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Top 3 Predictions for Banking BPS & ITS in 2017

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Based on NelsonHall research conducted during late 2016, I have identified three key predictions for business process services (BPS) and IT services (ITS) in the Banking sector in 2017.


1. Compliance initiatives move from industry headwind to tailwind

The first prediction is that compliance operations change initiatives will decline, and the resources released from this change will fund new revenue generation activities.

Changing bank operations procedures and execution has been the primary driver of operations projects (and the major expense) for the past three years. In 2017, this trend will reverse. With implementation of existing compliance requirements largely in place, spend in this segment would most likely have reduced in 2017 anyway, but the U.S. election has further signaled a respite for banks from new regulations.

Existing initiatives are now set to pay off for the banks. Banks have undertaken:

  • Automation initiatives: primarily robotic and analytics initiatives focused on KYC, AML, and FATCA. Complete digitization of these processes now means any future changes will require AMD services, not operations services
  • Third party delivery of compliance: Compliance-as-a-service shares implementation overhead and increases industry standard adoption of regulations. Third party delivery has eliminated compliance as a competitive differentiator. Future change adoption is now in third party hands
  • Global standardization: Banks have shifted compliance delivery from unique systems for each market to global systems with a standard taxonomy, but configurable for each market’s unique regulatory requirements. This makes new market entry and compliance changes a matter of changing configuration, not developing a new system.

Compliance to date has been a cost sink, which has delivered no differentiation or revenue. However, because most compliance initiatives have focused on customer acquisition requirements, banks are now able to turn those compliance capabilities into customer acquisition drivers. With reference to the three areas above, customer acquisition can now be driven with:

  • Automation, used to drive down TAT and enhance customer experience
  • Third party delivery, used to segment clients and markets, where high priority clients/markets are delivered by retained organizations and lower scale/priority ones delivered by third party vendors
  • Global standardization, increasing brand integrity for existing customers and providing the same experience for new customers.

In essence, banks will be able to create a ‘one brand’ experience for a much larger audience.

2. Revenue generation becomes the top industry priority

The second prediction is that banking BPS vendors will develop multi-service capabilities to support clients in new revenue generation.

Banks can only reduce costs so much on a shrinking base of revenues. In 2016, banks have started to focus their attention on increasing revenues, while reducing marginal variable cost per unit of marginal variable revenue. The great game of 2017 is shaping up to be one of how to find opportunities for good marginal cost/revenue gains, and then execute against those opportunities. Key initiatives that BPS vendors are working on include:

  • Automation and FinTech initiatives: Due to the low cost enabled by increased automation and enablement of much lower cost delivery methods (i.e. digital channels versus brick & mortar channels), banks are able to address previously uneconomic market segments, including lower revenue customers (e.g. mass affluent customers in private banking) and lower revenue markets (e.g. small country entry and/or lower potential revenue product offerings). The remaining challenge, now that banks can technically address these opportunities, will be for banks and vendors to understand the peculiarities and demands of these new customer, market, and product segments
  • Improved customer experience: Lowering the cost of customer acquisition and delivery reduces the barriers to entry for competitors to lure customers away. Rebuilding barriers to entry requires delivery of a unique and agreeable customer experience. This has changed the way banks and vendors address the set-up of customer experiences. The focus has been to build customer interaction operations with a ‘design thinking’ approach, which utilizes a human psychology approach to building delivery to satisfy human expectations and needs. Much has been written about this, and while it’s all the rage in the industry at the moment, it is only likely to yield results if based on quality market research and platform build.

These initiatives provide a good base for banks to build out their revenue generation capabilities in 2017, after years of languishing revenues. Banks have reduced their stable of third party vendors to reduce cost and regulatory certification of vendors. Successful vendors, therefore, will be the ones who can deliver a broad footprint of services across technologies, geographies, and customer segments.

Understanding the buying requirements of previously unbanked customers and markets is not going to be easy to do well. Most vendors will need to expand their market research capabilities to develop the insights necessary to support effective execution of this strategy. And to do that, vendors will have to pursue M&A activities.

3. M&A initiatives will accelerate to enable the shift to a pervasive FinTech structure

The third prediction is that significant mergers, acquisitions, and partnerships will emerge as the Tier 1 service providers continue to develop their digital delivery infrastructure.

To be successful in 2017, vendors will need to build out their offerings to support an emerging environment where new technologies, FinTech, are being adopted to deliver new functionality; technology which is directly related to human senses, emotions, and experience. Building such technologies sequentially would require very long lead times. The answer to that challenge is to build these technologies in parallel. Since no one organization can design, build, and run such a large infrastructure development program, many technology firms will have to focus and specialize on discrete project areas. Then, the successful ones will either merge into larger organizations or acquire other organizations. In the short run, the next two years, vendors will need to partner or acquire capabilities.

Over the next two years, M&A will focus on technologies mature enough to deliver operationally tested functionality where banks are ready to undertake widespread adoption. These technologies include:

  • Machine learning: these technologies have been deployed over the last three years, and users have identified high-value use cases (primarily in customer interactions)
  • Cloud delivery: IT services vendors have trialed use cases (especially where security is less of a concern), cybersecurity solutions, and delivery (primarily partnering with large vendors such as Amazon Cloudfront)
  • CRM for mobility: Scaling the mobile channel cannot be done with a labor-only solution. Automation of customer mobile support has been trialed, and effective first generation solutions have been developed which will now be rolled out and developed into second generation solutions.

The next twelve months will see deployment of these technologies across borders and products. To scale the delivery of these deployments, ITS vendors will need to add labor skilled in these technologies by acquiring small specialist consulting and ITS firms. They will also need to acquire IP to fill in the gaps in IT that ISVs are missing. Examples include:

  • APIs connecting legacy platforms with new technologies
  • ITS automation tools focused on these domains
  • Solutions that can enhance functionality, such as CRM modules providing functionality not provided in existing mobile CRM tools.


In 2017, the banking BPS and ITS industry will consolidate many of the small-scale FinTech initiatives that have been developing over the past three years. FinTech solutions remain very small-scale to date, but have been very successful in identifying use cases and developing solutions that have been successfully deployed at small scale. Over the next year, the FinTech solutions and services industry is poised to deploy at scale and to develop initial capabilities into robust capabilities. This will require aggressive scaling of resources, staff and infrastructure, and will require deepening of IP to deliver much more robust functionality that can be successful in a broader range of operating environments than has been required of these technologies to date. It is shaping up to be a fun year!

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