Tata Consultancy Services has purchased Citigroup Global
Services for $505 million, a deal which gives added strength to the
fintech firm’s emphasis on full-service offerings. Dan Jones spoke
to N Ganapathy Subramaniam, president of TCS Financial Services,
about the deal.
Tata Consultancy Services’ (TCS) $505 million purchase of
Citigroup Global Services will add “a phenomenal amount of
capability to the company’s banking, financial services and
insurance division” as well as “a different level of expertise”,
said TCS Financial Services president N Ganapathy Subramaniam.
Go deeper with GlobalData
Those sentiments have been echoed by TCS CEO S Ramadorai. Both
men see the newly-acquired outsourcing capabilities as highly
complimentary to a business that, in the words of Subramaniam, thus
far viewed its “bread and butter” operations to be direct IT
services.
“I believe that not everybody has grasped the strategic
significance of the deal,” Ramadorai said, speaking on an analyst
conference call following the release of TCS’s results for the
second quarter of financial 2008-09.
“The domain-led banking process expertise we will acquire
through this deal gives us a unique strategic advantage going
forward.”
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By GlobalDataThose results reflected the first signs of an inevitable
knock-on effect of a tumultuous year for banks. Net profit of
INR12.62 billion ($342 million) for the quarter – a 1.2 percent
year-on-year increase – came in just below analyst estimates.
Banking, financial services and insurance (BFSI), the key
revenue-generator for TCS, accounted for 41.9 percent of total
revenue in the quarter, down from 42.5 percent for the three months
to July.
The Citi deal will provide TCS with “insurance” against a
further deterioration in business prospects, said Ramadorai, citing
the existence of an accompanying order book stretching over the
next decade and with a cumulative value of $2.5 billion.
Speaking to RBI, Subramaniam said Citi has “given a
guarantee to maintain revenue at the same level or higher for the
next nine and a half years” as part of the transaction.
Such commitments mean that Citi is now TCS’s biggest customer,
adding business process outsourcing (BPO) to existing partnerships
on the IT side, where TCS was already a preferred partner.
Subramaniam said that comprehensive offerings will continue to
be TCS’s preferred delivery method.
“We will continue to emphasise full service – IT, infrastructure
and BPO solutions. The focus will be transformation – more and more
people are now asking for new business models, in the sense of
providing them with managed services. They’re saying – can you take
the pain off me and standardise this or that”.
A focus on retail banking
Particular gains stand to be made within the retail banking
sector, despite current conditions, according to Subramaniam, who
points to the wave of merger and acquisition activity as inevitably
leading to a more pressing need for systems integration and other
technological solutions.
“What I’m seeing from the interactions I’ve had in the past six
to eight weeks is that in the consumer banking side, budgets are
actually getting stronger,” he said. “Whereas capital market
activity [in the sector] is likely to slow down or be relatively
flat, consumer banks are the ones looking to drive synergies.”
Retail banks are looking to invest in two to three different
kinds of programmes at once, Subramaniam indicated, providing
further opportunities for the likes of TCS. These are typically
wealth management capabilities, e-security requirements and, on a
more generalised basis, tools for improving the customer
experience.
TCS now has 180 customers across the BFSI unit, including a
range of tier one and tier two level banks, across a number of
different geographies.
Of these, Subramaniam advises that the typical fintech trends
remain very much in force: IT services and more cosmetic
improvements across the US and Europe, and systems replacement or
packaged deployments – typically larger, multi-year deals – across
Asia-Pacific, Latin America, Africa and the Middle East.
With few markets now likely to escape the crisis, it is the
original epicentre – North America – which TCS sees as providing
the greatest prospects for the firm.
“Once the dust settles, the opportunities will be higher there –
our own view is that North America will probably open up quicker
than other markets,” Subramaniam revealed.
In that context, the Citi acquisition stands TCS in good stead,
he believed.
“We were the fifth biggest Indian BPO, but this acquisition
moves us up to second [behind GenPac]. The TCS business model was
already very strong in IT services.
“We have built up our infrastructure abilities over the past few
years, in response to customer demand, and with this acquisition we
have significantly enhanced our BPO positioning.”
