20 Dec 11 Private Banks in India: The technology advantage

Banks and financial institutions are not just users of technology. They have driven (and continue to drive) innovations in technology. ATMs were widespread before the PC revolution, the SWIFT network allowed global electronic money transfer before there was any Internet. Stock and commodity exchanges trade trillions electronically every day.

We tend to take this technology for granted, and are only reminded about it when the ATM machine is down, or the POS machine refuses to recognize our credit card. But in reality, no banking or financial transaction today can be completed without technology.

Keeping up with all of this can be a challenge for the IT departments of banks and financial institutions. In a recent study conducted by ValueNotes for Anunta, we found that the biggest challenge faced by CTOs was in integration. The other big challenge is around retaining and attracting IT talent.challenges_faced_by_CTOs

In today’s complex world, integration challenges are of various types:

  • between old and new applications

  • between front and back end

  • between peripheral and core applications

  • between different organizations

This pains of integration were felt by all financial institutions, in different degrees. The head of IT at an insurance company told us, “Integration with banks is a great challenge. We get business due to bancassurance, but some of the PSU banks did not let us look at their systems.” The CIO of a pre-liberalization private bank felt that data portability from old applications to new applications was a major challenge.

Our study found a wide variance in the severity of challenges faced by different institutions – as well as their ability to cope with these challenges. Naturally, this impacts their ability to deliver high performance to customers.

Interestingly, there appears to be a stark divide between “pre-liberalization” and “post-liberalization” financial entities in India. Public sector banks, the old private sector banks and co-operative banks are struggling the most. On the other hand, new private banks, private insurers, asset management companies and large brokerages are dealing much better with these challenges. This is to be expected, given that most of these entities came into existence in the nineties. On the other hand, the older organizations have had to grapple with legacy systems and resistance from staff.

By and large, mutual funds, brokers and insurance companies operate in an environment where most competitors operate at similar levels of technology sophistication. However, this is not true of banks – where we have a wide gulf between the old and new. While correlations between business performance and IT performance are difficult to pinpoint, the sustained superior growth and competitive costs of private sector banks (like HDFC Bank, ICICI Bank and Yes Bank) does indicate that technology is a critical competitive differentiator.

And our study indicates that this differentiator will continue to impact performance in the future.

To download a complimentary copy of the white paper, “State of application performance management in the Indian BFSI sector”, please follow this link.

Arun Jethmalani

Arun is one of the founders of ValueNotes. Apart from trying to build a high-quality research business, he has spent the last 27 years researching, analyzing, and dissecting companies and industries. He has worked with clients of all shapes and sizes, from all parts of the world – in providing them insights that make a difference to their business.
Prior to ValueNotes, he was an equity analyst/advisor, and wrote extensively on investing – including a column titled “Value for Money” which ran for 10 years in the Sunday edition of the Economic Times. To this day, he remains an avid “value” investor.
He has also been published in several other publications, and is a regular speaker at events related to technology, investing, competitive intelligence, business process management, Internet, etc. See: Valuenotes Events
He has been instrumental in developing a community of research and intelligence professionals in India, and is the founder and current chairman of the SCIP (India) Chapter. Arun holds a B Tech from IIT, Bombay and an MS from Duke University, NC, USA. LinkedIn Profile

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