Financial Institutions Will Spend $4 Billion on Payments BPO Services by 2010, According to IDC and Financial Insights

FRAMINGHAM, MA – MAY 8, 2006 – According to a recently released IDC and Financial Insights study, financial institutions are increasingly looking to third parties to manage entire payment functions, rather than the process alone. IDC estimates that U.S. spending on payments BPO services reached $3.3 billion in 2005 and will grow at a five-year compound annual growth rate (CAGR) of 4.2% to reach $4 billion by 2010. This increasing trend of payments outsourcing presents new opportunities and challenges for financial institutions and payments processing vendors.

"Financial services institutions have been pioneering adopters of the BPO model. Payments outsourcing, an increasingly visible and gaining segment of the global business process outsourcing market, is the latest reflection of this industry's comfort with outsourced business processes," said Shruti Yadav, analyst, BPO Services at IDC. "IDC observes healthy growth in deal activity and market spending accompanied by a shift from back-office to strategic objectives and deal drivers."

According to Aaron McPherson, co-author of the report and research director for Payments at Financial Insights, an IDC Company, "The accelerating rate of change in the payments industry, particularly in checks and cards, has many financial institutions looking at outsourcing as a way to manage their technology and market risk. While the largest institutions have the scale to actually insource their payment processing, mid-tier institutions are going to want to band together to achieve similar economies of scale. This may take the form of payment utilities, which manage a particular payment method for multiple institutions."

The study reveals that while cost and efficiency considerations remain central to payments outsourcing decisions, customers are increasingly looking to impact strategic areas such as customer service, compliance, process integration, and competitiveness.

IDC and Financial Insights highlight the following key trends in the payments BPO market in 2006:

— Insourcing among larger banks, as banks continue to move from large-scale contracts to more targeted initiatives

— Small and medium-sized banks will drive outsourcing demand as they embrace outsourcing as a way to grow and compete with larger banks

— International expansion and global integration as banks focus on business development and emerging growth opportunities

— The emerging role of offshore, which is already pervading virtually all segments of the larger business outsourcing market

The study, U.S. Financial Services Payments Business Process Outsourcing 2006-2010 Forecast and Analysis (IDC #35071), presents a five-year forecast for the U.S. market for payments business process outsourcing (BPO) services. The document identifies and quantifies the effects of recent trends and events influencing the payments BPO services opportunity through 2005 and their effects on the five-year forecast. Also presented is essential guidance for financial institutions and payments processing vendors.

To purchase this document, call IDC's Sales hotline at 508-988-7988 or email sales@idc.com.

About Financial Insights, an IDC Company

Financial Insights provides independent research, custom consulting, and detailed multiclient studies on the technology issues and challenges facing the financial services industry. Our global research covers topics of strategic importance to corporate and retail banks, insurance carriers, asset management firms, securities and brokerage firms. Our local practices in Asia Pacific, Europe, Latin America and Canada add an in-depth regional viewpoint. Financial Insights, an IDC company, is headquartered in Framingham, Massachusetts, USA. IDC is a subsidiary of IDG, the world's leading IT media, research, and exposition company. Visit http://www.financial-insights.com for more information.

About IDC

IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. Over 850 IDC analysts in 50 countries provide global, regional, and local expertise on technology and industry opportunities and trends. For more than 42 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting http://www.idc.com.

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