According to a recent Everest Group report, large application outsourcing in the banking sector is surging to record levels. Although many IT application projects at banks continue to concentrate on running and managing the business, digital transformation efforts appear to be driving an increase in application outsourcing.

Banking customers are demanding simplicity and speed, and nontraditional competitors are gaining traction. In response, in addition to typical IT application initiatives targeted at efficiency, costs, and compliance, banks are increasingly outsourcing for “access to the right talent in the right location to enable transformation initiatives” in areas such as mobility, big data, cloud, social media, artificial intelligence, and block chain. By outsourcing a broad swath of its digital transformation strategy, a bank can derive substantial return on investment from the cohesive integration—instead of ad-hoc adoption—of digital technologies in pursuit of owning “the entire customer experience journey.”

This shift in focus leads to shorter engagements based on projects rather than annuities, and certain issues may rise in importance during negotiations. For example, to maintain a user-experience edge, banks may seek broad intellectual property rights and to restrict vendors from providing similar development services to competitors and disruptors. In addition, discussions regarding service levels and incentives may expand into user adoption, usage, satisfaction, and other value-added metrics, and innovative measurement tools and methods should be considered.