| IT CONTRACTS | |||
| RBI Fintech DealWatch tracks recent major technology contract wins with a focus on the retail financial services industry as well as fintech mergers and acquisitions and innovative new product launches |
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| Coutry | Participants | Type/value | Details |
| China | NCR, ABC, Bank of China, CCB, ICBC, BoComm | ATM contract win | NCR has revealed that it has secured contracts for the provision of 6,000 new ATMs to the five leading Chinese banks – Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank and Industrial and Commercial Bank of China – as well as other smaller commercial banks in the country. NCR says it is the market leader in China, and that it has achieved particular success in supplying ATMs to ICBC. |
| Germany | Callatay & Wouters, BearingPoint | Strategic partnership | Core banking system provider Callatay & Wouters has partnered with consultancy BearingPoint in order to deliver its Thaler Direct Savings Bank product to retail banks in Germany. The product, launched in August 2008, allows banks to meet consumer demand for high-interest savings products, which it can roll out within four months. |
| China | Bank of Shanghai, Temenos | Core banking contract win | Bank of Shanghai has become the latest Asian institution to update its legacy systems, and has gone live with the Temenos T24 core banking system across its retail operations. The system will support the bank’s 11 million customer accounts as well as its ambition to become a “truly international bank with global scope”. |
| UAE | Mashreq Bank, Postilion | Payment processing contract win | Mashreq Bank, the largest privately held bank in the UAE, has installed a payment processing solution from Postilion that will enable it to consolidate its payment handling system. The majority of the bank’s 200 ATMs and 12,000 POS terminals have now been migrated to the new system. |
| China | China Merchants Bank, Temenos | Core banking contract win | China Merchants Bank, the first Chinese institution to receive a US licence since the introduction of the Foreign Bank Supervision Enhancement Act in 1991, has selected the Temenos T24 Model Bank for its new banking business in the US. |
| Japan | IBM, Chiba Bank, Hokkoku Bank, Daishi Bank | Strategic partnership | IBM will develop a call centre system to be used by Japan’s Chiba Bank, Hokkoku Bank and Daishi Bank after it signed an agreement with all three institutions. The system, seen as reducing development costs for the banks, is part of a wider exploration of integration possibilities that also encompasses two other Japanese institutions – Iyo Bank and Chuugoku Bank. |
| Germany | Deutsche Postbank, Asset Control |
Contract win |
Deutsche Postbank is to use data management software from Asset Control in order to improve its modelling processes for market risk. The AC Plus software will also eventually allow Deutsche Postbank to automate its data management processes. |
| UK | Yorkshire Building Society |
Contract win |
Yorkshire Building Society, the third largest mutual in the UK, has selected Verint Systems’s Impact 360 workforce optimisation programme in order to better manage staff activity. The building society said the installation would improve cost efficiencies and member services. |
| US | Temenos, Metavante, EverBank | Core banking contract win | Florida-based EverBank has become the first client signed as a result of the strategic alliance between Temenos and Metavante to promote the former’s T24 core banking system. EverBank, which currently uses a Metavante system for its retail banking operations, will use T24 within its world markets division. |
| South Africa | Ithala Limited, Temenos | Core banking contract win | Ithala Limited has said it is to implement the Temenos eMerge core banking system across its retail banking and business finance operations at its 50 branches in the KwaZulu Natal province. The agreement is seen as boosting Ithala’s ability to reach South Africa’s unbanked population. |
| Global | SunGard, GL Trade | Acquisition | SunGard has completed its previously-announced purchase of a 64.51 percent majority interest in financial solutions firm GL Trade. The transaction values GL Trade at €400 million ($585.3 million). |
| US | Polaris Software, SEEC | Acquisition | Application provider Polaris Software has agreed to acquire US product and component services firm SEEC for an undisclosed amount. Polaris believes the purchase of SEEC, a provider of products to the insurance industry, will “form the pivot of our growth” within the sector. |
| Singapore | Experian, DP Information Group | Stake acquisition | Experian has purchased a 40 percent minority stake in DP Information Group, a Singaporean credit and business information bureau. DP Information’s credit and information portal QuestNet is used by 95 percent of Singapore’s financial institutions. DP Credit Bureau, the group’s consumer credit subsidiary, will incorporate Experian’s global expertise into its own offerings as a result of the deal. |
| US | United Technologies, Diebold | Bid withdrawal | United Technologies has withdrawn its bid for Diebold, the ATM manufacturer, which rejected the $2.63 billion bid in March 2008 after labelling it “inadequate”. Diebold has also reiterated its full-year earnings guidance, which it increased on 30 September. |
| Global | Experian, SmartReply | Strategic partnership | Experian Marketing Services has partnered with mobile and voice marketing solutions provider SmartReply in order to offer its customers a wider range of mobile marketing options. Experian says clients will be able to add the likes of text, video and voice messaging strategies to their campaigns as a result of the partnership. |
| Global | HSBC, t-mac | Contract win | HSBC has announced that it is to collaborate with energy management firm t-mac Technologies in order reduce energy consumption within the bank’s retail units by 20 percent. The bank will use t-mac’s mini-building management system to monitor and mitigate energy consumption within HSBC’s branches and other property. |
| Australia | Commonwealth Bank of Australia, BankWest, SAP | Core banking migration | Commonwealth Bank of Australia has confirmed that its purchase of BankWest from the UK’s HBOS will result in the Western Australian bank being included in the planned migration of its core banking system to the SAP for Banking platform. The A$580 million ($394 million) project with SAP was first announced in April. |
| UK | HSBC, OmniPerception | Biometric security contract win | HSBC is to become the first bank in the UK to use facial recognition technology for security purposes following a tie-up with biometrics firm OmniPerception. The bank will use the firm’s CheckPoint system to instal 10 facial biometric units across two new data centres in the UK. |
| Mozambique | Absa, PIC Solutions | Credit application contract win | South Africa’s Absa has selected PIC Solutions to implement credit application scorecards for its retail customers in Mozambique. PIC Solutions will also provide training to staff in how to best use the cards to reduce business risk and enhance the credit process. The scorecards will be introduced in Absa’s subsidiary Barclays Bank Mozambique. |
| Source: RBI | |||
