The Indian banking sector is slowly but surely realising the benefits of using services offered by ASPs. Access to the latest technology at the lowest possible investment, with an added advantage of a substantial reduction in transaction costs are just some of the benefits of outsourcing from an ASP. Rajneesh De & Chitra Padmanabhan illustrate how these offerings prove especially beneficial to banks in an era where it is becoming increasingly important to offer the customer a variety of services at the lowest cost...

S V Krishnamurthi believes ASPs will reduce time-to-market for banks and accelerate re-engineering benefits

The ASP model of services, once touted as the future face of India Software Inc., has passed through a phase almost identical to the dot com experience. Just as dot coms were once eulogised to the sky, only to come crashing down later, the initial euphoria which greeted the ASP concept turned into a damp squib. However, unlike dot coms, it seems that ASPs still have some amount of financial viability left. In the middle of 2002, ASPs are definitely witnessing a resurgence, albeit still very slowly, with the banking sector mainly showing the way.

With outsourcing becoming the new mantra in the banking sector, it’s little wonder that the ASP model is gradually finding acceptance at banks. The reasons are not far to see: the smaller and mid size banks realise the need to upgrade their technology, but are unable to afford the total cost of ownership. Thus the ASP model, feels Rangesh Nayar, CEO, Sanchez Capital Services, would be an ideal proposition for them. Sanchez Capital Services, a joint venture between Sanchez Computer Associates, the banking software major and Capital Services, plans to offer a ASP business model, wherein a bank can avail of software applications online on a licensing basis.

Another advantage is that these banks do not need to spend on high cost technology professionals and systems. Adds Tariq Farooqi, director, services sector and SME at SAP India, “We definitely see a new resurgence for ASPs in India. The market has become more mature now and is open to adopting the outsourcing model. Most banks are under pressure to reduce overheads and with the VRS scheme in place many of the IT personnel have already left nationalised banks. Thus, these banks would be keen to adapt to this ASP model where they can outsource most of their technology needs and can concentrate on their core competence.”

Other than the nationalised banks, another prime target audience for ASPs are the co-operative banks and the smaller local banks. Explains Atul Gupta, head, ASP business group, i-flex solutions, “A bank with 10 branches need not have a full-fledged IT infrastructure because it certainly would not be cost-effective. But at the same time, competition being the key driver they need not be deprived of the facilities that other larger banks are able to provide and so the ASP model is best suited for them.” According to Gupta, banks gain a lot because they have no fixed investment and so no capital is blocked by way of IT infrastructure.

Atul Gupta of i-flex says banks prefer to have their data in their own premises as this gives them a sense of ownership and security

In addition to these advantages, S V Krishnamurthi, vice-president, marketing, HMA STARware, believes that the outsourcing route through ASPs would reduce the time-to-market for banks, as well as accelerate the re-engineering benefits. The company specialises in IT implementation in the finance domain.

With hardware infrastructure turning out to be a costly exercise, and ATMs ruling the roost as the most popular delivery channel for banks, it doesn’t come as a surprise that the ASP concept for now is primarily being implemented with ATM machines and the services offered around them. Both the leading ATM providers in India, NCR and HMA Diebold, have therefore jumped onto the bandwagon. NCR’s gamut of ASP offerings range from incident management, opti-cash, remote enterprise management system and remote ATM software distribution. HMA, on the other hand, is offering their Total Retail Infrastructure Management Services (TRIMS) on an ASP model, whereby the offerings range from providing the prime application layer, the networking infrastructure, the physical touch-points and managing it all, either totally or partially, depending on the client requirement.

Currently NCR is servicing close to 1,000 ATMs of two banks. Though the company has been marketing this concept for the past six months, it’s only in the last three months or so that it has signed up clients. Working in a phased manner, it started with a pilot project with four to 10 ATMs. Reveals N M Suprabhat, manager, marketing & solutions deployment, NCR India, “We still do not hold the entire network for both the banks but shortly we would. We started this to popularise the ATM concept and to accelerate its implementation process. We are open to providing this service to non-NCR ATMs, but at present we do not have a stand-alone business model.” Suprabhat says that this model benefits both the ASP as well as the client. The ASP offering enhances the ASP’s business value while simultaneously enabling banks to achieve economies of scale. “This service is over and above the break and fix maintenance that we are already offering banks”, he adds.

Sanchez’s Rajan Nayar feels that even core banking solutions and other software applications are being ported onto the ASP model

The HMA group is providing ATM infrastructure to banks on an ASP model through its group firm India Switch Company. It involves setting up an ATM network across the country and leasing it to banks along with support services like cash, real estate and security management.

However, it’s not only ATM providers that are moving into the ASP space. Even core banking solutions and other software applications are being ported onto this model. Sanchez’s Nayar reveals that this model is already being offered globally and the company caters to more than 400 banks using this model. These include American Express Membership Banking, GMAC Bank, Morgan Stanley Dean Witter’s BusinessScape, Lehman Brothers Bank, Third Federal S&L’s DeepGreen-Bank.com, Juniper Bank and ING Direct USA.

According to him, the ASP model was their entry strategy in this market and was adopted specifically to cater to smaller banks. He adds that the benefit of this model for the banks was that the upfront investment, which included hardware, networking, customisation and implementation, is minimal. The banks have the option to exit if they are not satisfied with the software or the product. Hence the technology risk would now remain with the ASP.

