Globally, banking as a segment has moved into the mainstream. As financial institutions and best practices gain importance in the region, there is a visible shift towards specialisation which has seen banks in the region transform operations in favour of commercial banking or opt to specialise on the fast growing, yet niche Islamic Finance business.
Investments in IT and infrastructure are especially contributing to business growth, enabling customers to enjoying the benefit of improved services and faster delivery of banking products.
The Islamic Finance market in particular has seen significant growth over the past few years. Having infused a culture of fresh thinking, its growth in the region has also made it necessary for banks offering Sharia-compliance products and services to constantly seek innovation.
The niche nature of this business has also presented both opportunity and challenge in one package. Islamic Finance institutions cannot afford to use conventional banking applications to account for and process Islamic transactions. But at the same time, require the same resilient back end infrastructure that regular commercial banking operations warrant.
Take the case of Dubai Bank, a commercial bank that has now transformed itself into an Islamic Finance operation. A recent entrant to the region (established four years ago), Dubai Bank says it relies on an IT for business strategy that is unrestrictive, yet aware of specific line of business it supports.
As the new Head of IT for the bank, Faizal Eledath has chalked out a three year plan to work with. “I am only nine months old in the organisation and the first thing I did was to formulate an IT for business strategy. From January this year, understanding and coping with new and pending technology implementations, improving agility on the systems front, beefing up the infrastructure and improving the interaction between people and process has been all important,” Eledath shares.
Coming with over 10 years of IT experience at Mashreq Bank, he ensured that the IT strategy was ROI aware. “We have to understand that although similar technology solutions are used by many banks in the region, the ROI that they help generate will be different for each bank. So we ensured that the technology we were implementing was consistent and reflected the focus on the quality of service we were delivering to customers,” he shares.
Hungry for growth
Having invested in a best of breed infrastructure backend, Kuwait-based Islamic bank - Boubyan Bank - is looking to leverage its backend to drive IT to support its retail, corporate, treasury, investment and internal business.
“Being a new bank, our aim was to ensure that IT supports all the business requirements and customers do not feel that certain products and services are not available. Considering this, we have invested not only in hardware and software but also security to ensure customers that are provided excellent service which is on par with any international banks,” says Kurien Varghese, Head of Group IT at Boubyan Bank.
According to Varghese, the mission of the IT department is to support the bank’s business requirements and the operations were heavily dependant on IT to provide effective products and services to customers. “Therefore investment in IT infrastructure is as important to the bank as any other invest it makes to grow the business,” he adds.
“We have worked with vendors like HP, Dell, EMC, Cisco, Nortel and NCR ATMs to name a few. IT practices and technology are also very important tools to help us straightening out internal processes, maintain the international standards and security,” he says.
First Gulf Bank (FGB) is making considerable investments in business critical hardware and software that gives it a double benefit of uptime and competitive advantage. “All our banking operations depend on IT support and we believe in continuously upgrading our systems to stay ahead of competition,” says Rambabu Peddireddi, senior VP-IT from FGB.
Following a recent agreement with EMC, FGB will have in place a state-of-the-art back-up and recovery engine for its core-banking systems, aiding the bank in providing seamless customer service and support and meet international banking regulations.
A green-field approach
Infrastructure investments are often targeted at making a quantum leap. “While upgrading the IT network is definitely top of the agenda, staying ahead of competition is also top priority. When you invest in a green-field implementation, you are able to build in a lot more flexibility and implement the latest technology and practices,” says Peddireddi.
Dubai Bank’s green-field landscape has also helped it to identify the key areas and processes that need rework. “The data centre was upgraded, disaster recovery and SAN solution was implemented. This helped us replicate data and also consolidate scattered resources. From an application point of view, we are updating our core applications and working with various vendors like EMC and HP. We did not undertake core replacement, but instead chose to enhance it and thereby offer more services like SMS and Internet banking, ATMs and call centre support,” adds Dubai Bank’s Eledath.
Doing more with less
As banks tackle growth and change simultaneously, looking for ways to optimise operations and lower costs has gained importance. Although conservative in their approach, regional players are opting to work with outsourced partners in order to manage technology operations and systems more effectively.
“At FGB, we work companies to manage certain operations and services, but we have not taken to outsourcing any IT processes. The current arrangement provides us a greater flexibility of deploying resources and at the same time it is cost-effective,” says Peddireddi.
ATM, Debit and Credit card services are being outsourced to third party service providers on a larger scale. Varghese states, At Boubyan Bank, Debit and Credit card processing are two business functions that have been outsourced along with the helpdesk which is being managed by externally sourced technicians being placed on-premise. The Disaster/Recovery site is co-hosted with a third party provider.
“Helpdesk outsourcing was successful in managing end-user support at much lower costs in comparison with other options. The disaster recovery site co-hosting also provided better advantage in managing the site 24/7,” Varghese shares.
Uptake to outsourced services is based on the function of scale, according to Dubai Bank’s Eledath. “It has to make business sense for the vendor and the customer. Banks in the region are looking to pull out all stops to get good resources in house. Focused outsourcing, more on the transaction processing and some services are easier to manage,” he says.
Perfect picture
Banks are looking at twin benefits by upgrading IT infrastructure – to be in tune and on par with international standards and competition and to ensure a culture of quality and management internally.
Certifications and adherence to standards are also under strong consideration, in a bid to paint a wholesome picture.
“Internally, the bank sees this as the path to greater maturity. By the end of 2007, we are focusing on obtaining an ISO certification and a BS779 certification is on the agenda,” says Eledath.
With the intention to leverage IT as a primary driver of business and as an enabler, the banking sector has proved that technology is indeed a route to innovation.