NEAT EVALUATION FOR TCS:

Retail Banking BPO Market Segments: Core Banking, Mortgage/Loan, Payments This document presents TCS with the NelsonHall NEAT vendor evaluation for Retail Banking BPO. It contains the NEAT graphs of vendor performance, the latest market analysis summary for Retail Banking BPO, and a summary vendor analysis of TCS in Retail Banking BPO. An explanation of the NEAT methodology is included at the end of the document. The vendors researched are: CSC, Cognizant Technology Solutions, Inc, EXL Service, Firstsource, Genpact, HCL Technologies, Infosys, Tata Consultancy Services (TCS), WNS Global Services and Wipro Ltd.

NEAT Evaluation: Retail Banking BPO (Core Banking)

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NEAT Evaluation for TCS: Retail Banking BPO

NEAT Evaluation: Retail Banking BPO (Mortgage/Loan)

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NEAT Evaluation for TCS: Retail Banking BPO

NEAT Evaluation: Retail Banking BPO (Payment)

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NEAT Evaluation for TCS: Retail Banking BPO

Retail Banking BPO: Market Summary Buy-Side Dynamics The retail banking industry has changed as a result of the financial crisis. This is driving a long-term change in operational delivery from localized risk-based product delivery (proprietary offers) to standardized transaction-based service delivery (flow business). The changes in the retail banking industry necessitate combined technology BPO changes that drive down the cost of individual transactions at the sub-process level, at any volume. Changes include:

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Transaction products (e.g. payments) are migrating from traditional types (e.g. checks) to electronic types, which are lower in cost and require very low-cost execution (including with reconciliations and disputes) to be competitive. Third-party vendors are the only option in providing sufficient scale to drive down per-transaction costs. The same is true for changing channels (from branches to mobile)

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Entrance into emerging economies, for in-country delivery, requires a "mass customization" of global standardization of process delivery, at the sub-process level (~70% of overall process), and in-country customization for remaining processes (~30% of process)

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Rapidly-changing compliance requirements are expensive, but costs can be amortized across industry participants if addressed by third-party vendors who apply across multiple clients

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Industry consolidation and capital constraints require BPO vendors with greater capital.

Key challenges in retail banking BPO are:

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To apply analytics and predict use cases

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To maintain cross-channel state and improve risk management.

Overall demand is moving from mature to emerging economies. Global banks look for reduced cost and capital allocation, faster local market entry and quicker product introductions. Regional and local banks look to retail banking BPO providers to enable them to develop broader offering sets. Third-party service providers look to retail banking BPO providers to enable them to focus on automation and platforms, and let the BPO vendor focus on manual aspects of the process.

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NEAT Evaluation for TCS: Retail Banking BPO

Market Size & Growth The retail banking industry-specific BPO market is forecast to grow at 4.1%, to reach $46.3bn by 2017. The growth rates and 2017 market size by service line are:

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Core banking (deposits) BPO growing at 4.2% p.a. to $7.7bn in 2017

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Loan/mortgage BPO growing at 2.7% p.a. to $14.6bn in 2017

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Payments (non-network) BPO growing at 5.0% p.a. to $23.9bn in 2017.

Success Factors Vendor success factors are tied to domain knowledge, focusing on growing areas of demand and technology management, including:

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Ability to provide consulting support helps define the problem, with a solution in mind from the start

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Key multi-client challenges (e.g. compliance) are best addressed by third-party vendors with access to best practices and early adopters

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Standardizing and consolidating process delivery across multiple markets

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Supporting conversion of FTE-based pricing to transaction-based pricing, which requires deeper understanding and standardization of each sub-process

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Knowledge of interaction between IT and process domains supports clients' need for change management.

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Building platform-based BPO; not building replacement platforms for the bank, but rather creating a platform for delivery of the BPO process that the vendor is delivering (e.g. reconciliation)

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Building "presence required" services (e.g. ATM driving/support, in-country licenses and mailroom services)

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Ability to work with key technology vendors to create useful ecosystems

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Hosting for small/mid-tier banks (emerging)

The key competitive differentiators for vendors are developing as many plug-ins as possible and maximizing geographic coverage to support clients, including:

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TAT: turn-around-time and the ability to meet daily cutoff times. Time reductions can be up to 80%, plus capital cost reductions from fewer exceptions can be high

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Automate manual processes: this speeds the process and reduces human error. Savings can be many times the cost of the direct process (200-500%). Generally 10-15% of a process can be eliminated with aggressive process reengineering

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NEAT Evaluation for TCS: Retail Banking BPO

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Cost: labor arbitrage can run at 66% reduction, and labor efficiency can improve 1-5% per year

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Scalability: ability to effectively scale operations can eliminate fines for operational mistakes and enable profitable business growth

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Multi-geography and multiple product coverage: enables profitable business growth, with high margins.

