Is the BFSI ver­ti­cal fac­ing re­ces­sion­ary head­winds?

In an in-depth in­ter­view with Dataquest, Jaideep Poondir, Se­nior Vice Pres­i­dent, Bank­ing and Fi­nan­cial Ser­vices, Cog­nizant talks about the state of the BFSI ver­ti­cal, the im­pact of macro eco­nomic changes, IT spend­ing pat­terns and the de­mand out­look.

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— JAIDEEP POONDIR, Se­nior VP, Bank­ing and Fi­nan­cial Ser­vices, Cog­nizant

What would be your ap­praisal of the BFSI space - are you see­ing strong head­winds shrink­ing growth? The bank­ing sec­tor is wit­ness­ing broad struc­tural as well as macro-eco­nomic changes. Cen­tral banks and reg­u­la­tory bod­ies have adopted poli­cies de­signed to man­age in­ter­est rates, raise cap­i­tal re­quire­ments, im­pose new reg­u­la­tions, and in­sti­tute risk-mit­i­ga­tion mea­sures, such as re­strict­ing pro­pri­etary trad­ing.

Macro-eco­nomic con­cerns and a pro­longed low in­ter­est rate en­vi­ron­ment have also been im­pact­ing dis­cre­tionary spend in the bank­ing sec­tor for the past few quar­ters. The sit­u­a­tion has been fur­ther com­pli­cated by the un­cer­tainty aris­ing from the Brexit vote in the U.K. Sur­pris­ingly, some of the large U.K banks have han­dled th­ese un­cer­tain­ties to some ex­tent by post­ing earn­ings largely un­changed from last year. Things could be dif­fer­ent next year when Bri­tain for­mally starts the process to leave EU.

In the U.S., there is a grow­ing cho­rus that the new ad­min­is­tra­tion will re­duce the reg­u­la­tory bur­den on banks. This may of­fer a strong im­pe­tus for banks in the U.S. that are look­ing to in­vest in dig­i­tal-led growth. While we an­tic­i­pate th­ese pos­i­tive move­ments, given the un­cer­tain­ties around macro-eco­nomic en­vi­ron­ment, global eco­nomic growth, en­ergy sec­tor and com­modi­ties mar­kets, the bank­ing sec­tor may be more cau­tious in spend­ing in the near term.

Hav­ing said that, fi­nan­cial in­sti­tu­tions are em­brac­ing new dig­i­tal tech­nolo­gies to change the way they in­ter­face with cus­tomers and em­ploy­ees and man­age their op­er­a­tions. Like­wise, it is in­creas­ingly clear that the Fin­tech rev­o­lu­tion is driv­ing our bank­ing clients to in­vest in sig­nif­i­cant changes to their busi­ness model to mean­ing­fully pivot to­wards be­com­ing dig­i­tal en­ter­prises. For ex­am­ple, Gold­man Sachs, which has tra­di­tion­ally been in the in­sti­tu­tional busi­ness, has em­barked on con­sumer bank­ing through an on­line lend­ing plat­form and of­fer­ings around re­tail sav­ings ac­counts.

We be­lieve that the medium to long-term out­look for our BFSI busi­ness re­mains as strong as ever. Our pipe­line is healthy and, we con­tinue to make in­vest­ments in skills and ca­pa­bil­i­ties that will help us meet our clients’ evolv­ing need as they look for new so­lu­tions that al­low them to de­fend their busi­nesses against dig­i­tal dis­rup­tors, while in­no­vat­ing to cre­ate new ar­eas of growth.

On the in­surance front, one of the fac­tors driv­ing the need for our ser­vices in the in­surance in­dus­try is a de­sire to im­prove the sales and mar­ket­ing process, both by deep­en­ing di­rect re­tail customer re­la­tion­ships and strength­en­ing in­ter­ac­tions with net­works of in­de­pen­dent and captive in­surance agents, of­ten through the use of dig­i­tal tech­nolo­gies. Insurers also seek to en­hance their prof­itabil­ity by dif­fer­en­ti­at­ing their prod­ucts and ser­vices, re­sult­ing in a need for spe­cial­ized un­der­writ­ing mod­els and sys­tems. Ad­di­tion­ally, many insurers seek to im­prove busi­ness ef­fec­tive­ness by re­duc­ing ex­pense ra­tios and ex­it­ing non-core lines of busi­ness and op­er­a­tions.

Are BFSI buy­ers tak­ing a con­ser­va­tive ap­proach to IT buy­ing right now and if yes, why? With sev­eral of our in­surance clients who are also pres­sured by the low in­ter­est rate en­vi­ron­ment, de­mand has re­mained solid over the past year. Clients have been par­tic­u­larly in­ter­ested in ap­ply­ing tra­di­tional op­ti­miza­tion levers, while cre­at­ing com­pet­i­tive ad­van­tage through process ex­cel­lence, lead­ing to more ef­fec­tive op­er­at­ing mod­els and cor­re­spond­ing topline rev­enue growth. This is ev­i­dent in their fo­cus on trans­form­ing un­der­writ­ing and claims pro­cesses through man­aged ser­vices, or other out­come-based de­liv­ery mod­els. Can you com­ment on the BFSI IT spend­ing pat­terns and what are they in­vest­ing on in terms of IT? In BFSI, like the other in­dus­tries we serve, busi­nesses are be­com­ing more tech­nol­ogy-in­ten­sive and our clients are more de­pen­dent on tech­nol­ogy and data to com­pete and win in the dig­i­tal era. The range of skills re­quired in today’s tech­nol­ogy land­scape have broad­ened, fur­ther sup­port­ing the de­mand for ser­vices com­pa­nies such as ours.

