i-flex Says YES To Outsourced Core Banking Model

by Hinesh Jethwani    Jul 14, 2004

With the banking and financial services sector being one of the largest contributors to the Indian outsourcing industry, there’s no reason to believe that core banking solutions cannot be included in a bank’s offshore portfolio. Although the idea may seem a tad futuristic, i-flex believes that the model holds tremendous potential, and has selected YES Bank as its first collaborator for exploring the concept in global banking markets.

In a two-fold announcement made in Mumbai today, YES Bank and i-flex solutions signed a global strategic memorandum to collaborate on technology, and declared that YES Bank has officially selected Flexcube for its retail, corporate and investment banking operations.

YES will be the first Indian bank to adopt i-flex’s unique Business Service Provider (BSP) approach, wherein a variety of IT operations, including applications management, IT infrastructure management, network management and non-core processes (like loan processing, credit assessment, training, etc.) will be ’completely’ outsourced.

Speaking to CXOtoday, US based thought leader of the banking industry, Rajesh Hukku, chairman and managing director, i-flex solutions, said, “The basic idea is to build a robust scalable core banking platform, establish it, and then pitch it to third party buyers as an outsourced option across the globe. The exact revenue model for offering outsourced core banking solutions to third party clients will be decided later. The conservative estimate of what banks can potentially save by outsourcing their entire core banking system is difficult to calculate, as it will vary largely according to the scale of operations and the banking environment that each institution functions under. Figures from our previous clients indicate that banks can save an average of 25-30 % while migrating from legacy to our Flexcube CBS, and in certain exceptional cases the figure may be much higher (As high as 90% achieved by a Japanese bank).”

Hukku nevertheless preferred to believe that the cost benefits would be similar to the 15-20% figure averaged in most offshoring ventures. Flexcube currently has the capability to offer multi-lingual support, including Spanish, so integrating processes for foreign banks wouldn’t be a problem, clarified Hukku.

Deepak Ghaisas, CEO (India operations) and CFO, i-flex solutions, explained, “For the outsourced model, we will be exploring markets in Latin America and Asia initially, as their banking models are more or less similar to India. There is a huge potential for banking technology lying virtually untapped in the rural market, which has come into the spotlight post the Union Budget announcement. If the ’moneylender’ concept has worked wonders in this space for so many years, there’s absolutely no reason to believe that banking cannot be its next generation offshoot.”

Although there will not be any significant strategy shift in i-flex’s strategy to pitch to the PSU banking segment, there’s no denying the fact that the company will face considerable competition from Infosys and other local CBS solution providers. The red tape and constant switch of technology decision makers in PSU banks are strong factors limiting the adoption of technology, admitted Hukku.

Among the hot topics for informal discussions between YES Bank officials and i-flex representatives were Infosys’ strong revenue postings and the post-budget banking scenario.

“There’s no doubt that Infosys is a powerful contender in the PSU banking segment. However, it would be unreasonable to compare them with us, since we focus solely on banking, whereas Infosys invests only a small percentage of its resources into Finacle,” explained Hukku.

H. Srikrishnan, executive director, YES Bank, said, “We haven’t selected certain business modules from the Flexcube platform like CMS, credit card management, loans, and treasury, so these would be classified as outside the CBS for now.”

A very confident Hukku maintained that YES was fully aware that all the sidelined modules were very much present in Flexcube, and there was no doubt in his mind that the bank would adopt it at a later stage.

Rana Kapoor, managing director & CEO, YES Bank, said, “The outsourced BSP model will allow banks to focus solely on their core business processes, negating the need of maintaining separate departments for managing IT infrastructure. We plan to expand our banking operations beyond the initial Mumbai and Delhi branch rollouts. By March 2005 we should have approximately 8-10 branches in the country, and we will begin our retail operations in the next 9-12 months.”

i-flex has grown from just 12 customers in 7 countries in 1993, to 480 customers in 108 countries in 2004. YES Bank is a new greenfield entrepreneurial banking venture promoted by Ashok Kapur and Rana Kapoor, who will jointly hold 52 % of the bank’s equity.

Tags: Flexcube, CBS