January 21, 2011

Love it or loathe it, outsourcing activity grew dramatically last year among large banks, especially in the fourth quarter. According to TPI's index of outsourcing contracts worth more than $25 million, financial services signed $25 billion in such contracts in 2010, more than in any prior year.

IBM was a big winner of this business, signing up 17 banking deals greater than $100 million in 2010, and $8 billion in IT services agreements with banks worldwide in the fourth quarter alone (according to TPI, the total contract value of all large outsourcing contracts in the fourth quarter was $22 billion, down 30% from 2009).

Likhit Wagle, global industry leader, banking and financial markets at IBM, yesterday shared an insider view of a few of these deals with us. Likhit says over the last nine months clients have been increasingly interested in IT providers like IBM taking end-to-end responsibility for the delivery of services with very specific business outcomes, so that the banks could cut operational costs, improve efficiency and focus on their core competencies.

IBM inked a $1.8 billion deal with ABN Amro in October to help speed the bank's merger with Fortis Bank Nederland. ABN Amro's retail banking operation in the Netherlands has two key objectives, according to Likhit.

First, following the financial crisis and the breakup of Fortis' banking business in Europe, ABN Amro was asked by the government to take over Fortis in the Netherlands, which meant those two banks' systems needed to be integrated. As Fortis's home-grown core banking platform is considered the stronger one, IBM has been tasked with extending and "progressively renovating" that platform across ABN Amro's Netherlands retail banking operation.

ABN Amro's second objective for the IBM deal is to create a single view of customers that would enable the bank to quickly introduce new products and services tailored to customer needs. ABN is currently in the first, information management phase of this, for which it will deploy IBM's information management and master data management software, WebSphere application server, and DB2 database. "They're rationalizing their core information landscape to reduce duplication of data and of data warehouses, to instill a state of the art governance process so they've got the foundation to obtain, clean and report that data to support the single view of the customer," Wagle says. The next phase of the project will be using that information to understand what customers require and put together appropriate products and services. The third phase will be to predict customer needs in the future; this will involve the business analytics technology IBM acquired with its acquisitions of Cognos and SPSS.

With Bank of Ireland, IBM struck a more conventional, five-year outsourcing deal to run the bank's IT infrastructure in November, when a similar agreement with HP ended. The total contract value of the IBM deal was approximately $263 million, a number that has not previously been disclosed. IBM will manage the bank's data centers, desktop systems, servers, mainframes, local area networks and service desk.

As the bank considered its bids for this contract, a major factor was Ireland's challenged economy. "There's almost a maniacal focus on what can be done to improve the capital position and the operational efficiency and profitability of those businesses," Wagle says. The bank looked to IBM to lower its IT costs and improve its operating performance, he says. He declined to share any specific products IBM will be using in the data centers.

A third deal with Australian bank Westpac, also signed in November, is worth $1.3 billion over five years. It's a renewal of an existing 10-year outsourcing contract with IBM. Westpac will deploy a virtualised computing platform known as UCS that uses a variety of products from Cisco, EMC and VMware. "They're looking for a flexible, robust IT infrastructure," says Wagle. "They're going down a journey of specialization, looking for IBM to run their infrastructure for them at levels of operational performance that will enable them to achieve productivity targets."

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