Since the time American Express and Citigroup established captive centers in India two decades back, several global financial conglomerates have made India their back office hub. Unlike other verticals such as airlines, healthcare and telecom, banking and financial services (BFS) segment has seen a larger share of offshore captives.

Captive centers offer economies of scale and competitive advantage especially for companies that have very large volume of work to be transferred offshore. Setting up of a captive center and the related infrastructure and manpower management involves significant top management interest and financial outlay. Hence typically only the larger players aggressively follow the model.

As the number of functions being offshored increases, the rationale for captives is becoming more attractive. Corporations try to minimize cost and at the same time retain control over operations, which is important, given the confidential nature of information.

Captive centers usually handle a wider range of processes with more complexity from their offshore centers.

Captives offering services to third-party?

Lately, captives are seen to extend services to the third party client. Some of the captive centers such as HDPI (HSBC's captive unit) and Scope International (Standard Chartered's captive center) are exploring the option of providing specific services to other banks.

The rationale behind this to leverage their existing capabilities. In addition, some want to transform from a cost center to a profit center. Captive centers have well laid out processes and have achieved maturity serving the global operations of their parent companies. Having attained such experience and maturity, some of these captives believe they might be in a good position to service third party clients.

Going forward…

Though this trend of 'captives extending their services to third party clients' might intensify competition in the short run, it is not likely to be a significant threat to established third party vendors. Captives of banks or financial institutions face a disadvantage in terms of competing with their target clients - unless they are ready to alter their ownership structure. While some banks and financial institutions might offer a few services to their peers, they will be unlikely to replicate the Genpact (GECIS) success story.

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