BENGALURU: Technology companies offering niche services to banks face a challenge as public sector lenders consolidate, with issues around shrinking revenue, reduced clients and heightened competition, industry experts have said.
The country will be left with only 12 large public sector banks from 27 before, the government had announced earlier this year. For existing IT service providers, this not only shrinks the market in terms of the number of prospective clients, but also poses challenges with respect to scale as banks become larger.
“With multiple banks becoming one, there will be synergy on technology spends, in the number of data centres, number of servers, locations, software being used, and other services offered. Further, with time, these will get optimised even more,” said Sundar Sundararajan, executive director, i-exceed Technology Solutions, a company that offers a digital banking platform to financial institutions globally.
And, since most service providers work on a model where companies pay for the services upfront and then bear a charge for maintenance, a reduction in the number of prospective customers will affect revenues, industry executives said.
The other challenge is that smaller service providers will need to scale up their own platforms to be able to support the bigger entity that will be created after a merger. “When two PSU megabanks merge, the scale is akin to two large countries like the UK and Germany merging. This scale is unparalleled — only those product providers who had architected their products for super scale, grounds up will survive,” said Rivi Varghese, CEO, CustomerXPs, which offers real time enterprise fraud management for large banks globally.
Companies are now looking to add value-added services to their basket to ensure that revenue streams from customers remain constant.
Banks may consider changing their technology infrastructure, analysts said. This means, these lenders will look at centralisation of the technology infrastructure, a service largely provided by companies such as NTT Data, IBM and DXC Technology, said Sanchit Vir Gogia, CEO of Greyhound Research.
Beyond infrastructure, integration of platforms such as Infosys’ Finacle may also take more than two years even if two or more amalgamating banks are using the same solution, according to industry observers. “You will see rationalisation of services only after the banks complete merger of existing systems. For now, infrastructure consumption will go up significantly and the banks will look to centralise the technology infrastructure,” Gogia said. “Ancillary services such as payroll will also be impacted eventually,” he added.