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Mphasis’ Strategy for Financial Services Business Growth

 

NelsonHall recently attended Mphasis’ analyst summit in Foxboro, Massachusetts. Key takeaways are that the company is now focusing on digital and cognitive services applied to legacy systems, and on geographic expansion, specifically in North America and continental Europe.

Mphasis is leveraging its industry experience, including BFSI, which accounts for ~75% of revenues, to drive engagements which integrate domain-based insights to core platforms to improve sales and efficiency. These initiatives have led to four quarters of above industry average revenue and margin growth, and here I look in more detail at how Mphasis is growing its BFSI services business.

Change in ownership

Mphasis experienced declining revenues from FY Q2 2013 to FY Q2 2017, averaging 1.4% per year. In FY Q2 2017 (late calendar year 2016), Blackstone bought a majority stake in Mphasis from HP. Since then, quarterly revenues have grown at 4.5% year over year. Management attributes the performance change to the ownership’s commitment to digital technology services and business growth. This has enabled Mphasis to both invest in technology services and build technology partnerships.

We agree the new ownership has increased investment in technology, but Mphasis has also leveraged its existing investments and expertise to drive revenue growth. Specifically, Mphasis is aggressively selling into its ecosystem. Two key channels are helping grow sales:

  • Digital Risk (12% of revenues, acquired in 2013, sells mortgage BPS): Mphasis has focused on origination services, a key pain point for lenders looking for cost reductions
  • DXC channel: Mphasis has focused on existing client relationships, with an emphasis on banks using legacy Hogan core banking platforms (of which Mphasis has extensive experience, including modernizing and modularizing Hogan into the Celeriti offering).

Mphasis has shifted its offering segmentation strategy from functional segmentation to micro-industry segmentation, such as loan origination. This allows Mphasis to focus on LOB challenges and deliver services which connect the customer (engagement layer) to legacy systems (intelligence layer). Solutions are often transferred to the cloud to reduce the cost of run and change.

Mphasis’ Front-to-Back transformation approach

Because technology and the industry are moving very fast, Mphasis counsels its clients to consider its investments as disposable, not permanent. Mphasis builds disposable software architectures in its engagements to facilitate rapid adaptation and replacement as technology moves along. Mphasis delivers these changes quickly in small chunks to allow timely deployment and quick value realization by clients. Mphasis calls this strategy Front-to-Back (F2B) transformation. Mphasis will announce this rebranding in the Fall of 2018 as “The Next Applied”, which focuses on Mphasis applying technology to business challenges using employee domain expertise in very targeted areas to solve LOB operational challenges. 

Mphasis’ Front-to-Back approach is consistent with the emerging industry practice of trying to improve digital technology performance with greater links to core systems to increase STP. However, Mphasis’ focus on subprocesses is differentiating. If Mphasis keeps to domains where it has critical experience, such as mortgage lending via Digital Risk or core banking via Hogan/Celeriti, it can deliver differentiated value to LOB executives looking to improve operational delivery and customer satisfaction.

Mphasis applies these capabilities to solve data management problems which cannot be solved by technology alone. For example, banks typically cannot utilize data effectively because:

  • Reference data is scattered across internal silos
  • Analytics applied to data is not timely, and therefore not relevant to real-time challenges
  • Implementing analytics requires costly IT platform changes.

Mphasis’ approach is to use live transactional data from one or a few data dialects (e.g. sales, payments, or service) and enhance it from external sources (e.g. internet searches, third party data vendors) and analyze it using cloud-delivered data services. This approach mitigates the challenges listed above and produces real-time, targeted analytics.

Assessment & outlook

All of Mphasis’ business is on a roll, and its BFSI business, which is 75% of revenues, grew its most recent quarterly revenues by 17.4% y/y. It has jumped on the digital services bandwagon but has correctly identified business results as necessary to successful offerings. To create immediate client value, Mphasis’ engagements focus on tightly defined industry challenges. Mphasis solves those challenges with projects which use disposable architectures to link customer engagement to the operating platform. Disposable architectures speed time to deployment and provide flexibility to implement changes in the future, as digital technologies and industry challenges develop. As the business evolves, Mphasis delivers follow-on engagements which extend or replace the current engagement with deliverables relevant to an evolved environment.

Mphasis has the industry domain expertise to deliver future projects which expand operational scope within its existing target domains (e.g. mortgage processing, financial services risk and compliance). However, it requires an expanding range of technology partners to access relevant emerging technologies. Its Sparkle Labs program brings emerging technology vendors into Mphasis’ ecosystem to create offerings for clients.   

To maintain above average market growth rates for an extended period, Mphasis will need to acquire some vendors with specialized expertise, like its acquisition of Digital Risk, which provided specialized mortgage origination capabilities. Specialized domains Mphasis might look to fill via acquisition include: 

  • Professional services capabilities for cloud implementation focused on a specific vendor (e.g. Google, AWS, or IBM). Each cloud vendor has a distinctive platform and environment requirements which require specialized knowledge
  • Domain expertise in sub-industry verticals. Mphasis should consider growing its capital markets capabilities where it is currently under-represented (e.g. investment banking or custody) 
  • Market presence and expertise in continental European markets of interest, including France, Benelux, Switzerland/Germany.

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