Finacle sticks to its guns despite Oracle threat

BANGALORE: The action in the core banking software arena has become hotter with enterprise software major Oracle picking up majority stake in i-flex Solutions. But its rival Finacle, Infosys's core banking product division, is unfazed by the development.

“If anything, it endorses our assessment that the market for core banking is really on the upswing. If Oracle had to pay close to a billion dollars to acquire 61 per cent stake in i-flex, it shows that the market is really big enough for it to bet that kind of money,” says Merwin Fernandes, VP and global head-sales and marketing, Finacle.

Finacle maintains that its market positioning would remain the same. The reason being Finacle goes after high-value accounts and also offers customers a blended product+services option. “Unlike i-flex, which follows the 'expand-the-footprint' approach, we prefer to focus on tier-one, tier-two and large regional banks. We are more conservative and don't like to spread ourselves too thin,” he said.

The company isn't overly worried about its existing relationship with Oracle either. Typically, a company that owns a platform and also runs applications on it would tend to have an advantage. But Fernandes disagrees. “Today, you see that SAP or a Siebel supporting Oracle database. The database is just a technology. This is a business reality and companies are mature enough to understand this.”

However, Finacle has one reason for concern - i-flex could benefit from Oracle's deep pockets and brand value. Kapil Dev Singh, IDC India's country manager says that i-flex would gain significantly in terms of marketing through Oracle's reach.

Still, Finacle could take advantage of the merger, says Singh. “ It would take time for the integration to happen and that is when the competitor gains. We have already seen it happen in the case of JD Edwards and PeopleSoft takeover where clients worried about future support for their platforms and SAP stepped in.”

Core banking market

The growth of the core banking and Internet banking market is on the uptick and two kinds of segments dominate the scene. The first includes banks that want to replace their legacy mainframe systems. This core banking replacement market is now estimated at around $14 billion and is expected to shoot up to $34 billion by 2010. The hottest segment besides this consists of banks in emerging countries like India, China, Russia, Brazil and other nations in APAC and EMEA. The demand for core banking in these countries is driven by the need to globalize and be counted among the best banks in the world.

Banks in this segment have a technology edge since they can skip the “legacy trap” and directly adopt the latest banking solutions. Finacle has seen traction in both these target segments. The APAC region contributes the most to its revenues, which stood at $48.5 million last fiscal.

Fernandes expects the market size to increase dramatically and also reckons that a lot more consolidation would happen in the banking software space. “There are no clear established players in the space but a lot of small and scattered players in Europe and the US. This will soon change.”

Finacle's journey

Infosys launched Finacle in 2000, a time it felt was right, since banks the world over were shedding their “protective” stance and started opening up. Finacle hit the ground running with three live customers deploying Finacle during the launch.

The company took the conservative marketing route by being selective about the kind of accounts it went after. “ We focused on referenceable banks while entering a market and then let the positive word-of-mouth spread. In regions like China and the Middle East, the company took its time to localize the product and then dominated the market. Today, Finacle has spread its reach across 47 countries and has only recently entered the European and Australian markets. In 2004-05, Finacle recorded revenues of $47.5 million, a 61 per cent increase over the previous year's revenues.

In India, the company enjoys around 60 per cent market share with customer wins like Bank of Baroda, SBI, Bank of India, Punjab National Bank, Bank of Rajasthan and others. “For Indian banks scalability is a life and death issue. So core banking would be vital to their strategy,” said Fernandes.

Subsequent to Oracle's buy-out of i-flex, Canara Bank announced last week, that it would be implementing i-flex's core banking product for all its branches. This was a serious setback for the market leading Finacle. But Fernandes said that Finacle lost out since the Bank went with the lowest bidder.

The next few quarters could reveal whether Oracle effect would prevail or whether Finacle can sustain its bull run.