With many large banks in the United States and the United Kingdom facing trouble, it is probably a bad time to be providing outsourcing and consulting services to the financial services industry. Management consultant and transaction-services-provider Accenture, which reported a 6 per cent rise in net revenues to $6 billion in the first quarter of FY09, acknowledges that the environment is tough and clients have become more demanding. Pierre Nanterme, group chief executive of Accenture’s Financial Services operating group spoke to Sudeep Jain and Sidhartha about the challenges and the outlook. Excerpts:
Since you have so many global clients, tell us about the mood in the financial sector and how much business it means for you?
The impact on the financial services’ balance sheet will be around $2 trillion, in which more than half the amount will be gone through depreciation and other things. It is just like Texas was gone. If you get in the $2 trillion range, which might very well happen, it would be like France’s GDP has disappeared. Even with crises being pervasive and global, some players are more infected than the others. The Anglo-Saxon corridor — the US, the UK, Germany, Switzerland — has been the most impacted by the capital markets and investment banking activity, hit by toxic assets. The continental Europe corridor, or the Latin corridor consisting of France, Italy and Spain, is less affected. The third corridor — made up of emerging markets such as Latin America, China, India and others — has reasonaly good business as they are involved in traditional activities.
Specially, if you look at India, you are more into deposit activity than on lending. So, what’s in it for us? It is about helping our clients be more successful in navigating these challenges. The most-hit organisations need to understand what it is they have to do to transform. So, it is like a catch-up and restructuring mode. For organisations that are more or less intact, it is how you can leapfrog over the competition and tap opportunities to get even better.
So, is it too early to expect more business?
There are a couple of things we are doing right. First, we are working with the right portfolio of big clients, out of which 95 per cent are winners. We are a global company operating on a diverse scale. Our business, focused on retail banking and insurance, is not so exposed to the capital markets. Another point is that we are doing about significant business in outsourcing (about 40 per cent), which has proven to be quite stable.
Do you see some banks pulling out of markets such as India and China due to their problems at home?
If you look at Spanish banks like BBVA (Banco Bilbao Vizcaya Argentaria), it made an acquisition of Compass in the US. BNP Paribas is quite active in their globalisation. We do not see much reason for big insurance players such as AXA and Allianz to stop expansion. On the other hand, you will see capital reorganisation in ING, Citi and RBS. For some period, these giants will have to reconcentrate on their home markets and divest. But they are reasonably few. The crisis remains quite concentrated among a small number of players.
But the large players have a bigger presence in India than the smaller ones?
Yes, but India is a good market. Probably, new players will be interested for multiple reasons. The US and Europe are facing a serious slowdown and it is not just going to be for 12 months. If you are a bank and you have not been so impacted, the question is where can you squeeze more growth. If you are looking for reasonable growth and stability you will be interested in Latin America and also India because you can see stability there, emergence of a middle class, a stable political environment, which is good for financial services and people are making good deposits and savings. And you have big corporations and are not so dependent on exports. I would put my money on Brazil and India.
Will offshoring go up as financial services players look to cut costs?
We can see a new wave of outsourcing. The next wave will be on the quality and productivity side rather than costs. If you take an application and instead of making it cheaper you look at the processes, streamline them and build high performance processes, you will have a better quality of service for your clients.
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Accenture claims Indian banks could target a reduction of 20 per cent on their cost bases. What measures do they need to adopt?
We have demonstrated a 15-20 per cent improvement in insurance and banking and that range could depend on the organisation’s maturity. We have saved distribution costs for insurance companies and also improved their productivity. You can make the agents more effective, you can do with some branch optimisation, vendor consolidation and there are huge take-outs in IT operations if you consolidate and create shared services.
Are margins on the consulting side coming under pressure?
So far, no. But clients are more demanding about pricing. We have to make sure we deliver our services in a cost-effective way. So, we are working more around differentiation than before. In financial services, we have developed a lot of alliances with key players like SAP and Oracle. It is important that you come in with an asset and a solution. If you come in just with ideas, it is not enough. If the results are there, there would be no problems in buying the service. We need to be tangible-results-focused and credible and to be credible you need to bring something with you that is going to drive the results.
Have you lost some clients because they were merged or wound up?
Very few. In the US, we have seen one client being acquired by another. We have been working historically for Washington Mutual, which was acquired by JPMorgan Chase, who is also our client.
Are you going to handle back-office operations of Indian companies too?
We are more into the consulting side of the business. So, that’s the cycle for people like us: We start with consulting, then we move to systems integration. It is true that in India you need to think about what is going to be your outsourcing plan because the same cost push is not there. So, it is not going to be a cost play as much as productivity play.