Bangalore: Finacle, the banking solutions product of Infosys Technologies Ltd, India’s second biggest information technology (IT) services company, has always been regarded as a sideshow to the main services business, especially since its presence in the US and Europe has been marginal.
That appears to be changing. In contrast with the IT services business, Finacle started off as a home market and Asia-Pacific play, but in the last couple of years it has made an impression in the advanced markets of Europe and North America.
“While the services business is digging a tunnel from the other side, I went from Asia-Pacific. So the twain are meeting,” said Finacle global head and senior vice-president, Infosys, Haragopal Mangipudi. “Finacle is now in the advanced markets, very much the forte of the rest of Infosys.”
Indian software companies typically get the bulk of their business from North America and only relatively recently have succeeded in gaining customers in markets elsewhere in the world.
Revenue at the Finacle division surged 42% in the year ended March to $295 million (Rs 1,340 crore), with Europe growing faster than the average and accounting for 52% of sales compared with 49% in the previous year. Compounded annual growth rate (CAGR) in Europe in the past three years was around 43%, Mangipudi said.
A few years ago, Asia-Pacific accounted for 70% of Finacle’s revenue. “That is now down to 40%,” said Mangipudi. Finacle’s revenue is about 4.8% of the total made by the company. To be sure, Finacle is yet to break into the higher echelons of the financial industry, where core banking products and companies such as Temenos, FIS and Flex Cube still hold sway. Top-tier banks are “yet to open up, especially at the core”, but Mangipudi sees several points of entry into the business.
“The next target we see is the growth in American markets. They are still invested in homegrown systems,” he said. “The whole space is (worth) upwards of $20 billion. If one talks about the application spend in the core, there is a sustenance curve and a renewal curve. Predominantly, we are seeing a lot of spend go into the platform renewal curve.”
Even if renewals are not of the “rip and replace” type typically adopted by tier II and smaller banks, the larger ones may start using new platforms on a “line of business” basis, he said. “They might go just for assets, or liabilities, or say just term deposits within them.”
For example, a large bank in Europe uses Finacle for treasury operations across the world, he said.
Finacle has about 140 clients, of which 30 are in India. “Forty-five per cent of the clientele is in the Asia-Pacific, 45% is in EMEA—Europe, Middle East and Africa—and about 10% in the Americas,” he said.
Revenue mirrors client distribution. “I get about 52% from EMEA, 40% from Asia-Pacific, and the rest from America.”
“We have started investing in the ‘surround’—we have taken up the complete agenda of banks, their growth, aspirations, efficiencies and opportunities, product innovation (new products and launches), process innovation, business model innovation and so on,” Mangipudi said. Given the prevalence of legacy systems, innovation will be key, said a senior IT analyst with a leading consultancy firm, who declined to be named given his association with some of the companies in this sector.
In terms of market share, Finacle is up against stiff competition from leaders such as Temenos and FIS, he said.
“In India, products like Flex Cube and even TCS’ BaNCS are doing well. Outside India, unlike IT services, our product companies still don’t have the necessary brand recognition,” he said. “Indian companies need to benchmark themselves against the best.”
“Offerings like business analytics, and technologies like the cloud, will become important to play strongly in the market,” he added. “Indian product companies should get better at upgrades and new offerings.”
Mangipudi said he has got that covered.
“I am distributed in six continents, with a solution footprint that started with core banking, then Internet banking and so on,” he said. “Today, we have a treasury solution (with 39 customers), solutions for Islamic banking, direct banking, mobile banking, and now cloud, (since the) beginning of Q1, primarily to help small and medium banks to really compete.”
About 20% of annual revenue is ploughed back into product research and development, he said.
Finacle complements Infosys’ IT service offerings with solutions that cover universal, corporate, retail and channel banking, besides treasury and similar areas. It doesn’t cover investment banking, capital markets and insurance, he said.