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Pre-configured BPO tools: APIs, process tools, reporting and consistency checks

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Process methodologies: Six Sigma/Lean, project management, best practices databases and centers of excellence

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Solution partners/proprietary: especially important for regional and local banks.

Outlook Retail banking industry-specific BPO activity will move from bank product-based, labor arbitrage-driven BPO (delivered from centralized, offshore delivery centers targeted to mature economies) to activity-based (sub-process) BPO delivered with IP and platforms, to drive revenues for banks from distributed facilities, differentiated on flexibility and domain expertise Drivers:

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Revenue generation, channels, analytics: enabling and supporting successful customer interactions

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New geos and platforms, transaction business: helping banks enter high-growth opportunities.

Challenges:

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Nearshore/onshore: vendors need to develop delivery closer to the client to capture larger value chains

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TAT: reducing next-stage TAT requires process reengineering and increasing automation.

Client profile:

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Tier 2/3 banks, emerging countries: largest consumer bases are in these banks which are now looking to buy RB BPO services (rather than insourcing, as has been established practice for these banks)

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Multi-tower, cross-border: aggressive cost takeout from sub-processes applied across multiple domains.

Vendor landscape:

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Enter new markets, non-Indian: new vendors originate from old product vendors and new countries

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Larger vendors or larger control of smaller markets: market share increasingly provides stability and scale required to compete successfully.

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NEAT Evaluation for TCS: Retail Banking BPO

Vendor Analysis Summary for TCS Overview TCS's retail banking BPO services (RB BPO) are focused on account administration across core banking, mortgage lending and card issuing. Value added horizontal offerings include Analytics, Risk/Regulatory Management, Compliance, Fraud/AML and Social Media. The breakdown of TCS's RB BPO revenues by product type is:

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Mortgages: 39% of RB BPO revenues

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Cards: 32%

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Core banking (including deposits): 29%.

By geography, the largest proportion of TCS' RB BPO revenues is derived from North American banks. TCS has 16,060 FTE working in retail banking BPO. TCS delivers service from centers in 6 countries:

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India: Chennai, Mumbai, Delhi, Kolkata and Gandhinagar

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U.S.: Cincinnati

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Mexico: Guadalajara

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Philippines: Manila

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Chile: Santiago

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Ecuador: Quito.

Employees are allocated to the following lines of business:

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Mortgages: 4,485 FTE

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Cards: 3,680 FTE

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Core banking (including deposits): 3,335 FTE

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Collections: 2,280 FTE

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Customer interaction management: 950 FTE

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Analytics: 760 FTE

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Reconciliation: 570 FTE.

TCS is targeting large U.S., European and Indian based enterprises. Targeted client segments include:

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Global banks: primary existing client base

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SMB banks: target for past three years; primary growth target.

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NEAT Evaluation for TCS: Retail Banking BPO

TCS has 10 RB BPO clients including:

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Citigroup

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Banco del Pichincha

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Leading bank in Qatar

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Leading bank in Canada

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Fortune 500 financial services provider.

TCS has added four clients (global banks) for RB BPO in the past 12 months.

Financials TCS' forecasted revenues from retail banking BPO for 2013 are $505m, a growth of 20% over the previous year.

Strengths •

Experience with global banking clients, including ownership of previously captive operations which brings both experience and breadth of processing

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Major presence in RB BPO, in support of consumer banking

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Broad RB BPO capability in support of mortgages, cards and deposits

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Custom banking platform (TCS BaNCS) which is useful for small and mid-tier banks, tier 1 banks in emerging markets and emerging technologies (such as mobile)

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Established onshore delivery presence, especially in U.S.

Challenges •

Low adoption to date of platform based BPO in small and mid-tier banks

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Growing its RB BPO business in Asia outside Indian market (especially mature markets)

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Growing its collections business, as mortgage demand for collections moderates and card demand increases

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Expansion of presence in Continental Europe

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Need to acquire local collections licenses

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Need to expand platform support for cards.

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NEAT Evaluation for TCS: Retail Banking BPO

Outlook Over the next 24 months TCS should be able to grow its retail banking BPO business by:

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Targeting global banks looking to consolidate operations across geographies

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Targeting emerging country local banks with platform based BPO. This has to be done selectively by country. Key countries include: India, Brazil, Mexico, Poland and Middle East countries

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Upselling existing U.S. based clients on additional services.

