth it needs for social stability. That’s in the latest five-year plan. And, unlike the US,
China is actively pursuing the required economic reform instead of just talking about it.

So on balance we should be able to keep the sails tight and navigate our way through without to much damage. Fingers and toes crossed!

ANZ Regional document processing specialist Speedscan has announced new outbound capabilities with the acquisition of the e-Billing business of Connxion Limited.

Connxion’s e-Billing business will be added to Speedscan’s document processing services for inbound communications that include mailroom services, scanning, OCR, data entry, workflow and document hosting.
Speedscan claims the Connxion e-Billing integration will result in it becoming the largest independent and privately owned Business Process Outsource provider, focused on document intensive processes, across Australia and New Zealand.

Speedscan first began in 1997, and today incorporates businesses in Sydney, Melbourne, Manila, Auckland, Wellington and Christchurch.

Speedscan has now acquired the intellectual property, systems and infrastructure that support all of Connxion’s e-Billing clients across the Asia Pacific. The company will continue to work with the clients of Connxion’s e-Billing business and has engaged all key staff who developed and supported the technology. The acquisition has grown the Speedscan team to 140 employees.

Mark Josman, Chief Executive Officer of Speedscan, said, “With the growth in outsourcing, Speedscan is well positioned to become the preferred supplier of outsourced services for both inbound and outbound document intensive processes. With Connxion’s outbound communications platform, e-Billing and payments services we now have an extensive capability for corporate and government sectors.

“We are delighted that we can now extend the benefits further to our clients across Australia and New Zealand. This unique capability will set Speedscan apart from other competitive players in the market and enable us to continually grow.”

Speedscan is backed by leading Private Equity investors.

Source: IDM