Kanbay bets on BFSI for faster growth

Kanbay India recently announced a series of initiatives to foster growth. STANLEY GLANCY profiles the global system integrator’s strategy for moving ahead in the market

With US legislation now permitting a convergence of services in the BFSI segment, significant IT work will be generated, says S Ramakrishnan

A sector worth $340 billion and growing by the day. A sector on the lookout for avenues to cut costs and enhance bottomline figures. A sector that is expected to outsource at least $10 billion of this business to India. That’s the banking, financial services and insurance sector (BFSI)—Kanbay Software’s sole-focus business area. And thanks to its single-minded concentration on this sector, the system integrator today boasts of names like Household International, Discover, 21st Century Insurance, Citibank, American International Group (AIG), SBI, and GE among others on its client roster.

Kanbay realised early on that outsourcing, and in turn offshoring, was bound to pick up in a big way, and so set up shop in Pune in 1995—initially on an experimental basis. The objective was to prove that offshoring business to India would enable an organisation to get work done at 20-25 percent of the cost. The strategy definitely paid off for the company. From $83 million in 2002 the company is confident that it will close the current financial year at $105 million. And if Kanbay’s vice president S Ramakrishnan’s words are anything to go by, the company might just exceed this figure as they did in 2002. Says he, "Legislation in the US has changed, thereby permitting a convergence of services in the BFSI segment. A banker can now offer insurance and vice versa. This will result in significant IT work being generated. The services area itself is worth around $90-95 billion." And with companies worldwide now having realised the benefits of outsourcing their IT needs to high-tech, low-cost countries like India, we should see a significant part of this additional work coming here. And Kanbay with its proven expertise in this arena plans to get hold of a sizeable share of the pie."

Towards this end the company has established offices across the globe. In addition to its centre in Pune and its global headquarters in Chicago the company has established four offices each in the US and Australia, and an office each in Singapore, Hong Kong and Tokyo. Currently, the US contributes to 75 percent of Kanbay’s revenue, followed by Australia with 10 percent. But 75 percent of the company’s staff or associates, as Kanbay’s general manager Manoj Menon puts it, is based in India. The company plans to scale its staff strength to 1,900 by the end of the year in order to handle increasing business volumes. Work at Kanbay’s offsite delivery centre, which will be set up in Bangalore, has commenced already. According to Menon, the total outlay for the project, which will house 700 employees, is $5 million (Rs 25 crore). Kanbay has already got commitments for contracts worth $30 million for its newly formed business process outsourcing (BPO) business.

Kanstory
After establishing its presence in the country, Kanbay devoted the years from 1997-2000 doing Y2K projects for various clients. It was in the year 2000 that the company saw the huge potential in the e-business arena and decided to make a foray into this segment. The company also developed expertise in mainframe technologies, which encouraged the company management to venture into end-to-end system integration. But 9/11 and the resulting aftermath saw the company’s business slip in 2001. But Menon believes that the six months following the September incidents were beneficial, as it provided much needed breathing space for the company to re-evaluate its business strategies. This was when the company decided to rework its business strategies and develop its core strengths.

At this point Kanbay also decided to go for an ISO certification followed by a CMM Level 5 certification, as this was expected to provide the image required to assure new clients about its capabilities. Kanbay pursued and achieved CMM Level 5 across multiple project teams working simultaneously in multiple sites in the US, India and Australia.

To BFSI or not
The company conducted an internal survey to ferret out its core strengths. This was when the company realised that most of its existing customers were from the BFSI segment. Also, most of the projects done prior to 2000 in the Y2K area were for clients in the financial services arena. This had provided the company with a certain level of expertise in this sector. The company also researched the prevailing market conditions. The external research showed the BFSI segment to be a high growth area. More and more companies based in the West seemed to conclude that outsourcing was the only way to reduce costs and increase profits. This was when Kanbay decided to focus entirely on financial services and 4-5 business verticals like credit cards, consumer lending, insurance and securities. Today, consumer lending and credit card services account for a maximum part of the company’s revenues, followed by insurance and then security. Says Menon, "In the Y2K era, 65-70 percent of the work that came our way was from financial services. We also realised that it was the largest outsourcing sector and unlike telecom and other sectors this sector is not affected by ups and downs in the economy. Also, we were now able to provide customers higher value solutions."

The slowdown in the US market proved beneficial for the company in other ways as well. The rampant layoffs in the US saw many Indian technologists returning home, resulting in a reverse exodus of sorts. This enabled the company to hire highly qualified professionals with strong domain as well as client knowledge. From 600 people in 2001 the company scaled up to 1,100 people by end-2002. This provided the company with the ability to provide end-to-end services, right from system integration to product integration.

Soon after this, Kanbay shut down its telecommunications and manufacturing business. The company still services a few of the existing clients in this space. But this business accounts for less than 5 percent of its business.

In the Y2K era, 65-70 percent of the work that came Kanbay’s way was from financial services, which was one of the reasons for the focus on the BFSI segment, says manoj menon

Kanbay’s unique three-tier methodology
According to Menon, it is the company’s three-tier methodology and the proprietary Kanbay GlobalLink Methodology (KGM) through which it has been able to prove to customers the value of offshoring work. KGM is an end-to-end project and quality management system used to ensure seamless, uniform delivery. Says he, "KGM enables us to provide clients across the globe with the same experience."

The three-tier methodology, on the other hand, calls for an onsite presence on the client’s site to understand his business and be seen as a part of the client’s team. Once the client’s confidence has been gained, operations are moved to an offsite or nearshore presence in the same geographical region where Kanbay’s experts sit. Later on when the client realises the benefits of offshoring, operations are moved to Kanbay’s centre in India. Says Menon, "We try to provide customers with a fine balance of onsite and offshore. The ratio depends on client’s requirements. Of late, we have seen an increase in the onsite offshore leverage ratio. When we started it was 3:1, now it is 1:4 and sometimes even 1:6."

Business approach
Kanbay is focused on four key technology lines: card services, banking and lending, insurance, and securities. The card services line of business includes credit cards, debit cards, smart cards and all the systems that make them work. Through the banking and lending segment, Kanbay serves retail and private banking, business and consumer lending, and general financial services. The insurance business is further divided into health, life, property and casualty. Kanbay provides functions from membership and rate changes to billing and claims processing for the insurance sector. And finally, the securities line of business encompasses trading, brokerage, and investment banking. As of now, securities contributes 15 percent; cards 30 percent; insurance 25 percent; and, banking and lending 30 percent to the company’s overall business revenues.

The company is planning to add more verticals to its existing lines of business. Kanbay follows a client-inwards strategy before venturing into a new business area. Says Ramakrishnan, "We invest in a certain business area only when clients demand it. We wouldn’t open a BPO centre unless at least three of our clients are interested."

Kanbay is also open to acquisitions for fostering growth. In fact, the Australia business was set up by acquiring a company there. Says Ramakrishnan, "Mergers and acquisitions are part of our growth strategy. We are a cash-rich company and are constantly on the lookout for further acquisitions as long as the other company is strong in the financial services area and will provide value to our company."

What’s to be
Once Kanbay’s Bangalore centre is up and running, the company will be able to provide customers with BPO facilities. According to Ramakrishnan, the company already has assured business from clients. Kanbay is currently in the process of finalising the strategic mix of internal clients and new ones.

With more and more companies in the West insisting on an offshoring component, Kanbay seems set to achieve its target of growing by 15-20 percent in 2003-04. Says Ramakrishnan, "68 percent of Fortune 1000 and 100 percent of Fortune 500 companies have some link or the other with India, either directly or through vendors. And this relationship is bound to only strengthen in the coming days."