A key contributor to the UK economy, the banking sector remains one of the most dynamic vertical markets and the third largest in terms of core SITS (software and IT services) expenditure.
As competition intensifies, along with the introduction of regulatory changes, a number of opportunities for outsourcing vendors are set to rise as organisations increasingly accept third-party solutions.
While some industry experts believe IT investment in the UK banking sector will be negatively impacted by the recent issues surrounding the US sub-prime mortgage market and the tightening credit crisis, PAC expects investment to remain on the growth path in the coming years.
The core SITS market will grow at a compound annual growth rate of 7.7% between 2007 and 2011, with most momentum stemming from the outsourcing business.
Nonetheless, as a result of the market pressures banks will be seeking to do more with the same amount of resources and money, which is likely to translate into increased demand for off shoring, pushing business in the BPO space.
BPO will be particularly demanded for the horizontal processes such as F&A and HR, as well as more core areas like mortgage and loans processing as banks seek to lower costs.
SEPA payments processing will also be thrown into the spotlight as some banks find that maintaining this area in-house will not be profitable.
The recent market risk exposure also means that IT services players will face tightening margins.
For the larger IT services players (like IBM and EDS), tighter margins will be further fuelled by the rising trend of multi-sourcing and off shoring trend as the larger players are forced to settle for smaller contracts in terms of size and volume.
Cost pressure will increase from the Indian players, such as TCS, Cognizant and Infosys, that are pushing hard to increase margins and growth in the UK banking sector through building competencies around the higher value service offerings.
These players are focusing efforts on increasing their consulting and domain expertise in attempt to win new business.