Many Asian banks still hesitant on IT transformation

By Goh Thean Eu July 21, 2014

Cost one of the biggest concerns for banks when it comes to IT transformation
Change in client conversations, less about rate card and more about outcomes

DESPITE understanding the benefits that they can reap by upgrading their technology infrastructure, many local banks in Asia are still hesitant to embark on an IT transformation, said a senior official from IT and consulting firm Wipro.

According to Wipro’s senior vice president and global head of BFSI (banking, financial services and insurance) Shaji Farooq (pic), not all banks are embracing new technologies in a big way today.

The technologies he was referring to include virtualisation and cloud-based technology, as well as embracing architecture that allows seamless communications across mobile or Internet channels.

“It simply costs a lot of money to do all these. Smaller banks, with limited resources and narrower footprint, may not be willing to take on the huge investments, even if they know that the world is moving towards mobility, cloud, virtualisation and so forth,” Farooq told Digital News Asia (DNA) in Kuala Lumpur recently.

He warned that these banks may be put in a position where they may not have that any choice when it comes to prioritising their expenses.

“Banks are already under a lot of pressure from regulators, and there’s whole lot of compliance issues that they need to address.

“Besides, there are systems that are also in need of fixing. So these banks are in a ‘crisis management’ kind of mode.

“Generally, you can see that there are some hard decisions to make when it come to prioritising expenses,” he acknowledged.

Farooq cited the announcement of Microsoft Corp ending support of its Windows XP operating system as a good example of the ‘headaches’ that banks are facing.

“They (the banks) have to migrate to Windows 7. It’s going to cost them a ton of money to do this.

“Is it going to add extra value to the customers? No. But they have no choice. This is one of the situations that banks are facing.

“As a result, things that can enhance customer experience may have a lower priority,” he said.

Besides cost concerns, some banks have the ‘don’t fix it if it ain’t broke’ mindset – if their core system is working fine, they don’t want to change it.

This also plays a part in the slower take-up rate of new technologies by financial institutions.

“Banks feel that to change the core system is like major heart surgery. But my advice is, don’t be afraid to change because changing the core system can be smooth and not painful,” Farooq added.

Change in customer demand

Many Asian banks still hesitant on IT transformation

According to Farooq, conversations between Wipro and its clients are also changing, mainly driven by change in customers’ demands.

He said that in the past, whenever Wipro talked to its clients or potential clients, one of the first questions would be ‘Is the rate card low enough?’

“Today, the entire conversation is different. The rate card is becoming irrelevant. Clients are more [interested in] outcomes.

“They have certain operating models in mind and they expect the outsourcing provider to be able to adjust to their models to meet their requirements,” he said.

Wipro, an India-based software services company, has been engaging with banks for many years. In fact, the financial services industry (FSI) is one of the largest sectors for Wipro, accounting for 27% of its revenue.

For the 12 months ended March 31, 2014, the company’s revenue climbed 16% to 437 billion rupees or about US$7.4 billion, while net profit rose 31% to 73 billion rupees. [100 rupees = US$1.70]

This year, the company hopes to continue to grow its business in the sector, Farooq said.

“Two key areas we are looking into analytics and regulatory compliance.

“Today, the risk of being fined pretty heavily for things that don’t work is very high. The cost is very significant. Banks’ focus will be on how to drive accurate reporting, and detecting problems before problems happen,” he said.