Ad­di­tion­ally, we are wit­ness­ing in­creas­ing ac­tiv­ity in ar­eas such as au­to­ma­tion, cloud adop­tion, API (ap­pli­ca­tion pro­gram­ming in­ter­face), Ag­ile and DevOps. Pro­cesses that were tra­di­tion­ally re­liant on hu­man in­tel­li­gence are now un­der the purview of au­to­ma­tion, thanks to emerg­ing tech­nolo­gies such as ar­ti­fi­cial in­tel­li­gence, ma­chine learn­ing and ro­botic process au­to­ma­tion. Cloud adop­tion, an area where banks have al­ways lagged due to pri­vacy and reg­u­la­tory con­cerns, is now catch­ing up quickly. As se­cu­rity stan­dards im­prove, big banks are chalk­ing up plans to scale up their in­fra­struc­ture-as-a-ser­vice model on pub­lic/pri­vate hy­brid cloud to save costs. Driven by the need to meet customer ex­pec­ta­tions and thwart com­pet­i­tive threats, banks are adopt­ing ag­ile and DevOps method­olo­gies to ac­cel­er­ate the ap­pli­ca­tion de­vel­op­ment process.

In in­surance, we are help­ing com­pa­nies go be­yond man­ag­ing claims to pre­vent­ing losses with the power of pre­dic­tive an­a­lyt­ics. There is an in­creased fo­cus on au­to­ma­tion and dig­i­tal, par­tic­u­larly in ar­eas that im­prove customer ex­pe­ri­ence and customer self-ser­vice, of­ten through har­ness­ing data and an­a­lyt­ics to drive real time de­ci­sions. Do you think In­dian IT play­ers have over-de­pen­dence on BFSI and is it time to di­ver­sify their ver­ti­cal play in terms of rev­enues? The BFSI sec­tor has his­tor­i­cally been the most ag­gres­sive adopter of tech­nol­ogy and hence the largest rev­enue con­trib­u­tor for the IT ser­vices in­dus­try. That said, we think the IT in­dus­try has di­ver­si­fied well, tap­ping into op­por­tu­ni­ties pre­sented by other in­dus­try sec­tors such as re­tail, man­u­fac­tur­ing and lo­gis­tics, en­ergy and util­i­ties, me­dia and en­ter­tain­ment, as well as the pub­lic sec­tor. From a Cog­nizant per­spec­tive – what is your out­look/ strat­egy for BFSI? As we look ahead, we be­lieve our mar­ket op­por­tu­nity has never been greater. That’s be­cause with more tech­nol­ogy in ev­ery prod­uct and be­hind ev­ery customer ex­pe­ri­ence, and more data gen­er­ated at ev­ery turn, our clients’ busi­nesses are, and will con­tinue to be­come, in­creas­ingly tech­nol­ogy-in­ten­sive.

Our op­por­tu­nity then is to work with our BFSI clients to help them win by mak­ing the fun­da­men­tal, tech­nol­o­gyen­abled changes through­out their or­ga­ni­za­tions that are re­quired for them to com­pete in this new tech­nol­o­gyand data-in­ten­sive world. In en­abling this kind of work across our clients’ busi­nesses, from front to back, we have aligned all our ca­pa­bil­i­ties into three prac­tice ar­eas: Cog­nizant Dig­i­tal Busi­ness, Cog­nizant Dig­i­tal Op­er­a­tions and Cog­nizant Dig­i­tal Sys­tems and Tech­nol­ogy.

In look­ing ahead of evolv­ing client needs, we con­tinue to iden­tify emerg­ing tech­nolo­gies with the po­ten­tial to cre­ate real busi­ness value, while also scal­ing the most promis­ing tech­nolo­gies, pro­duc­tiz­ing ser­vices, so­lu­tions and busi­ness mod­els, and speed­ing them to mar­ket. We are work­ing to in­cu­bate new IP-based of­fer­ings and re­al­ize the po­ten­tial of de­vel­op­ing tech­nolo­gies.

One such tech­nol­ogy is blockchain. Fi­nan­cial ser­vices firms across the world are ac­tively ex­plor­ing the ap­pli­ca­bil­ity of blockchain to their busi­nesses. In fact, banks are tak­ing the lead in ad­vanc­ing the ap­pli­ca­tion of blockchain and are even open to col­lab­o­rat­ing with their com­peti­tors to de­code the tech­nol­ogy.

The BFSI sec­tor has his­tor­i­cally been the most ag­gres­sive adopter of tech­nol­ogy and hence the largest rev­enue con­trib­u­tor for the IT ser­vices in­dus­try

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