Services provider Tech Mahindra adds banking IT expertise to its portfolio

Indian IT services supplier Tech Mahindra adds consultancy skills and gains finance customers after buying banking services firm Sofgen

Indian IT services firm Tech Mahindra has acquired finance customers after it bought banking services firm Sofgen. Sofgen has 450 staff and over 20 large banks as clients.

Tech Mahindra intends to exploit the trend of banks transforming to use digital technologies – such as mobile and big data – and new banks starting up.

“This acquisition gives us an opportunity to enhance our expertise to implement modernised core banking and transformation services capabilities,” said CP Gurnani, CEO at Tech Mahindra. 

Tech Mahindra is working with major banks in Europe. UBS sold a reference data management system to Tech Mahindra, which it runs as a service for the bank and offers to other banking customers.

Tech Mahindra acquired the IP for the UBS reference data management system, which captures and cleans data. The company now provides a service that improves the quality of data at a lower cost.

Because services such as this are not core competencies, banks can outsource and even share systems with other financial institutions.

The deal will give Sofgen’s services a wider reach globally. “Bringing Sofgen into the Tech Mahindra fold will give us access to new geographies, and a different magnitude of customer relationship,” said Sofgen chairman Alexander Dembitz.

Banks turn to IT services

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Recent research suggests banks are increasingly turning to suppliers for IT services. According to figures from accountancy company Nixon Williams, the number of jobs in the financial services sector has declined 16% since 2009, while the number of staff employed by IT firms has increased 13.9%, partly because banks are using more IT.

Financial services companies are using more third-party IT products and services as well as outsourced IT, which has boosted the number of workers in the IT sector, while the workforce in finance has reduced.

Skills gap in the banking sector

But Jean-Louis Bravard, IT outsourcing consultant and former global head of EDS’s financial services business, said it is difficult for banks to outsource many activities, because they require a lot of very specialist knowledge.

He said acquisitions are the only way suppliers can add the specialist banking knowledge quickly.

“There are no courses in banking so suppliers need to acquire the expertise. Among the 450 people at Sofgen, there will be people that look just like the clients.”

Consultancy services demand

Andrei Charniauski, research manager with IDC Financial Insights, said digital transformation is an expensive matter for banks and making poor IT choices can cost billions and kill competitiveness. “This is why banks are increasingly keen to spend on pre-transformation consulting – to make sure they assess existing capabilities and later purchase exactly the right IT solutions to upgrade their platforms.

“For suppliers it is not just about acquiring a high-margin business – it’s about gaining access to the methodology and expertise in advising banks on transformation – and potentially applying it to its customer base.”

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