Riding on its recent success with the PSU banks, FIS is looking to capitalise on channel integration and ATM management. By Mehak Chawla
About a decade back, technology in banking was mostly about putting a stable core banking system (CBS) at the backend. Today, with an array of supporting and complimentary systems coming in, it is all about integration. This widespread integration that almost every bank is struggling with, is what is driving the bread and wine of the banking tech vendors.
Keeping in line with the trends, FIS, the global banking solutions company is also investing a lot of its energy in developing systems to support the alternate channels of banking. “CBS was moving banks from a manual processing era to a digital processing era. It was mostly focused on running the Loans Deposits and basically the back end of the bank. What’s happening now is that business are transitioning beyond core. The next step beyond core is around channels,” explained Raja Gopal Krishnan, Group Managing Director Asia, FIS Global.
About 10 years back there was only one channel and that was the branch. Today, that number has multiplied to ATMs, POS, Mobile, Internet, call centres, peer to peer, and other emerging channels. The next wave in banking has to be in channels, across the globe. Electronic payments is a big element of this transition happening in the banking arena. According to Krishnan, any economy that is growing rapidly, has to move towards electronic payments- both through channels as well as enablement through cards.
Point solutions
India has a density of about 78 ATMS per million, which is paltry when compared to 1300 ATMs per million in the US. Though financial inclusion is set to change that figure, and densification is set to increase, the ATM tech in India is fairly mature. However, the story for mobile and Internet is different. There are about 900 million mobile handphones in the country, only about 75% of them active but there are only 70-75 million subscribers who actually access the Internet on their mobiles.
As a result, banks are struggling with two things how to ensure that the mobile offering that they have is geared not towards only those 70 million, but also for those 700 million that do not have smartphones yet. And secondly, how to lower the costs per transaction while serving the larger base with less sophisticated apps.
Given the macro economic scenario, the banks in India are spending more on point solutions and mostly on non-discretionary expenses. banks are more focussed on point solutions. Our value proposition is to move them to integrated solutions. It is eventually about the TCO and being future proof on top of a versatile technology.
PCI-DSS is one element that is calling for investments in the BFSI sector, primarily because it is about compliance. Banks however, are doing more targeted compliance rather than buying the whole range of products and thus point solutions are gathering momentum.
FIS, who spent some $300 million on R&D on its products last year, is looking to tap these multi banking channels. Krishnan explained that though the buying patterns of banks may be affected as of now, the technology spending is happening nevertheless. ?anks are very big users but not creators of technology. So, for serious software there is never an in-house versus buy debate. Yes, there is the challenge of legacy systems and their up gradation versus the rip and replace approach. In the specialised software space, no one is doing in-house.”
According to Krishnan, the big debate in the Indian banking industry right now is around buy versus outsource. India is still a largely on own the software in-house models. We are beginning to gravitate towards outsourced model in payment switching and of course the whole ATM outsourcing model which was pioneered in India.”
He added that a mid-sized bank would be looking at Rs 1-5 Crore for the middleware and the software to plug it in. As far as the integration layer goes, a mid sized bank could spend as much as 10 Crore on it and it can go all the way up to Rs 100 Crore for a large bank.
The RoI, according to Krishnan, lies in two things- that the cost of contact through electronic channels is way lower than cost of contact or servicing through the branch, and the migration of transaction from a higher cost channel to a lower cost channel.
Krishnan opined that technology trends like mobile wallets etc could pick up in India but they will be a function of mobile payment gateway security, of the risk that customers will perceive and eventually it will also be a question of transaction cost.
Thanks to this growing mobile and Internet population, banks, sooner than later, may feel the need to upgrade to more sophisticated systems because today they are catering to a largely non smart phone population. That is set to change and when a bank needs to provide full service solutions on the mobile, up gradation is natural. “Apps are out but eventually there will be a segregation of customers based on system of more bells and whistles for advanced customers versus basic system for the other set. Banks will continue to run these two different streams,” said Krishnan.
Krishnan was also of the opinion that banks in India are increasingly evaluating the Cloud, and that in turn is making the vendors take Cloud into account while building their solutions.
India pipeline
FIS has just signed contracts worth over half a billion dollars with the Indian government for ATM outsourcing. Under the agreement, FIS is set to deploy and manage more than 5,500 ATMs in India. This deployment is part of a pan-India ATM rollout that will be undertaken by a consortium of public-sector banks over the next two years. By end of 2014 the company expects to have over 10,000 ATMs under management,said Krishnan. India is one of the fastest growing markets for us, we have had a CAGR of over 30% in the last 5 years. We have invested heavily in India, in terms of own offices as well as for the ATM business,he added.
FIS is currently the top company on FinTech 100, an annual international listing of the top technology providers to the financial services industry, and has over 33000 employees globally out of which 7000 are in India. A lot of development work is also happening out of India.
The company’s biggest markets in Asia are India, Australia and Thailand followed closely by China and Singapore. Going ahead, FIS is aiming to make deeper inroads into the Indian banks. “Over 50% of top 30 banks are our customers. We certainly want to go after the others,” remarked Krishnan.
According to him the biggest challenge in India is analysing how the market is going to evolve. ” You have to make sure your tech is timed right rather than coming ahead of the curve. The key lies in developing tech that is going to be relevant five years from now,” summed up Krishnan.