Despite big banks’ continuing investment in digital transformation, most of these new budgets are being spent on fintech firms with more of insourcing, he added. As part of insourcing, clients are managing their IT-related work in-house than outsourcing it to IT services players.
Within the BFSI vertical, while banking segment is going through a slow growth phase, client spend on the insurance segment remains strong. However, experts said outsourcing opportunity is not big enough in the insurance space to compensate the tepid demand in banking segment.
“Some consolidation in regional banks in the US, like merger of SunTrust & BB&T, can potentially create spending pull back (this fiscal year),” said Prashant Shukla, director-financial research at Everest group.
Some other experts said apart from these traditional pain points, even entry of new players are prompting established firms to hold back discretionary spend.
“A lot of new players are entering into BFSI and health care domains. For instance, Apple is getting into credit cards; Berkshire Hathaway-Amazon-JP Morgan has entered health care through their venture Haven. When these players enter new sectors, traditional players feel the competition, which may prompt them to hold back some bit of their discretionary spend,” said Pareekh Jain, founder of IT consulting firm, Pareekh Consulting.
BFSI vertical is one of the highest revenue-contributing segments for most Indian IT services players with most of them drawing more than 30 per cent of total income from this segment. “Domestic IT firms have to look for untapped geographies like Latin America and tier-II banks such as small and regional banks to overcome this growth bump. Among Indian players, TCS is better placed owing to its ability to clinch and execute large deals,” Jain added.
Similarly, post scrapping of Obamacare or the Affordable Care Act in the US, uncertainty in the health care vertical continued to linger. “The regulatory uncertainties have pushed health care from being one of the highest growth verticals to the lowest growth one. We do not see this trend reversing anytime soon,” said Bendor-Samuel. However, many experts said except Cognizant, which has a high exposure of around 29 per cent to the health care vertical, other Indian players will not be impacted much.
Large banks spending mostly on fintech firms and insourcing
Banking sector consolidation in the US to affect overall IT outsourcing budget
Apple’s credit card foray, Berkshire Hathaway’s entry into health care may prompt established firms to hold back spend
Health care vertical is going through structural change after the scrapping of Obamacare