Sanat Rao, CEO of Infosys FinacleT
raditional banks find themselves searching for the fine balance between not losing out on new opportunities that nimble fintech startups are unearthing on the one hand, and running up a roster of consumers who may not repay their loans on the other. The idea of open banking is also catching up, with pieces of software called open application program interfaces (open APIs) allowing third-party fintech startups to provide innovative financial products and services built around established banks. Then there is crypto and decentralised finance.
Sanat Rao, CEO of Infosys Finacle, one of the world’s most used banking tech platforms, unpacks some of these emerging trends in a conversation with Forbes India
. Infosys Finacle is part of EdgeVerve Systems, a products and platforms subsidiary of IT services company Infosys.
Edited excerpts: Q. Give us a sense of the evolution of Finacle, as more of it becomes cloud-capable and amenable to the software-as-a-service model.
Over the last several years, the cost of technology is gradually coming down. One of the reasons for this is the discovery of new ways of not just building software, but deploying it. And while the cloud model has been around for some time, its adoption within the banking industry has picked up substantially in the last couple of years.
Finacle’s journey towards the cloud started a couple of years ago, and it's been a step-by-step process. Even in terms of availability and readiness of banking customers, just three to four years ago a lot of banks were circumspect about whether to move to the cloud, and also about how to move. That's no longer a question. The question is more about the right way to do it.
As a solution provider, Finacle is already on the cloud and we are focussed on ensuring compatibility and availability on a variety of cloud platforms. We've got partnerships with many of the leading cloud providers, including AWS, Google, Microsoft Azure and IBM.
In terms of deployment, 10 to 15 years ago, the idea was one should deploy the whole solution, end-to-end. Times have obviously changed. And the compulsions of large technology programmes have substantially changed in recent times. Today, banks want to have the liberty and the choice to be able to deploy what they want, when they want, and in the manner they choose.
So from that point of view, architecturally also, we've done a lot to ensure that each of our modules is ‘componentised’ so the banks can use what they need. Within the cloud model
itself, there is more focus emerging on public cloud and on the hybrid-cloud model—a recognition of the fact that not everything may necessarily reside on a public cloud and therefore the banks want to have the choice of a hybrid cloud.
Finally, software-as-a-service [SaaS] is also evolving, and Finacle has been one of the leaders in offering the SaaS model. We launched our SaaS platform in Australia a few years ago, and today it is available in other markets as well.Q. Tell us about Finacle’s scale of operations—it currently touches a billion people and supports 1.3 billion accounts.
That’s right. We operate in well over a hundred countries across all the six continents. So we are truly global in that respect. Our genesis was really with banks in India, but today Finacle is used from the west coast of the US all the way to Australia and New Zealand, and many countries in between.
About 17 to 18 percent of the global adult population has an account that resides on the Finacle platform somewhere or the other. And Finacle is used by large global banks, regional banks and smaller local banks too.Q. Recently you’ve announced a partnership with IBM to have Finacle available on their cloud for financial services and on RedHat Openshift. What’s the significance of that?
IBM has made a public cloud available for financial services that they launched in the US and then in Europe. And we were one of the early partners of IBM on that. We had a very strong partnership with RedHat Openshift even before they merged with IBM, so that has provided further impetus for the traction we're seeing in the market.
Given the scale and depth that both RedHat and IBM bring to the table, and Finacle’s expertise, customers get multiple benefits. First and foremost, of course, is a significant reduction in the total infrastructure readiness timeline, resulting in shorter timeframes for onboarding customers. Second, is an easier and more consistent application deployment platform, and this is also in the context of deployment models undergoing rapid change.
Banks are looking for elastic infrastructure
, and don't want to make an upfront commitment to a sizeable amount of infrastructure. They want that infrastructure to expand and grow as the business for the bank grows. With Finacle, they get to add modules as needed, so they don’t lock up their budgets. Overall, banks get to scale infrastructure as they grow.
There's a genuine belief that as many industries, including the banking industry, get more and more competitive, banks want to focus on their core competence, which is banking. They want to have the ability to use technology
in a manner that allows them to respond to the demands of the marketplace with agility. The cloud model allows them to take away some of the earlier burden that they used to have of doing everything on their own.
They can now rely on large cloud infrastructure providers, like Finacle, so that the onus of ensuring infrastructure is available and can scale with demand shifts to another party, rather than the bank taking responsibility of it.
Finacle's relationship with IBM has been around for many years, while the recent announcement is on IBM cloud and the RedHat OpenShift part of the business.Q. How is this combination of banking, tech, and cloud computing changing banking itself?
We must acknowledge that the banking industry responded remarkably well, given how unexpected Covid-19 was. If this question had been asked of any of us, maybe 24 months ago, about whether we'd be able to adapt to the kind of world that we've adapted to in the last 12 to 18 months, most of us would have said no. But I think the banking industry responded in helping the economies move to this new model.
