Cooperative banks have a SaaS pathway to technology upgrades

In mid-June, Infosys announced three urban cooperative banks (UCB) in India as customers for its banking software, Finacle.

The three UCBs were Vidya Sahakari Bank, Urban Co-operative Bank in Bareilly, and Zoroastrian Cooperative Bank. They would use Finacle, the flagship core banking software of Infosys’ subsidiary Edgeverve Systems, to modernise their business and operations.

The upshot: The three UCBs would benefit from an opex model of spending for technology transformation. This means the banks only pay for what they use without significant upfront investments.

With more than 1,500 UCBs in India, the addressable market is certainly large. But these banks lack the technology budgets of public sector banks. Until now, urban cooperative banks depended on local service-providers for their maintenance, and have lagged in adopting large-scale digital solutions.

So, how does this domestic market segment even make sense for Finacle? The answer: SaaS (software as a service).

The emerging urban cooperative banks opportunity

“The UCB landscape is being reshaped by several forces in the new normal–rapidly changing customer behavior, new agile competitors, and evolving regulations,” said Venkatramana Gosavi, Senior Vice President & Global Head of Sales, Infosys Finacle in a statement.

“The geographic and demographic reach within the urban and rural populace of UCBs is unmatched,” says Vidyadhar Anaskar, Vice-president of the National Federation of Urban Cooperative Banks and Credit Societies. “They also have the richness of banking relationships with their customers.”

However, UCBs cannot afford to spend on advanced banking software or hire a team to manage the IT operations. 

The IT team of a UCB is less than five people. Furthermore, the number of branches ranges between five and 35 for a UCB, which makes it a small engagement for a software developer.

That’s why software like Finacle is aspirational for the urban cooperative banks, says Aniruddha Gharat, Chief Operating Officer of Best of Breed Software Solutions (BBSSL) in Bengaluru. “They want to be ahead in the technology curve to use cutting-edge digital solutions and service their customers.”

“Continued investment in cutting-edge technology is vital for cooperative banks to counter the heightened competitive and regulatory pressures,” says Devadatta Chandgadkar, CEO of Saraswat Infotech.

With the SaaS pathway, the cooperative banks can pay for Finacle—based on their subscriptions—to digitise their core banking operations by simply accessing it with an internet browser. There are add-ons too like mobile and internet banking. 

Finacle the product, minus Infosys the system integrator

While Infosys solved for software access to UCBs, it is betting on more such banks joining the core-banking wave, as system integrators like BBSSL take responsibility for implementation and maintenance.

“We build on the UCBs’ customised issues, and introduce changes incrementally, so that they can have more features than before,” Gharat says.

Before Finacle became one of many software products in EdgeVerve in 2015, it had grown with a customer base of 183 banks in 84 countries, serving 437 million customers worldwide, as of March 31, 2015. It also provided core banking solutions for rural regional banks from the 1990s onwards. 

Infosys’ Finacle has now scaled up its blockchain offerings, partnering with global blockchain company R3 in 2019 to conduct trade trials on a decentralised network.

But the UCB opportunity is viable only because of its ecosystem partners, Saraswat Infotech and BBSSL, as more and more cooperative banks try the SaaS route to core banking. 

In the early days of software (on-premise), developers needed a partner ecosystem to manage the product at the client location. India will have such a partner ecosystem even for its SaaS products.

While software installation and integration in public sector banks take between 12 and 15 months, UCBs have a ready software solution with BBSSL focusing on helping the banks in deployment. The first set of UCBs have just logged in.