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Financial services: bullish about IT

While much is talked and written about IT adoption by banks, FSI is silently marching ahead on the road to IT. Vinita Gupta reports.

When it comes to how the BFSI segment is driving the IT market, the stress has always been on the contribution of the B (Banks) cohort and not much emphasis is laid on the share of the FSI (Financial Services and Insurance) division. Thus IT deployment in the banking segment is always talked about but other, arguably faster growing, sub-segments of the financial services market do not get their due.

Strictly speaking financial services encompass insurance, mutual funds and brokerages sub-segments and as in the banking segment, connectivity is important for them. Further, the stress is on risk management systems (RMS) and core systems that vary from one sub-segment to the other. For instance, in brokerages or companies whose business involves dealing with the share markets, the core application is a transaction system.

FSI’s specific needs

The IT requirements of organisations in the financial services sector cannot be lumped. But their basic requirement is to provide an enterprise-level infrastructure that caters to the needs of customers, partners and organisations. Companies in financial services are linked to external entities such as customers, banks, distributors, stock exchanges, broking houses, custodians, registrars and others. Hence, there is a need for process integration to hook up disparate systems.

"Apart from core business applications, CRM for sales and customer servicing applications for getting more business and knowing the customer better are in demand of late" - Subhojit Roy Head, IT, SBI Mutual Funds

Most of these companies, although offshoots of parent companies in the same space, have their distinct IT systems.

Subhojit Roy, Head, IT, SBI Mutual Funds (SBIMF) says, “Apart from core business applications, CRM for sales and customer servicing applications for getting more business and knowing the customer better are in demand of late.”

Organisations in this sphere have to provide the tools for seamless customer transactions through as many channels as possible. The aim is to acquire new customers while retaining existing ones by providing decent customer service. For example, SBI’s depositors can buy the bank’s mutual funds using their ATM cards and the money is debited from their account. Thus SBI’s clientele doesn’t need to fill a form to invest in SBIMF.

Ketan Parekh, CTO, Sharekhan says that in brokering, a company’s connectivity to the stock exchange (NSE, BSE etc) and its back-office systems (accounting et al) needs to be in place.

Tejinderpal Singh Miglani, CTO, India Bulls believes that WANs are a must in the non-banking financial sector to connect branches. “A core transaction platform is essential as is a data centre to host applications that can be accessed by employees and customers. A few applications that are a must for us are CRM to emphasise customer satisfaction, ERP for finance, and accounting to maintain and enhance business efficiencies,” he adds.

"A core transaction platform is essential as is a data centre to host applications that can be accessed by employees and customers" - Tejinderpal Singh Miglani CTO, India Bulls

"IT should be able to provide stability, scalability, security, superior products, or channels and better services" - Ketan Parekh CTO, Sharekhan

Miglani also feels that business continuity is essential. India Bulls has two DR sites.

Agrees Deepesh Gosavi, Senior Manager Systems, DBS Cholamandalam, “Connection downtime is unaffordable as inter-branch communications is required and hence DR / BC is a must.”

Raghunatha Reddy, Assistant VP, IT, UTI Mutual Funds (UTIMF) opines, “The e-mail infrastructure reduces the customer’s and our burden as we can communicate through e-mail rather than by post or in person.”

According to Roy of SBIMF, a document management system with business processes helps provide a smooth business workflow, business intelligence helps an FSI company know what is happening in sales, and portals aid in knowledge management and act as an information repository.

Data warehousing, and human resource management solutions (HRMS), and treasury and risk management solutions are other principal areas of IT adoption in this segment.

Risk Management

Organic growth, operational cost reduction, and risk and regulatory compliance are some of the pressing issues that financial institutions are facing.

With transactions of most of the services going online, security and data protection are crucial. That’s where RMS play a crucial role.

Miglani of India Bulls feels that backup systems and RMS have become a part of the IT culture in the financial services industry. When we talk of risk it entails aspects such as credit, market, and operational risk (cheque printing etc). “IT is the tool that handles this risk. It involves building the infrastructure, controlling access to machines, and making data available only to the person who needs it. It also includes designing applications and systems in such a way that they are difficult to crack. This helps prevent back-door entry into the system,” explains Miglani.

