BFSI takes a digital leap

From a brick and mortar environment to a new tech regime where technology has become the backbone of the entire operations, the BFSI industry has demonstrated great traction all these years. Looking at available statistics, as per a Gartner report, the Indian banking and securities companies will spend Rs 536 bn on IT products and services in 2015, an increase of 15% over 2014 revenue of Rs 466 bn.

This forecast includes spending by financial institutions on internal IT (largely personnel), hardware, software, external IT services, and telecommunications. “IT services is the largest overall spending category at almost Rs 183 bn in 2015 (34% of the entire enterprise IT market) which confirms the interest of the banking industry for IT services which is a well-established market and pretty mature for the Indian banking industry,” says Vittorio D’Orazio, Research Director, Gartner. “Software is forecast to achieve the highest growth rate amongst the top level IT spending categories—at about 19.2% in 2015,” adds D’Orazio.

Gartner further states that after the first initial round of new bank licenses issued by the RBI in 2014, 2015 will be a major turning point. RBI released a much clearer regulatory framework that sets the guidelines for the new entrants in the Indian banking market. The country might see up to six new banks set up by the end of 2016 and up to 50 by 2020.

“This will intensify the competition, and the banks will invest more in technology in order to win market share and drive expansion. There will also be a lot of greenfield projects. Specifically, we expect an increase in IT spending spending correlated to branch technology, inclusive of core banking systems, and in the mobile channel space,” says D’Orazio.

BFSI IN FY15

Looking at the BFSI’s IT evolution and adoption dynamics, it has clearly come a long way. From a historical perspective, there is no denying from the fact that the private sector banks did move up in the technology value chain well in advance and the PSU banks followed suit. It was from the early 1990s that the Core Banking Solution (CBS) wave started redefining things. Before getting into India per se, let’s look at some global dynamics. According to a research from Everest Group, “The IT outsourcing (ITO) in the BFSI industry witnessed a decline of 5% in the number of transactions and a decline of 43% in the total value of contracts in 2014, as buyers reduced spend due to high cost pressures from regulatory burdens. Likewise, the demand for large banking application outsourcing (AO) contracts declined for the third consecutive year, and the total contract value fell by 24% as buyers experimented with digital technologies through smaller AO transactions.”

According to analyst companies like Everest, the increased pressure from mergers and an evolving competitive dynamics, the BFSI industry now requires a unique blend of technology and service operations to support its business. Simply, saving costs on back-office functions is no longer enough. Reflecting on it, Jimit Arora, Vice President at Everest Group says, “Globally, in 2014, we saw three different but equally important priorities emerge for banking ITO buyers. Banks are focusing on a triple mandate of ‘run the bank’ (focus on efficiency for cost savings), ‘manage the bank’ (focus on risk and regulatory compliance for penalty avoidance), and ‘change the bank’ (focus on transformation for growth).

Accordingly, the banking ITO industry witnessed an increased demand for AO services supporting digital channel enablement,data management, and risk and compliance monitoring.” As we look at available statistics, as per Everest Group,the banking applications outsourcing market, represented by 28% service providers scaled up to $6.3 bn in revenue and 175,000 FTEs spread across 20+ delivery countries.

VENDORS IN THE FRAY

Though there is a saturation in demand scenario globally, the domestic Indian banking space is in good shape. IT giant TCS, in the BFSI sector grew 10.8% for the full year in constant currency terms, primarily dragged on by the single-digit growth in the insurance business. Meanwhile, Wipro garnered about 26.2% of the revenues from BFSI. The company’s CEO TK Kurien said in the company’s FY15 earnings call, “If I look at the different segments, out of the seven business units which we run, four of them have been really strong—so one is BFSI, second is telecom, the third is energy and utilities, and the fourth is now the government. If one looks at BFSI, we had two greenfield opportunities. One, the new banking license which got issued, which was IDFC, the other is very recently all the four public sector general insurance companies have created a new company called HITPA which is a shared service for the TPA business.

Similarly,most of the banks are taking a lead in terms of digitization of most of their offerings. The third is in the banking world, where we are seeing the last wave of core banking implementation. There were a couple of banks, which had really not moved to a contemporary platform, so now they are doing that, plus the refresh of the earlier deals are really coming through.” Meanwhile, players like Infosys due to their product play in BFSI looked at upping their BFS product capabilities over the last year.

From a brick and mortar environment to a new tech regime where technology has become the backbone of the entire operations, the BFSI industry has demonstrated great traction all these years. Looking at available statistics, as per a Gartner report, the Indian banking and securities companies will spend  Rs536 bn on IT products and services in 2015, an increase of 15% over 2014 revenue of Rs 466 bn.

This forecast includes spending by financial institutions on internal IT (largely personnel), hardware, software, external IT services, and telecommunications. “IT services is the largest overall spending category at almost `183 bn in 2015 (34% of the entire enterprise IT market) which confirms the interest of the banking industry for IT services which is a well-established market and pretty mature for the Indian banking industry,” says Vittorio D’Orazio, Research Director, Gartner. “Software is forecast to achieve the highest growth rate amongst the top level IT spending categories—at about 19.2% in 2015,” adds D’Orazio.