TCS should be able to continue to grow its RB BPO business in the 20% to 30% range for the next three years by pursuing these initiatives in this period of rapid change in the industry.

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NEAT Evaluation for TCS: Retail Banking BPO

NEAT Evaluations for Retail Banking BPO NelsonHall’s (vendor) Evaluation & Assessment Tool (NEAT) is a method by which strategic sourcing managers can evaluate outsourcing vendors and is part of NelsonHall's Speed-to-Source initiative. The NEAT tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their ‘ability to deliver immediate benefit’ to buy-side organizations and their ‘ability to meet client future requirements’. The latter axis is a pragmatic assessment of the vendor's ability to take clients on an innovation journey over the lifetime of their next contract. The ‘ability to deliver immediate benefit’ for the Retail Banking BPO NEAT assessment is based on the criteria shown in Exhibits 1, 3 and 5, typically reflecting the current maturity of the vendor’s offerings, delivery capability, benefits achievement on behalf of clients, and customer presence. The ‘ability to meet client future requirements’ assessment is based on the criteria shown in Exhibits 2, 4 and 6, and provides a measure of the extent to which the supplier is well-positioned to support the customer journey over the life of a contract. This includes criteria such as the level of partnership established with clients, the mechanisms in place to drive innovation, the level of investment in the service, and the financial stability of the vendor.

The vendors covered in NelsonHall NEAT projects are typically the leaders in their fields. However, within this context, the categorization of vendors within NelsonHall NEAT projects is as follows:

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Leaders: vendors that exhibit both a high ability relative to their peers to deliver immediate benefit and a high capability relative to their peers to meet client future requirements

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High Achievers: vendors that exhibit a high ability relative to their peers to deliver immediate benefit but have scope to enhance their ability to meet client future requirements

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Innovators: vendors that exhibit a high capability relative to their peers to meet client future requirements but have scope to enhance their ability to deliver immediate benefit

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Major Players: other significant vendors for this service type.

The scoring of the vendors is based on a combination of analyst assessment, principally around measurements of the ability to deliver immediate benefit; and feedback from interviewing of vendor clients, principally in support of measurements of levels of partnership and ability to meet future client requirements.

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NEAT Evaluation for TCS: Retail Banking BPO

Exhibit 1: Core Banking BPO ‘Ability to deliver immediate benefit’: Assessment criteria Assessment Category

Assessment Criteria Range of Core Banking processes

Core Banking BPO Offerings

Range of Core Banking products supported Application of analytics to core Banking BPO Delivery capability in support of U.S. Core Banking BPO Delivery capability in support of U.K. Core Banking BPO Delivery capability in support of Continental European Core Banking BPO Delivery capability in support of ROW Core Banking BPO

Core Banking BPO Delivery

Ability to benchmark processes and provide roadmap in support of core banking Use of multi-channel support and reengineering of paper-based processes in support of core banking Application of core banking platform technology Use of low cost locations for labor arbitrage in core banking Application of other enabling technologies in support of core banking BPO Core Banking Transition methodology Scale of Core Banking BPO operations: Overall Presence Scale of payment operations: U.S. presence

Core Banking BPO Presence

Scale of Core Banking BPO operations: U.K. presence Scale of Core Banking BPO operations: Continental Europe presence Scale of Core Banking BPO operations: Rest of the World presence Level of cost savings achieved – core banking

Core Banking BPO Benefits Achieved

Speed to market benefits achieved – core banking Ability to deliver on-going and one-off process improvement in core banking Pricing of core banking Perception of T&Cs and value for money

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NEAT Evaluation for TCS: Retail Banking BPO

Exhibit 2: Core Banking BPO ‘Ability to meet client future requirements’: Assessment criteria Assessment Category

Assessment Criteria Rating according to NelsonHall 'Ones-toWatch' Financial Performance Index

Market Commitment

Commitment to Core Banking BPO Commitment to service innovation in Core Banking BPO Perceived impact as process change agent

Suitability to Deliver Future Benefit

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Perceived ability to support expansion into new geographies

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NEAT Evaluation for TCS: Retail Banking BPO

Exhibit 3: Mortgage/Loan BPO ‘Ability to deliver immediate benefit’: Assessment criteria Assessment Category

Assessment Criteria Range of Mortgage/Loan processes

Mortgage/Loan BPO Offerings

Range of Mortgage/Loan products supported Application of analytics to Mortgage/Loan BPO Delivery capability in support of U.S. Mortgage/Loan BPO Delivery capability in support of U.K. Mortgage/Loan BPO Delivery capability in support of Continental European Mortgage/Loan BPO Delivery capability in support of ROW Mortgage/Loan BPO