Echoes Parekh of Sharekhan, “If you are offering online trading you also need an RMS. You could have deployed an order outing system and permit access over many channels such as trading via the Web or over the phone or through an EXE based application for the convenience of customers.” He goes on to say that an RMS would define details such as the amount being transacted. If the value of the order exceeds a preset limit the system will not accept it.

Unlike the RBI that has stringent rules for the banking sector when it comes to IT systems, the Securities and Exchange Board of India (SEBI) stipulates a few IT mechanisms for the mutual funds segment. Roy of SBIMF says, “SEBI has mandated that an MF must have a risk management department in place which will monitor risks (investment and operational risks etc).”

Past vs. Present

The customer base has swollen over time. If SBIMF had about five to six lakh customers in the past, that’s ramped up to 20 to 25 lakh now.

According to Roy, earlier most of SBIMF’s IT infrastructure was working in isolation and there was no enterprise-level integration. Connectivity among locations was not a-given. Most operations of a location were carried out from the IT infrastructure of that particular location. External entities such as customers, partners, and distributors were not part of the IT system at all. With increasing user expectations and business requirements, enterprise-level integrated systems and applications have been put in place.

The mutual fund’s present systems include core business applications for both front-office and back-office applications, Straight Through Processing with the external entities (brokers and custodians), order matching and settlement, risk management, centralised mailing and workflow for the organisation, an intranet portal for knowledge management and information repository, third-party applications in the areas of market data, company & industry data and mutual fund data.

The UTIMF has upgraded its WAN from a VSAT-based network to a point-to-point leased line-based WAN. It has also moved from 32-bit servers to 64-bit systems for key applications, from a single node server to clustered servers, adopted a defence in depth approach for security, shifted from DAS to SAN and presently evaluating anti-spam solutions.

The UTIMF presently uses Mfund software, Sales Force Automation, intranet-based applications, PeopleSoft HRMS and an investor services monitoring system that logs and tracks complaints.

According to Reddy of UTIMF “Mfund Software is the core system as it helps in fund management and accounting by keeping track of daily sales.”

The IT implementation has benefitted the organisation by enhancing the efficiency of its business processes, productivity of its employees and making accurate and timely information available.

Parekh of Sharekhan says, “We are in the constant process of upgrading ourselves. We are trying to launch additional products and channels and are planning to deploy CRM as well as integrate our services into our backup system and BCP / DR site.

Loyalty through IT

Financial services organisations are looking for an integrated financial infrastructure. The role of IT is to provide innovative solutions that boost business competitiveness, improve business processes, and ensure better employee productivity leading to reduction in costs. IT should also provide security to IT infrastructure and data, cost-effective channels like the Web for customers and business partners.

Roy of SBIMF says, “IT needs to be innovative in fulfilling customer demand by providing new services.

Reddy of UTIMF adds, “IT should improve efficiency in business processes. For instance, it should provide details about the sales at various branches.” According to him, collecting all this information manually will be time-consuming and hectic but proper IT systems can improve the efficiency by reducing the time taken and avoiding human errors.

Parekh of Sharekhan says, “IT should be able to provide stability, scalability, security, superior products, or channels and better services. This in turn will help the customer in accessing the system from anywhere (if one server goes down then other should be on), anyhow and anytime.”

FSI trends

According to Miglani of India Bulls, the Internet as a channel is used to communicate with the customers but in the future SMS-based or GPRS-based services will grow. He also believes that the use of call centres for taking customer calls or making call to customers will grow in FSI.

Reddy of UTIMF says, “Web services to enable disparate system interactions and Web-based sales and redemption payment systems will become popular.”

According to him, there should be connectivity between banks and mutual funds, as that will enable common access to customer information.

FSI may be unsung but its use of IT is quite robust. After the banking segment’s IT deployments peter out, it could well be FSI that carries the weight of IT deployments for a long time.