It
was called Mission Impossible–the task of setting up a global software
products company based in India, and establish itself as the leading banking
solution provider in the world, with a capital base of only Rs 4 crore. But
Rajesh Hukku claims to have finally got there. And he points to flagship product
Flexcube, which has been ranked among the global Top Two wholesale back-office
banking systems by International Banking Systems since 1999... and among the Top
Three retail back-office banking systems by Retail Banking Systems since 2000.
In a testimonial of product excelle-nce, and through a $100-million deal
starting January 2002, Citigroup rolled out Flexcube across all its global
offices. Today, the Rs 400-crore company, which restructured itself from the
previous Citigroup software development venture, Citil, is singularly focussed
on delivering a world-class banking product. For Hukku, who started his career
with TCS before moving in as the CEO at Citil in 1992, it has been a long
haul...
What has been the driving vision behind building products?
One of our first decisions was that we are not going to create another
company to provide software services. All of us have spent half of our lives
doing that. We wanted to create a base in India that is driven by intellectual
property and so we decided on products. The second factor was that we had to be
capable of handling global requirements.
What made you select banking as the market segment for your products?
If you need to create a product you need to specialize. With a lot of us
coming from Citibank it is easy to conclude that our knowledge base in financial
services was strong. But the main driver was the fact that the largest IT spend
came from the financial segment. When you transfer billions of dollars of funds,
it is basically exchange of information. The transfer is so critical that even
if one transaction is lost it could mean a million-dollar loss.
Your first product was Microbanker and then you came out with Flexcube.
What was the main difference in the two products?
Microbanker was a poorman’s solution. It was comprehensive on the corporate
side. But with high requirements from the retail segment we had to redo the
whole thing. The transition from Microbanker to Flexcube was not a rewrite. It
was a completely new thought process. We have really poured all the learning we
had in writing customized software, all the learning with Microbanker, and spent
about five years in designing the whole architecture. The whole dream of
Flexcube architecture was in terms of integration with third party networks and
scalability.
What is the road map for Flexcube?
Each year we keep on expanding the functionality. We started with corporates,
went into retail and then investment banking. Last year we launched the
brokerage system. In between all this we also launched a data warehousing and
data-mining piece–which is a generic piece–but right now we are streamlining
it for financial services. Up front we have the whole Internet suite.
What is the basis for your technology differentiation with other global
products?
I personally think the whole thing hinges on the architecture, though the
plumbing is very important. Middleware is the key–Flexcube@ is the
architecture. We are independent of hardware although we do align with IBM in
India.
Given that most global and domestic banks are using older generation
solutions why have they been slow to migrate to newer technology solutions?
Changing a core banking system is a mind-boggling exercise. It should not be
like bringing in a water cooler. It is a very good time to look at your process
inefficiencies and start with a clean slate. The commitment from the bank has to
be as much as the vendor to make it successful. It is important to have a
top-down approach. When HDFC Bank was conducting its training there was a
message from the managing director: ‘If you don’t come for the training you
don’t need to come at all’.
We have seen a bunch of public and private sector banks taking the lead in
technology roll out and service improvement. How is that happening?
There has been a fundamental change in the last two to three years. There is
a tremendous awareness at the top level at these banks that technology is
important. You cannot keep saying ‘As the CEO, I don’t care about
technology, some IT head will look after it’, as if it is a separate piece. It
is a very integrated part of your business success. The first change we are
seeing, banks are saying let’s hire a consultant to look at our business
strategy. They are doing it much more formally now.
What has been the learning experience of working with domestic banks?
The trend is most banks that want to invest in technology are looking for
standardized packages, which is very good. But the challenging situation is
where the bank evaluates twenty packages, selects your package, but then wants
to change the package to what the users want to do. That is actually a lose-lose
situation. You are neither getting the advantage of what the package has, nor
are you changing your business processes.
So how does your product cope with customization?
Every time you go to a bank you have to do a lot of changes. The
architecture of Flexcube was designed like an object-oriented analysis and you
can customize very quickly. If you look at Microbanker, in every module you will
have a tags settlement engine. If something needs to change you just change it
at one place, you don’t have to change it all over the code.
This country also has the distinction of having the largest number of
branch outlets in the world. What are the challenges of this dispersion?
In India there is a peculiar problem of off-line branches. Outside of
metros, links will never be up. We have an architecture with which you can run a
branch offline. During the day you can run operations based on limits and then
synchronize later.
But how do you roll out applications to remote branches if there is no
connectivity?
Take the case of HDFC Bank. We are not going to every city to set up the
branch. We have set up a central place and then emulate a whole branch out
there. Then we send the hard disk to the branch. Why do I need to go all over
the country setting up branches? And that’s how they were doing twenty
branches a month. We started with HDFC Bank in 1995. Since then we have charged
them sixteen times more money than the original deal, with all the upgrades and
new implementations.
How would you compare the technology environment in global banks in
comparison to domestic ones?
In the US there are banks more pathetic than public sector banks in India in
the way they use automation. If you look at the middle level or community banks
in the US, bulk of them don’t even have an IT head. But they are not afraid to
outsource. That is one area where they are more advanced than us. The second
positive side is their bank employee is savvier with technology. If you suddenly
take out his current system and bring in a new system it is not going to be
earth shattering for them. In fact they would love it. They are easier to accept
change. But if you open the curtains, I would not say their systems are more
integrated. They have hundreds of systems and are spending too much. In large
money centres in Japan, Europe, and US, the bulk is in-house legacy
applications, which are very expensive to maintain. And especially after Y2K,
they spent billions of dollars without any business advantage.
You went in for a public offer when the markets were dull and bearish.
What was the reason for that?
Almost everybody said ‘let’s wait’. But our focus of the IPO
for the last two years. We have beaten every top company in the world in winning
deals and we have 70 to 80 customer banks–but we don’t have a brand. The
process of going public in a way creates a brand–they investigate you more
internationally.
So in which global markets are you #1?
In Holland, Belgium, Luxembourg, Flexcube has made it. I could start
painting the trams and buses.
What is your game plan to penetrate other markets?
Just because we have a good product and a good team doesn’t mean people
are going to buy from us. We have spent one year just studying the US market. We
studied who are the banks, what are the packages, what are they unhappy about,
and where can we pitch in. Then we went ahead and started branding.
Arun Shankar is a contributor to DQ