Banking on financial services to insure IT boom

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: Between January 1, 2005 and November 15, this year more than 96 deals took place in IT and BPO industry in India. More than 60% of these deals were in the Banking, Financial Services and Insurance (BFSI) space, alone. Indian IT and BPO exports stood at $17.9 billion for 2004.

But, 37% of the exports come from the BFSI sector.

India’s largest IT companies —TCS and Infosys account for 41% and 36% of their total revenues from the BFSI vertical.

India’s largest IT deal - the Oracle acquisition of 61% stake in core-banking software firm - iFlex worth $909 million - also hovered in the BFSI vertical.

And the reason behind India’s IT and BPO boom: the global boom in BFSI sector across the world. The sector is rapidly becoming the engine powering the growth of IT in India.

BFSI sector includes banks, stock markets, hedge and mutual funds, insurance and mortgage companies, stock trading houses and Non-Banking Financial Institutions (NBFCs).

Why then is this sector becoming the buzzword amongst IT and BPO companies across the world? Why does every second deal which IT CEOs discuss in corporate meetings, happen to belong to either a bank or an insurance company?

In fact, the largest IT outsourcing contract in India, bagged by TCS and Infosys — the ABN Amro deal worth $400 million, also, belonged to the BFSI sector. We evaluate the reasons here.

IT-ITeS Deals in 2005

From the biggest deal in IT sector to the smallest: the year 2005 for the IT industry should have been aptly named as ‘the year of the BFSI’. Major BFSI acquisition deals in 2005 were Oracle-iFlex ($909 million), TCS-FNS ($23 million), TCS-Comicrom ($26 million), Office Tiger-MortgageRamp ($35-$40 million) and WNS-Trinity Partners ($20-$25 million).

Why so many acquisitions?

The BFSI segment is highly specialised. Said Manoj Jain, CEO, Pipal Research: ‘‘Expertise in this domain requires years to build. So, it makes considerable sense to acquire a company and greatly reduce time to market. It helps in reducing turnaround time by 2 to 3 years.’’

The acquisition of Trinity Partners, for instance, by India’s largest travel solutions BPO, WNS, this year helped it to build a strong financial vertical with ready-made customers, in a single go. With this acquisition, WNS acquired Trinity’s six clients in multiple geaographies, and a $60 million contract with First Magnus Financial Corp.