Outsourcing in the banking and financial services sector is showing short-term signs of a slowdown for the remainder of the year due to the economic crisis, but the market will likely regain momentum in early 2009, according a study by Everest Research Institute.

“Despite a 40% increase in transactions by financial services firms during the third quarter, a slowdown is emerging due to delays in initiatives and managements’ keen focus on the economic crisis,” said Eric Simson, managing principal at Everest. “In the medium-term, restructuring, integration, and redefinition of sourcing strategies by large financial firms will lead to an increase in project-based work for suppliers and increased pressures on captives.”

Other insights for the third quarter activity include:

-- Overall outsourcing transactions increased 15% over the previous quarter, valued at about US $3.2 billion in ACV.
-- Banking, financial services and insurance firms signed 81 transactions, up from 54 in Q2.
-- Momentum from Europe continued to grow with a 10 percent increase in transaction activity.
-- Captives saw significant momentum - 24 new announcements, compared to 18 in Q2 and 16 in Q1.
-- Indian suppliers are experiencing slowdown pressures; hiring by the leading Indian suppliers dropped 22 percent quarter-on-quarter and 49 percent compared to 2007.
-- Central American countries (especially Guatemala, El Salvador, Panama and Costa Rica) are taking active measures to improve their near-shore proposition.
-- A key development was the inclusion of Unisys Corporation to the list of key suppliers tracked. Overall, supplier investment led to 100 percent increase in new center setup, while M&A activity was 68 percent lower than Q2.