In October 2014, Bandhan—India’s largest microfinance institution (MFI) that has also got the Reserve Bank of India’s approval for a universal banking licence—outsourced its technology operations to FIS, a US-based banking and payment technology solutions firm. FIS had to stave off IT giants like Infosys and Tata Consultancy Services to bag the contract. As the MFI’s strategic technology partner, it will provide and manage an integrated banking and payments platform through a fully-outsourced delivery model. A year ago, too, FIS was selected to provide technology solutions to the state-owned Bharatiya Mahila Bank, India’s first women-focussed lender. Earlier, in 2012, the company, which started operations in India in 1997 as the India Switch Company, was entrusted with the rollout of over 5,500 ATMs for state-run banks in Punjab, Jammu & Kashmir and the North-east.
Shrihari Bhat, the FIS group managing director, Asia Pacific, who was recently in India, tells Forbes India why the FIS model is a good fit for new banks.
Q. What are the salient features of the ‘bank in a box’ model that you offer to your clients?
The ‘bank in a box’ model, as a construct, provides access to a wide range of technology solutions in an integrated fashion, i.e. along with all technology management and support services. This enables a new bank to quickly enter the market while being competitive with its products and services and also compliant from a regulatory perspective.
We package this integrated offering in two ways: The ‘fully-cloud’ or ‘hosted’ model—where the bank does not have to spend any effort or investment to create a centralised technology infrastructure—or a fully ‘on-premise’ model, where the bank invests in creating its own technology infrastructure. Till now, the ‘bank in a box’ model was deemed suitable only for small banks that do not have the means to master the complexity of integrating multiple solutions and technologies on their own. But increasingly, larger banks, the world over, are looking at this model and working with strategic technology partners, so that they can retain a laser-sharp focus on growing their core business.
A key differentiator that FIS brings to the market is the flexibility of the offerings. From software licence to hosted and managed implementations, everything is tailored to fit the requirements of the banks. These factors have proved to be decisive in the quick launch of banks and also for co-operative banks to offer services rapidly and in a cost-effective manner. For the Shivalik Bank, FIS was the clear choice to provide a completely outsourced ‘bank in a box’ core banking solution. This helped the lender transition to core banking in just two months.
In the US, FIS offers this technology platform to hundreds of banks—be it community institutions, larger direct banks, or conventional brick-and-mortar ones. We are now in the process of taking this offering to institutions globally, including in India.
Q. What are your India plans?
With over 8,000 employees based out of six locations, FIS is well-positioned to serve the Indian market. It has seamlessly aligned itself to this diverse market, even as it retains the DNA of the world’s leading financial technology company. In its 17 years of operations in India, FIS has acquired large, mid-sized and small co-operative banks as clients. Our offerings range from specialised product implementation to complete technology outsourcing.
Q. Why is it that new institutions prefer your model instead of products from other software companies?
New banks have fund constraints. They are cautious about their technology investments. Besides, they don’t want to invest in technology at one go and would rather do it over a period of time as business scales. We are getting new banks as our customers because we work on a ‘pay-as-you-drink’ model. More importantly, if a client later feels that it wants to purchase our technology licence and switch from a rental to an ownership model, it is very easy. Thus, we give a lot of flexibility to our customer. Customers choose providers based on value perception, demonstrable proof-points, credibility, long-term stability, investment protection and a well-proven, strong technology stack.
Q. How does costing work in the ‘pay-as-you-drink’ model?
We use a model that is based on demand. We don’t charge fees up front. As the company scales, we charge them accordingly. Pay-as-you-drink is a variable-cost model. Many of the new banks have different requirements in comparison to banks that have been around for years.
Q. You mentioned banks can typically pay more as they scale up or even buy out your technology licence. Can you elaborate?
As banks expand and grow their business, they may see value in taking technology management in-house. The scale of their operations could financially support this and there may be, over time, some advantages of managing technology in-house. When this happens, banks can work with us to transfer the ownership of the technology infrastructure we set up for them. As I said earlier, FIS owns the intellectual property rights to many of the solutions assets it uses across banking and payments and is in a unique position to offer banks the flexibility to make this decision at a future date. So, if any of the new banks want to manage the technologies in-house in future, they can do so easily.
Q. How do you look at growth potential in India? Is it the fastest growing market for you?
In India, where access to basic banking services is limited to less than half the population, FIS has a role to play in financial inclusion by spreading the ATM network to remote corners of the country and by helping co-operative banks shift to core banking solutions. In the drive for financial inclusion, small and rural banks are poised to play a larger role. Smaller co-operative and regional rural banks (RRBs) are now operating on the outsourced technology platform, which not only saves costs but gives banks greater flexibility in shifting from one technology platform to another. At the same time, there would be an anticipated expansion of ATM networks, mobile wallets and card-based payments. The mobile wallet business alone is in a fledgling state in India. With such transactions estimated to grow at a compounded annual rate of 30 percent in the next five years (according to a recent study by market research firm RNCOS), FIS stands to gain tremendously. With around 132 plus applications, which have been submitted to RBI for small banks and payment banks, we see a lot of potential.
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(This story appears in the 10 July, 2015 issue of Forbes India. To visit our Archives, click here.)