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America's second-largest bank plans to spend $400 million on work outsourced to India to streamline its IT operations
The second-biggest bank of the US, JP Morgan Chase, which acquired Washington Mutual and Bear Stearns recently, will increase its outsourcing to India by 25% this year to nearly $400 million. It will also manage the integration of the acquired companies from India to bring down the cost of integrating different information technology (IT) systems.
Right now, JP Morgan outsources $250-300 million worth of IT and back-office projects every year to Cognizant, TCS and Accenture, apart from to its own captive centre in Mumbai.
"JP Morgan CIO Guy Chiarello said last week that he will increase outsourcing to India, and will drive several integration projects from there," a New York-based expert, familiar with JP Morgan’s outsourcing plans, told ET last week, on conditions of anonymity. A spokeswoman for JP Morgan India could not reply to an email query sent by ET on Friday, and the bank’s spokesperson in the US too did not reply.
"JP Morgan is one of the first banks in the US to have fleshed out its outsourcing
strategy ever since the banking meltdown happened. Many others are still undecided about their IT spend," said a senior official at one of the technology firms, who did not wish to be quoted.
The bank, which cancelled its $5-billion outsourcing contract with IBM in 2004—following the merger with Bank One—had brought back around 4,000 IT staff in-house after the new CIO Austin Adams had proposed a "do-it-yourself" strategy for the merged entity.
"In this economic environment, Mr. Chiarello, the current CIO, wants to ensure that he helps JP Morgan meet cost-reduction goals," the expert added. With large global banks like Lloyds TSB and HBOS, and Bank of America & Merrill Lynch merging, India’s top tech firms, including Infosys, TCS and Cognizant, are bidding for at least three $100 million-plus contracts.
As these banks merge, they face a huge task of integrating their software applications, consolidating their data centres and other trading platforms into a single entity, so that their customers are able to transact without having to face any merger-related issues. And since offshoring will help them save costs by 30-40%, these merged banking entities are seeking to partner with a vendor having significant offshore presence. "Apart from looking at cost-saving opportunities, such as offshore outsourcing, these banks also want to partner with their existing vendors because they would know the systems better," said a consultant on condition of anonymity.
As reported by ET recently, Lloyds TSB—which merged with HBOS—is seeking partners to help the merged entity integrate its retail and wholesale banking systems through an IT platform. The company has already outsourced its HR functions to Xansa two years ago, in a five-year deal.