And the economic environment has not necessarily been easy for the banks. Revenues have remained squeezed with low interest rates and that's been the case in most parts of the world. Loan growth
has been fairly sluggish too. Now, as more countries look to come out of Covid and boost economic revival, banks will of course have a big role to play.
A few trends are coming to the fore
. As we’ve discovered that we can actually do a lot remotely, we will find that banks and many other industries will completely shift gears and ramp up their spending on technology.
We'd done a survey before Covid, and at that time we'd found that barely 7 percent of global institutions had deployed digital transformation at scale. In most recent times, that figure would have certainly gone up. It will only increase, given the confidence about working in a very digital mode.
For people like you and me, our expectations of working in a digital world have completely changed in the last 18 months. Therefore a lot of banks would increase their technology spending. Technology is going to drive everything that the banks will do going forward.
Second, there will be a lot more attention towards a more sustainable and a more responsible way of living. Going into 2022 and beyond, banks and industries that banks support will focus on sustainable product launches. They will focus on green loans and mortgages. They will focus on green and social bonds
. They will focus on the kind of industries and companies that they lend their money to. There'll be a lot of focus on ensuring that they're seen to be responsible citizens in the world. And this is not to say that they'll compromise on profits, but I think they will prove that doing well and doing good can actually be two sides of the same coin.
As cloud related technologies and models become more mature, we're going to see a spurt in the as-a-service business model. We are familiar with this for many of our day-to-day activities, but it will become a lot more prominent in the banking industry. Our belief is that at least one in four banks will explore select capabilities as a service to capitalise on a variety of industry changes that have happened, whether it's open banking or open finance
that has really taken off in many parts of the world, or embedded finance.
And we're seeing a lot more of this in Asia than in the Western world, which is the focus towards banking-led lifestyle apps. I think banks would wake up to the fact that technology will support this kind of a business model. Therefore there'll be a lot of focus on lifestyle apps, where the financial element of a transaction is embedded into a lifestyle transaction that you and I, as individuals, will make.Q. What is the significance of open banking, and what is the role of companies like Infosys in enabling some of these features and models that startups like Klarna are offering?
Klarna is arguably the most well-known example of a phenomenon that is receiving a lot of attention, which is the ‘buy-now-pay-later’ concept. This has become very relevant now, given that almost all shopping and purchasing is being done through the digital medium, rather than going to a shop and paying for it. The functionality itself is not new, but, as they say, every idea has its moment in time and buy-now-pay-later really seems to be thriving in the backdrop of the completely changed shopping environment after Covid-19. About open banking, simplistically speaking, what it does is a couple of things. One is that it creates a choice for customers to go beyond just the traditional banking providers and tap other relationships in the ecosystem for banking type of opportunities.
We've seen in every part of the world, including in India, a lot of fintech startups
, each of which has a banking type of proposition, even though individually they are not registered as banks. At Finacle, we are creating an ecosystem and a marketplace of our own, which has allowed us to tap into and leverage a lot of these fintechs, each of which comes with a niche proposition.
Finacle works with both fintech companies and banks, via a couple of initiatives. With Finacle FinTech Connect, Finacle will partner fintech companies on innovating solutions and sometimes joint go-to-market as well. With the Finacle Fintech Council we facilitate partnerships between banks and fintech companies. Today the council has CXO-level members from about 25 global banks. Finacle has also created an App Centre, which has about 75 banking solutions built by various companies in the ecosystem, and not necessarily by Finacle. And it’s growing.
And the regulators have blessed this because they want to see more competition for banks, and for customers to have a choice, which they didn't necessarily have five or 10 years ago. Open banking is taking different avatars in different markets, but fundamentally it's a wonderful development.Q. Do you see Finacle being used for Crypto transactions? And in a broader sense, how do you see crypto evolving?
I'm not able to, at the moment, share anything about Finacle’s plans as various things are under development and haven’t been announced. About crypto in general, while there was a lot of scepticism and concern—particularly because they are not regulated and it was felt that they were very speculative and lead to irresponsible spending and so on—some of that scepticism has gone away. There seems to be more acceptance that crypto has a role to play.
While there is still some way to go in terms of regulation, crypto has become more of a reality
now than it was say 18, 24, 36 months ago. I think that's a no brainer. And we've seen announcements from leading companies about their own perspectives of crypto—big companies like PayPal, Visa are now facilitating transactions in crypto.
There is also greater interest around central bank digital currencies. And we've seen many countries, whether it's China, Japan, South Korea and India, many of them have come out with their viewpoints. The UK has also announced plans for its own CBDC.
The fact that it's being discussed at the regulator level and at the government level obviously shows that it is being given the kind of attention at the highest level. Whether this will translate into a completely different way of doing business, we need to wait and watch. These digital currencies have the potential to transform monetary systems.
Of course they can also pose some kind of a threat to financial stability, but with more countries talking about it, and more regulators talking about it, CBDC certainly has a slightly more secure position now in terms of a possible way forward than it did say two years ago.