Back-office BPO in European asset management to reach $758 million in 2006
By Our Corporate Bureau | 09 Sep 2004
London: Asset management technology in Europe, a new report by independent market analyst, Datamonitor (DTM.L), says the market opportunity for business process outsourcing (BPO) in European asset management will reach $758 million by 2006. This market has emerged in Europe as a series of large-scale lift-out deals, with traditional custodians (for example State Street, Bank of New York, Mellon, JP Morgan, Citigroup, HSBC), demonstrating keen interest in taking over entire back-office operations of asset managers.
Whilst 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. BPO is eroding addressable markets for back-office application vendors, but simultaneously creating a new one as service providers need scalable migration platforms to add new clients.
As asset managers hand over their entire back-office operations to BPO providers (custodians), the market for software vendors targeting asset managers directly will gradually erode. At the same time, however, BPO providers (custodians), represent a new addressable market for software vendors that offer highest scalability, breadth and depth of functionality.
Most European deals so far have involved large asset managers, including transfers of staff often going into the 100s. The next stage for service providers (custodians) will be to take on additional clients and capitalise 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. Partnerships with custodians will be the only remaining route for non-bank BPO providers looking to enter this market
Whilst there is 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 1-3 years and enter the market with stand-alone offerings.
However, Datamonitor believes 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.
According to Daniel Lessner, Datamonitor financial services technology analyst and author of the study, "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 'un-naturally' accelerated the development of this young market, literally leaving other BPO providers to stand and watch as it has unfolded."