Mortgage/Loan BPO Delivery

Ability to benchmark processes and provide roadmap in support of Mortgage/Loan Use of multi-channel support and re-engineering of paper-based processes in support of Mortgage/Loan Application of Mortgage/Loan platform technology Use of low cost locations for labor arbitrage in Mortgage/Loan Application of other enabling technologies in support of Mortgage/Loan BPO Mortgage/Loan Transition methodology Level of cost savings achieved – Mortgage/Loan

Mortgage/Loan BPO Benefits Achieved

Speed to market benefits achieved – Mortgage/Loan Ability to deliver on-going and one-off process improvement in Mortgage/Loan Pricing of Mortgage/Loan Perception of T&Cs and value for money Scale of Mortgage/Loan BPO operations: Overall Presence

Mortgage/Loan BPO Presence

Scale of Mortgage/Loan payment operations: U.S. presence Scale of Mortgage/Loan BPO operations: U.K. presence Scale of Mortgage/Loan BPO operations: Continental Europe presence Scale of Mortgage/Loan BPO operations: Rest of the World presence

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NEAT Evaluation for TCS: Retail Banking BPO

Exhibit 4: Mortgage/Loan BPO ‘Ability to meet client future requirements’: Assessment criteria Assessment Category

Assessment Criteria Rating according to NelsonHall 'Ones-toWatch' Financial Performance Index

Market Commitment

Commitment to Mortgage/Loan BPO Commitment to service innovation in Mortgage/Loan BPO Perceived impact as process change agent

Suitability to Deliver Future Benefit

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Perceived ability to support expansion into new geographies

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NEAT Evaluation for TCS: Retail Banking BPO

Exhibit 5: Payment BPO ‘Ability to deliver immediate benefit’: Assessment criteria Assessment Category

Assessment Criteria Range of payment processes

Payment BPO Offerings

Range of payments products supported Application of analytics to payments BPO Delivery capability in support of U.S payments BPO Delivery capability in support of U.K. payments BPO Delivery capability in support of Continental European payments BPO Delivery capability in support of ROW payments BPO

Payments BPO Delivery

Ability to benchmark processes and provide roadmap in support of payments Use of multi-channel support and re-engineering of paper-based processes in support of core banking Application of payment platform technology Use of low cost locations for labor arbitrage in payments Application of other enabling technologies in support of payments BPO Payments Transition methodology Level of cost savings achieved – payments

Payments BPO Benefits Achieved

Speed to market benefits achieved – payments Ability to deliver on-going and one-off process improvement in payments Pricing of payments Perception of T&Cs and value for money Scale of Payments operations: U.K. presence Scale of Payments operations: U.S. presence Scale of Payments BPO presence – Card issuing

Payments BPO Presence

Scale of Payments BPO presence – Merchant Acceptance Scale of Payments BPO presence – Check Processing Scale of Payments BPO presence – EFT Scale of Payments operations: Rest of the World presence Scale of Payments BPO operations: Overall Presence Scale of Payments BPO operations: Continental Europe presence

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NEAT Evaluation for TCS: Retail Banking BPO

Exhibit 6: Payment BPO ‘Ability to meet client future requirements’: Assessment criteria Assessment Category

Assessment Criteria Rating according to NelsonHall 'Ones-toWatch' Financial Performance Index

Market Commitment

Commitment to Retail Banking BPO Commitment to service innovation in Retail Banking BPO Perceived impact as process change agent

Suitability to Deliver Future Benefit

Perceived ability to support expansion into new geographies

For more information on these and other NEAT evaluations, please contact one of the NelsonHall relationship managers listed below.

Sales Inquiries NelsonHall will be pleased to discuss how we can bring benefit to your organization. You can contact us via the following relationship managers:

www.nelson-hall.com

Buy-Side Inquiries: Paul Connolly at [email protected] | Guy Saunders at [email protected] Vendor Inquiries: Guy Saunders at [email protected] | Paul Connolly at [email protected]

Important Notice Copyright © 2013 by NelsonHall. All rights reserved. Printed in the United Kingdom. This document has been licensed for distribution subject to the Terms & Conditions of the NelsonHall NEAT Agreement. NelsonHall exercises its best efforts in preparation of the information provided in this report and believes the information contained herein to be accurate. However, NelsonHall shall have no liability for any loss or expense that may result from incompleteness or inaccuracy of the information provided.

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