Gartner further states that after the first initial round of new bank licenses issued by the RBI in 2014, 2015 will be a major turning point. RBI released a much clearer regulatory framework that sets the guidelines for the new entrants in the Indian banking market. The country might see up to six new banks set up by the end of 2016 and up to 50 by 2020.

“This will intensify the competition, and the banks will invest more in technology in order to win market share and drive expansion. There will also be a lot of greenfield projects. Specifically, we expect an increase in IT spending spending correlated to branch technology, inclusive of core banking systems, and in the mobile channel space,” says D’Orazio.

BFSI IN FY15

Looking at the BFSI’s IT evolution and adoption dynamics, it has clearly come a long way. From a historical perspective, there is no denying from the fact that the private sector banks did move up in the technology value chain well in advance and the PSU banks followed suit. It was from the early 1990s that the Core Banking Solution (CBS) wave started redefining things. Before getting into India per se, let’s look at some global dynamics. According to a research from Everest Group, “The IT outsourcing (ITO) in the BFSI industry witnessed a decline of 5% in the number of transactions and a decline of 43% in the total value of contracts in 2014, as buyers reduced spend due to high cost pressures from regulatory burdens. Likewise, the demand for large banking application outsourcing (AO) contracts declined for the third consecutive year, and the total contract value fell by 24% as buyers experimented with digital technologies through smaller AO transactions.”

According to analyst companies like Everest, the increased pressure from mergers and an evolving competitive dynamics, the BFSI industry now requires a unique blend of technology and service operations to support its business. Simply, saving costs on back-office functions

is no longer enough. Reflecting on it, Jimit Arora, Vice President at Everest Group says, “Globally, in 2014, we saw three different but equally important priorities emerge for banking ITO buyers. Banks are focusing on a triple mandate of ‘run the bank’ (focus on efficiency for cost savings), ‘manage the bank’ (focus on risk and regulatory compliance for penalty avoidance), and ‘change the bank’ (focus on transformation for growth).

Accordingly, the banking ITO industry witnessed an increased demand for AO services supporting digital channel enablement,data management, and risk and compliance monitoring.” As we look at available statistics, as per Everest Group,the banking applications outsourcing market, represented by 28% service providers scaled up to $6.3 bn in revenue and 175,000 FTEs spread across 20+ delivery countries.

VENDORS IN THE FRAY

Though there is a saturation in demand scenario globally, the domestic Indian banking space is in good shape. IT giant TCS, in the BFSI sector grew 10.8% for the full year in constant currency terms, primarily dragged on by the single-digit growth in the insurance business. Meanwhile, Wipro garnered about 26.2% of the revenues from BFSI. The company’s CEO TK Kurien said in the company’s FY15 earnings call, “If I look at the different segments, out of the seven business units which we run, four of them have been really strong—so one is BFSI, second is telecom, the third is energy and utilities, and the fourth is now the government. If one looks at BFSI, we had two greenfield opportunities. One, the new banking license which got issued, which was IDFC, the other is very recently all the four public sector general insurance companies have created a new company called HITPA which is a shared service for the TPA business.

Similarly,most of the banks are taking a lead in terms of digitization of most of their offerings. The third is in the banking world, where we are seeing the last wave of core banking implementation. There were a couple of banks, which had really not moved to a contemporary platform, so now they are doing that, plus the refresh of the earlier deals are really coming through.” Meanwhile, players like Infosys due to their product play in BFSI looked at upping their BFS product capabilities over the last year.

THE TECH-ENABLED BANKS

Clearly, when we look at the BFSI adoption patterns, on the contrary to the global demand contraction, the Indian market is opening up—poised to grow. One the highly tech penetrated banks are going to the next wave of technology adoption and the underpenetrated banks like some of the PSUs and co-operative banks are taking initiatives like branch bank automation and linking their main CBS with the branches.

The banks, which are in the maturity curve, are exploring next-gen technologies, and working aggressively on app-based mobile banking model, and are breaking away from the traditional net banking models. Take the case of HDFC Bank where it launched a mobile app called Chillr, which allows users to instantly transfer money to any contact in their phonebook. Says Nitin Chugh, Head-Digital Banking, HDFC Bank  “With Chillr, you can make payments of small value transactions.

The potential is huge as the sender does not have to face the hassle of adding beneficiaries before sending money. For example, you could use Chillr to pay your local grocery person. Similarly, parents can send money to their children who are studying away from home. One more mobile app called PayZapp allows customers to use a single mobile application for all their financial transactions.

For example, customers can transact online on eCommerce sites such as BigBasket or MakeMyTrip, recharge their mobile prepaid cards or send money instantly to anyonein their phone or email list.” Clearly, banks are jumping into the ‘Application Economy’ bandwagon and reaching out a wide category of customers.

