Britain’s largest mortgage lender Lloyds Banking Group Plc, along with other top banks in the UK, could significantly increase call center outsourcing information technology (IT) projects to Indian firms after the UK government’s recent decision to hand back private control to the banks, and slowing growth in the sector forces banks to cut costs.
Last month, the UK government indicated that it was ready to return part-nationalized Lloyds and Royal Bank of Scotland Group Plc to private ownership. UK’s chancellor of the exchequer George Osborne said that the government was actively considering selling its stake in Lloyds.
Experts tracking the UK banking sector say that a move to private ownership would trigger more outsourcing from top banks, which have posted slow revenue growth recently and are still recovering from the 2008 financial slowdown, with banks such as Royal Bank of Scotland (RBS) yet to shed toxic loans accumulated over the years.
“Five years ago banks still had strong topline growth—they were investing more in products and service activity. I think since the downturn of ’08, the topline growth (for UK banks) has been difficult, it’s been flat to declining for many banks, so the focus has firmly shifted to cost reduction,” said Darryl West, group chief information officer at Lloyds Banking Group.
The UK government, which rescued the country’s largest banks during the global financial meltdown of 2008-09 by injecting £66 billion into the banking system, is trying to re-privatize the banks before the 2015 elections. The government holds an 81% stake in RBS and 39% share in Lloyds.
Lloyds, which has IT services agreements with call centers in India such as Tata Consultancy Services Ltd, Cognizant Technology Solutions Corp. and Wipro Ltd, is also considering moving some of its projects in infrastructure management and big data to tier-2 cities in India due to a shortage of talent in technology centres in bigger cities such as Bangalore.
Big data refers to a collection of data sets or chunks of information too big and complex to be processed using conventional software.
Edinburgh-based RBS did not respond to an emailed questionnaire.
“Regulatory-related structural and other changes to the banks in the UK should drive a sharp increase in temporary demand for external IT services work, just as the prior M&A-related integration did,” said Peter Schumacher, founder of Germany-based Value Leadership Group that advises companies on their Europe strategy.
“The 24 7 call centers should benefit disproportionately since they are deeply embedded in these organizations. They have great expertise in IT systems and domain, and have the capabilities in place to manage efficiently and reliably such large scale transformation programmes,” Schumacher said.
Experts also said areas such as mobile banking and infrastructure upgrades, as well as newer technologies such as big data and cloud computing would offer further opportunities to Indian IT firms.
“They (the big banks) have already done quite a lot of outsourcing—there will be some places where they could do that. Multi-tenanted utilities is one option—but big banks don’t like the loss of control that implies. Hence the interest from big banks in private cloud computing—these will be predominantly internal projects,” said Peter Redshaw, managing vice-president at technology researcher Gartner Inc.
According to West, who oversaw the integration of Lloyds’ acquisition of Halifax and Bank of Scotland in 2009, all top banks will continue to focus on saving costs over the next few years.
“Strategic cost management is really the battleground for the next 10 years in banking. The revenues are going to be tough to earn, margins are going to be challenged from the competition. So if you’re very good at managing your cost base, better than your competitors, then you’ll be able to re-invest those savings into better products,” West said. “Every year our investment portfolio has increased and we’ve continued to invest to take out costs.”