Financial Services KPO to be worth US$5 billion by 2010, says KPMG Report
Various sources of market research predict the KPO (Knowledge Process Outsourcing) industry to be worth anywhere between US$10 billion to US$17 billion by the year 2010. While the level of optimism on industry growth varies, few doubt the fact that the industry will grow at a staggering rate. The financial services sector accounts for a major proportion of the KPO industry. Assuming a conservative growth of the global KPO industry, KPMG expects the financial services KPO industry to be worth in excess of US$5 billion by the year 2010.
KPMG’s view of the potential of the KPO industry was revealed today in a report released at a press briefing in Emirates Towers by Rajeev Lalwani, Partner Advisory, KPMG Lower Gulf.
The global financial services industry has been at the forefront of each of the three waves of outsourcing moving from ITO to BPO, and now to KPO. In effect, KPO represents the latest step, in a continuous multi-decade process of value creating strategies, with respect to a typical financial institution’s back and middle offices. Within the financial sector, KPO has already been used to handle – amongst other things - credit scoring, loss protection calculations and fraud analytics.
In the words of Edge Zarrella, Global Partner-in-Charge, IT Advisory, KPMG, said: “Just a few years ago, talk of KPO seemed far-fetched, especially as businesses were still struggling to come to terms with what the earlier forms of outsourcing could do for them.
Our study looks at the financial services KPO space which is driving the KPO evolution. Along the way we aim to show that KPO is a business phenomenon in its own right, not merely an elaboration of Business Process Outsourcing. KPO may still only represent a small percentage of the total outsourcing market but, with the financial sector demonstrating just what it can be used for, I think that all of these numbers are set to increase significantly.”
There are a number of factors driving the financial services’ KPO phenomenon:
The existing capabilities of ITO and BPO captives and third-party vendors to handle outsourced work
The availability of high quality and often certified talent (as opposed to sheer numbers) in offshore locations
Moves to extend sourcing strategies beyond traditional comfort zones
Global recognition of standards, qualifications, skills and experience required to perform analytical functions
The continuing push towards global sourcing by many banking and insurance organizations, in the march for greater efficiency and improved economies of scale as well as access to capabilities
Improved remote project management capabilities, owing to an increased sophistication in telecommunications and other enabling technologies
KPMG opines that the KPO phenomenon will have far-reaching consequences for the global financial services’ industry over the next three years.
• There is likely to be a significant shift in the boundaries between “outsourceable” and “non-outsourceable” activities
• Offshoring strategies are expected to embrace new locations
• Most global banks and insurers are expected to adopt KPO strategies
• Decisions about outsourcing may be accelerated to preserve and increase competitive advantage
• “Boutique” providers should leverage KPO to create new services and offerings
• More rigorous regulatory and compliance control will likely be demanded, as KPO providers deliver more complex services
KPO delivers high value to organisations by providing domain-based processes and business expertise rather than just process expertise. These processes demand advanced analytical and specialized skill of knowledge workers that have domain experience. Some of the key challenges that can emerge in the KPO industry are:
• Maintaining higher quality standards
• Investment in KPO infrastructure
• Lack of talent pool
• Requirement of higher level of control
• Confidentiality and enhanced risk management
• A declining dollar
• Compliance and regulatory pressures
The KPO industry has indeed come of age. Clients are recognizing that process complexities, higher billing rates and skilled resource requirements differentiate KPO from BPO. KPO demands a more specialized skills base than BPO. It leverages intellectual property and capacity rather than costs.
India is expected to remain a preferred location for KPO activity, but organizations are expected to look for alternative locations for additional delivery centers, both from a customer and service provider perspective.
Key Pointers
• Most global banks and insurers are expected to adopt KPO
• Global financial services industry at the forefront of each of the three waves of outsourcing moving from ITO to BPO, and now to KPO
• Significant shift expected in the boundaries between “outsourceable” and “non-outsourceable” activities
• India remains the number one KPO destination, in hot pursuit are countries like Vietnam, Malaysia, China & Mexico