Take the case of ICICI Bank which has launched iWear, the bank’s banking app for smartwatches. iWear is available for Android watch users and can be downloaded from the Google Playstore. Smartwatch users will be able to use iWear application only after completion of OTP based registration process to be carried out on mobile. Once the Apple iWatch is officially launched, iWear will be available for Apple smartwatches too.

Quips Rajiv Sabharwal, Executive Director, ICICI Bank, “Wearables will play an important role in simplifying the way customers do transactions. We believe simpler transactions such as checking account balance will move to wearables.”

LEVERAGING SOCIAL MEDIA

Compared to the last few years, now the banks are leveraging social media more aggressively and have launched key initiatives. For instance, Kotak Mahindra Bank launched KeyPay, which is touted as the world’s first bank agnostic payment product for Facebook users to send money to each other instantly. Using this facility, millions of bank account holders can now transfer money to each other at any time without even using net banking, or knowing payee’s various bank account related details. Today with KayPay, over 250 mn Indian bank account holders transfer funds instantly by just choosing recipients from their Facebook friends list. So clearly, mediums like Facebook and Twitter are playing a key role in bridging the gap with customers.

WHAT LIES BENEATH

The current trends indicate that BFSI will continue to hold traction in FY16. The banks will invest in technologies like analytics and leverage concepts like big data to meet the changing customer needs and expectations, and adopt more customer-centric business models. BFSI in some ways is a unique vertical a d there are some unique differentiators. Giving a perspective on that R Chandrasekaran, Executive Vice Chairman, Cognizant, adds, “When I look at the BFSI vertical, within banking, clients over the last year remained focused on cost optimization and vendor consolidation, regulatory compliance, and cybersecurity. In addition, there is an increased focus on newer technologies in digital and automation, particularly in areas to improve customer experience and drive digital customer self service.”

Clearly, when we look at the BFSI adoption patterns, on the contrary to the global demand contraction, the Indian market is opening up—poised to grow. One the highly tech penetrated banks are going to the next wave of technology adoption and the underpenetrated banks like some of the PSUs and co-operative banks are taking initiatives like branch bank automation and linking their main CBS with the branches.

The banks, which are in the maturity curve, are exploring next-gen technologies, and working aggressively on app-based mobile banking model, and are breaking away from the traditional net banking models. Take the case of HDFC Bank where it launched a mobile app called Chillr, which allows users to instantly transfer money to any contact in their phonebook. Says Nitin Chugh, Head-Digital Banking, HDFC Bank, “With Chillr, you can make payments of small value transactions.

The potential is huge as the sender does not have to face the hassle of adding beneficiaries before sending money. For example, you could use Chillr to pay your local grocery person. Similarly, parents can send money to their children who are studying away from home. One more mobile app called PayZapp allows customers to use a single mobile application for all their financial transactions.

For example, customers can transact online on eCommerce sites such as BigBasket or MakeMyTrip, recharge their mobile prepaid cards or send money instantly to anyonein their phone or email list.” Clearly, banks are jumping into the ‘Application Economy’ bandwagon and reaching out a wide category of customers.

Take the case of ICICI Bank which has launched iWear, the bank’s banking app for smartwatches. iWear is available for Android watch users and can be downloaded from the Google Playstore. Smartwatch users will be able to use iWear application only after completion of OTP based registration process to be carried out on mobile. Once the Apple iWatch is officially launched, iWear will be available for Apple smartwatches too.

Quips Rajiv Sabharwal, Executive Director, ICICI Bank, “Wearables will play an important role in simplifying the way customers do transactions. We believe simpler transactions such as checking account balance will move to wearables.”

LEVERAGING SOCIAL MEDIA

Compared to the last few years, now the banks are leveraging social media more aggressively and have launched key initiatives. For instance, Kotak Mahindra Bank launched KeyPay, which is touted as the world’s first bank agnostic payment product for Facebook users to send money to each other instantly. Using this facility, millions of bank account holders can now transfer money to each other at any time without even using net banking, or knowing payee’s various bank account related details. Today with KayPay, over 250 mn Indian bank account holders transfer funds instantly by just choosing recipients from their Facebook friends list. So clearly, mediums like Facebook and Twitter are playing a key role in bridging the gap with customers.

WHAT LIES BENEATH

The current trends indicate that BFSI will continue to hold traction in FY16. The banks will invest in technologies like analytics and leverage concepts like big data to meet the changing customer needs and expectations, and adopt more customer-centric business models. BFSI in some ways is a unique vertical and there are some unique differentiators. Giving a perspective on that R Chandrasekaran, Executive Vice Chairman, Cognizant, adds, “When I look at the BFSI vertical, within banking, clients over the last year remained focused on cost optimization and vendor consolidation, regulatory compliance, and cybersecurity. In addition, there is an increased focus on newer technologies in digital and automation, particularly in areas to improve customer experience and drive digital customer self service.”