The biggest IT spend area in BFSI is going to be ‘differentiation’: Oracle

Oracle India announced its strategy for the banking, financial services and insurance (BFSI) market in India, where it is witnessing great momentum for its cloud solutions. In an interview with Firstpost, Kiran Kumar Kesavpura, industry director and client advisor – BFSI, Oracle India, talks about the growth opportunities in the highly regulated Indian BFSI sector.

Where does Oracle see most IT spending in the Indian BFSI segment?

Globally, banking, financial services and insurance (BFSI) is the second-largest vertical after telecom in technology consumption. We are seeing technology uplift happen within the industry. One of the biggest area of spend is going to be “differentiation.” Instead of opening branches physically, the players will focus more on digital distribution of their products and services through mobile devices, social media channels, etc. Secondly, this decade has been termed as ‘the decade of the retirement’ – which means there will be almost 3 lakh vacancies to be filled in the public sector banks. So, the second area of technology spend will be around talent management and capital management. And, the third big ticket technology spend is going to happen in the space of integrated risk and finance. This has never been an area of spend, but with the advent of Basel III regulation, IFRS, and more and more regulatory prescriptions from the Reserve Bank of India as well as from BIS we are seeing a lot more spend happening in that space.

How does cloud feature in these spend trends?

In India, 60%, or 720 million, of the total population are unbanked. A McKinsey study suggests that the number of potential digital banking customers could rise to about 1.7 billion by 2020 in Asia, and in India alone the number is likely to be 450 million. Banks, which want to acquire net new customers who are digital in their DNA, need to look at technologies that are residing in the cloud. So, banks need to have technology that will get them from thinking physical today to thinking digital.

According to Gartner, more than 60% of banks worldwide will be processing a majority of transactions in the cloud; and that banks are getting more and more “Bimodal” in their technology departments. The concept of ‘Bimodal IT’, coined by Gartner, means that the IT departments within banks have two modes of operations – lights on mode and the innovation mode. And, essentially banks will continue to invest in traditional set of technologies and also adopt cloud technology as they catch up with the customer behavioral changes taking place.

Nearly 70% of the total IT spend still goes into traditional set of technologies. However, Oracle believes that the technology spend will now shift from the back office datacentre to the point of customer interaction, to devices, to mobility, to managing analytics on the fly. We call that the “Data-as-a-service”. So, there was platform-as-a-service, software-as-a-service, and now we are introducing the notion of data as a service, wherein banks can now understand what the customer is actually doing on a daily basis from which they can build a digital profile of that customer and use that to drive their payments revenue.

The adoption of cloud will not be entirely driven by cost and efficiency improvements, but it will happen primarily because there is a tectonic shift in customer behaviour taking place and banks need to be up the curve by adopting the cloud.

Being one of the most regulated sectors, BFSI companies are deeply concerned about security. What challenges does Oracle face when convincing CIOs to go with cloud?

Banks are fanatical about security. Banks need to adopt a newer set of technology, and that means moving approvals within these customer organizations to facilitate the adoption of these technologies. CIOs, CTOs and heads of businesses are willing to do that. We have been seeing, for example, the human resources cloud sourcing of resumes is now becoming a big phenomenon in banks. And, cloud sourcing will never work by adoption of traditional technologies, but then you have a recruitment solution that sits behind the firewalls of a bank and you expect people to come and people to come and drop their resumes, that’s not going to work. You have to be on LinkedIn and your HR recruiting solutions will have to be tightly integrated with those platforms to be able to pick the right kind of profiles. Banks are willing to change their processes and are willing to look at processes that have the maximum business impact for them to get to those new technologies.

What is your product strategy for the Indian BFSI market?

We acknowledge the fact that cloud computing is a style of computing and there is no one size fits all approach. Oracle renders its cloud services through three different models – allows large banks to build cloud for themselves which means that these technologies reside within the bank’s datacentres but they are rendered to the bank’s internal users as a private cloud; manage these technologies on behalf of banks – called as the managed cloud offering; and there is a pure subscription model where there’s absolutely no technology footprint within the bank, almost all of it is consumed from the Oracle datacentres. Banks have the choice of doing either of these three or a combination of these three on either their front office, mid office or back office technologies.

Our banking platforms include Oracle Financial Services Analytical Applications, Oracle Financial Services Lending and Leasing, FLEXCUBE, Oracle Financial Services Revenue Management and Billing, and Oracle Financial Services PrimeSourcing.

A South-based non-banking financial services company is now doing planning for business purposes on the cloud. Similarly, HDFC Bank is now doing part of their human resources processes on the cloud. For a long time, HDFC has been managing their sales opportunities that are managed by field sales reps of theirs using cloud technology, but they are now beginning to even augment that from a servicing capability perspective using software or technologies deployed by other cloud.

How do you see competition in India?

Oracle Database is present in almost every bank. Most of the private sector banks and two public sector banks – Canara Bank and Syndicate Bank – are running technology platform for core banking from Oracle, while public sector banks are mainly with Infosys. However, the underlying technology in all banks is ours.