Bangalore-based Datanet Systems, a transaction automation product company, offers its core-banking and anytime banking solutions on an ASP platform through its services arm, Datanet eCommerce Services. The company has tied up with ITI for offering this service through a VSAT network and has installed a server in the latter’s campus at Bangalore. According to A Prabhakar, chairman and managing director, Datanet Systems, the company had a good initial response for the concept and is expecting a customer base of nearly 500 bank branches in the first year of operations.

For i-flex, the nature of the contract is on a subscription basis, where banks follow a pay-for-what-you-use model. He adds that the ASP model is particularly beneficial to smaller banks in the current scenario because these banks are rapidly losing customers because of limitations in not being able to offer state-of-the-art facilities due to lack of capital, and slack due to a time frame needed to implement the necessary infrastructure.

According to NCR’s Suprabhat, the ASP model enhances business value and enables banks to achieve economies of scale

Why is it then that the ASP model, which is obviously beneficial for the smaller banks, still has very few takers? Explains Gupta, “Our target audience do not represent the bigger IT savvy banks who can relate to the ASP concept. Moreover, these small banks have different levels of computerisation. Some of them still rely on manual paperwork and hence there is no standardisation.” In terms of accounting, these banks have a set budget and do not evaluate services in terms of a per-transaction cost. The cost for the ASP model is calculated on the basis of individual services provided to the bank. Moreover, even in terms of billing the volume of the transaction is of great importance. Due to resistance to the usage of the ASP model banks are not being open to the drastic reduction in cost on a transaction to transaction basis. The allocation of the IT budget for these banks certainly turns out to be much more.

Suprabhat however hits the nail on the head when he mentions that the concerns regarding security are paramount among bankers. Moreover, their expectations regarding deriving economies of scale has not been fulfilled. And in tune with their business philosophy, Indian banks would prefer to build their own assets, whereby they can keep the financial transaction switch in their custody. He adds, “In our case the banks have readily adopted the ASP model because the data accessed by us is only flat or dry data, which in no way interferes with the bank’s back-end operation. When these basic security issues are addressed, then the benefits of an ASP instantly start kicking off.”

The main resistance comes from the fact that the data is being stored in a remote location. Banks prefer to have their data in their own premises as this gives them a sense of ownership and security. However, i-flex’s Gupta says that is more of mindset problem as the same facility can be availed of in the ASP model. Banks face a ‘dilution of control when their back-end is located on a remote server and are therefore adopting a conservative approach. Krishnamurthi has the final word. He feels that the gestation period needed to transform a concept into reality is a time-consuming process. The concept is taking off currently, because of the completeness of the ASP model per se, through various product/service offerings to the end-customer. Earlier, ASPs offered their customers a limited range of options.

Despite the slow adoption rate, there is no doubt that the ASP model in the banking sector is now here to stay. More and more bankers are now able to grasp the concept and evaluate an ASP’s offering on the basis of the service provided e.g. rentals, etc. This is a big change from earlier scenario. After the government sector, it is the banks that are the largest investors in technology. In time banks have come to realise that cost and operational efficiency depends on their business philosophy. In the near future, these banks may also go for specific services like Internet banking. In keeping with their cautious outlook, banks look for systems adopted by other banks and overall viability before making an investment. In such a scenario the ASP model needs a few pioneers to prove its viability for it to succeed. The others will soon follow.

Billjunction banks on ASP model

Utility services associated with banking, such as Billjunction, look set to cash in on the ASP trend. Billjunction has introduced an ASPEM (application service providers executioners and maintainers) module that offers individual banks the facilities of bill payment through BillJunction’s tie ups with billers, through an interface on their official website. There is no ICICI/BillJunction branding on these Web pages, which helps the company target the large mass of customers who already have an account and carry out their transactions with these banks. The clients currently secured by the company are Abu Dhabi Commercial Bank, South Indian Bank, Greater Bombay Co-operative Bank and UTI Bank. “Through the ECS debit mechanism it takes about six days to complete a transaction but with the introduction of ASPEM the cycle is reduced considerably since the transaction is directly handled by the bank without any additional channels,” says Bikramjit Sen, chief operating officer, BillJunction Payments. With 70 billers in eight cities it also becomes a compelling proposition for banks. The company charges an integration fee, which is a one-time cost for development of the system, an annual maintenance fee depending on the magnitude of the transactions and a flat fee per-transaction. With a 50 percent growth rate, the company intends to extend this facility to all types of customers who would like to use the normal drop box method or the IVRS method, i.e., payment by phone, and also the online payment method. “The service should not be perceived as a niche or elite service and through all the three segments we intend to provide this service to the entire customer base of the bank,” says Sen. Since the computerisation trend in banks is going through a second transitory phase, there are a significant number of customers who still have inhibitions in using the system, and so all payment modes have to run parallelly. As an extension of its existing facilities, BillJunction is also currently working on providing an online payment option, through its ATM services. The system can be set up in four to six weeks but will essentially be demand-based. The system functions in the EBPP (electronic bill presentment and payment) module, wherein the customer identification number is sent to the biller for verification and is sent to BillJunction after approval. After the approval comes through, the transaction is actualised and is further regularised as per instruction. On being questioned about the security systems of ASPEM, Sen says that the interface does not permit BillJunction to directly access the back-end of the banks. Large banks have a very well defined security and risk management system. The whole process is transaction-oriented, so there is a clear demarcation of responsibility. When it comes to disputes the important thing is to realise is on whom the onus lies’. “If any dispute is related to the value of the bill then we do not accept any responsibility, but if a relevant figure does not get reflected in the account then we would initiate the check.” Since it is a relatively fresh concept, the initial hitch is in convincing the banks and the billers about the validity of the system and in convincing customers to adopt this technology.