Finacle sniffs opportunity as banks in Europe, US cut costs

Indian IT services firms are cautiously watching the volatile economic situation in Europe and United States but Finacle — the banking product division of Infosys — says that the crisis-induced cost compulsions of banks there is already making its product, also called Finacle, a compelling sell.

As much as 50% of Finacle’s $296 million (Rs1,317 crore) revenues in fiscal 2011 came from Europe while North America contributed only 8% to revenues. Asia Pacific constituted the rest 42%.

Finacle revenues have grown 42% over the $208 million in the previous fiscal.

In three months to June 30, Finacle won 11 new clients—eight in the Europe, Middle East and Africa geographies while three in the Asia-Pacific region.

“Reducing cost and improving compliance is definitely an overriding theme that we are seeing in our recent client wins in Europe and US,” said Haragaopal Mangipudi, global head for Finacle at Infosys. “In the US, we are focusing on banks in the mid-to-top segment.”

According to the company, its banking software is used by 148 banks across 72 countries. However, the low penetration in the US gives it room to grow in that country.

Europe is reeling under the sovereign debt crisis that has gripped countries including Greece.

Analysts are worrying that the crisis may spread to more countries. Recovery of US from the credit crisis of 2008 is yet to be
convincing, with unemployment rates remaining very high at over 9%.

“Banks understand the need to provide the same basket of services to customers at a fraction of current cost,” Mangipudi said.

“They also understand that they must make technology investments to bring down their costs. So, the question is no more why, but when.”

Even as it sees room to grow in US, the company believes that smaller banks are taking time to warm up to the big decisions they need to make.

Biggest fear among banks is the issue of smooth transition from diverse and complex software systems to modern technology.

“They also want to be convinced that the savings achieved will pay off the cost incurred within a reasonable period of time,” Mangipudi said.

“For such data points, they only need to look at the large number of Indian banks that have already moved on to the Finacle platform.”

With Infosys making about 28% of revenues from banking and financial services, Finacle is also working on cross selling its products to Infosys’ service clients.

In India, Finacle is targeting smaller banks including co-operative banks with its Finacle-on-cloud offering, where the banks need not buy software licence and go through the expensive implementation phase but can use Finacle-based solutions on a pay-as-you-go basis.