Datamonitor says the European market has emerged rapidly via a series of large-scale lift-out deals, with traditional custodians - such as State Street, Bank of New York, Mellon, JP Morgan, Citigroup, HSBC - taking over entire back office operations of asset managers, rather than asset managers contracting with back-office application vendors.

As asset managers increasingly outsource entire back office operations to custodians, the market for independent software vendors targeting asset managers directly will decline, says the analyst group.

But at the same time custodians offering BPO services represent a new route to market for the vendor community.

Furthermore, Datamonitor says although BPO providers from a technology background, such as IBM and EDS, want to get a slice of this new market, it is uncertain whether they can catch up with developments and enter the market with stand-alone offerings.

Daniel Lessner, financial services technology analyst at Datamonitor, believes that a combination of custodians' experience in running operations and the technology and transformation expertise of technology vendors could bring together a full set of capabilities that could further shape the BPO market going forward.

"The sudden emergence of large-scale BPO deals in asset management is as much a result of custodians aggressively pushing the market into this direction as it is a result of mere demand from the asset management community," he says. "The fact that banks need to expand their custody business to evolve into a wider BPO offering has 'un-naturally' accelerated the development of this young market, literally leaving other BPO providers to stand and watch as it has unfolded."