by June 17, 2001 0 comments

India has one of the biggest banking networks in the world, predominantly serviced by the ‘brick and mortar’ network of ‘public sector’ banks with branches spread across the country. Indian banks have 45,000 branches of which less than 10 percent are fully computerized. Less than 5 percent have Internet connectivity. This indicates both an impediment to growth as well as the promise in Indian banking automation. And automation is but the first step to Internet

The reasons for limited computerization include the need for higher capital investments, the long timeframes required to implement and test new technology infrastructure and the shortage of skilled manpower for managing and maintaining IT infrastructure etc. 

How does the ASP work?

According to the ASP consortium, “an ASP manages and delivers application capabilities to multiple entities from a data center across a wide area network”. Simply put, an ASP is a service firm that deploys, hosts and manages applications for rent to business and residential customers. Several research agencies have predicted strong and robust growth in the ASP market. If these projections are on track, the ASP model will encroach upon and displace existing ways of doing IT business. 

The ASP provides a range of services and solutions. These could be as diverse as hosting, operations, implementation, service management, application support, and network support. In certain ways an ASP does resemble traditional application outsourcing business models. However, an ASP also differs from traditional outsourcing models.

Most ASPs may have to provide limited customization of the applications on offer as against individualized customization for different customers offered by traditional application outsourcing vendors today. The ASP model will hide the complexity of managing enterprise software from the end user and simplify pricing and billing processes.

The ASP also provides services over the full life-cycle as opposed to application
outsourcing alone.

The current need of automation in Indian banks faces several challenges. Varying degrees of computerization and multiple systems co-exist with predominantly paper based information recording and management. Majority of the banks use TBA (Total Branch Automation) solutions. Very few use centrally hosted solutions, which are designed for branchless banking. Multiple software versions are used in different branches and standalone computerization is used for certain operations. 

In the past, management hesitated in investing upfront in technology for new businesses. Now practically any new business as well as existing businesses can buy IT services from ASP and directly cost them into the business model and measure effectiveness. The ‘pay for use’ model also enables organizations to leverage truly ‘enterprise class’ applications instead of using ‘makeshift’ internal applications for new business initiatives, or compromising due to cost factors.

ASPs for banks

The above-mentioned reasons for the limited computerization in Indian banks provide a significant opportunity for ASPs. An ASP facilitates networking of bank branches, provides connectivity and manages the data center. The bank is responsible for input of all transactions (front-office and back-office), protection of the hardware at the bank premises and proper adherence to operational and business processes by bank personnel. To ensure adequate security provisions, logical access to data is permitted to authorized bank personnel only, while only operational access is made available to the ASP. All system access is logged through audit trails, combined with firewalls and encryption to ensure network and data security. 

With the ASP model, IT investments that banks make in their branches can be considerably reduced. Past investments into branch banking can stop and ASP solutions can migrate and co-exist with past investments.

The value proposition for banks from an ASP model include hedging against technology obsolescence, access to ‘best-of-breed’ software, freedom from specific IT operational responsibility and rapid IT deployment time-frames. This in turn reduces TCO and provides banks an option to convert from a fixed cost model for IT spending to a variable cost model. The bank only pays for the extent of usage of the software. All this enables the bank to focus on its core activity of banking without the continued capital expenditure and maintenance cost required for software. 

The value proposition 

ASPs, in many respects, are the culmination and convergence of technology, outsourcing, specialization and the resulting increases in both growth and productivity. Today, customers are turning to ASPs because of a number of reasons.

  • They need technological expertise to manage their applications

  • It is too costly to build and manage the necessary technological infrastructure internally

  • Time-to-market is a critical issue, and ASPs already have best-practices methodologies and established infrastructure to minimize the ROI cycle 

  • ASPs offer predictable costs

  • ASPs act as the single point of contact for aggregating a myriad of technology and service vendors.

In the end, their two big-picture propositions are:

  • More effective implementation and delivery of software applications to reduce costs and increase productivity, and

  • Outsourcing of the delivery and management of applications, which enables organizations to specialize and grow faster.

The nascent ASP market will have its successes and failures, but the model will prove to be a sustainable part of the IT industry. For the Indian banking industry, going the ASP way will mean that banks will be in a better position to offer new products to customers rapidly and with greater versatility and flexibility. Also, the bank will have the choice of bank-wide, customer-centric solutions, instead of owning obsolete solutions that do not necessarily have the ability to scale to meet the needs of future online customers.

Atul Gupta heads the ASP business
of i-Flex solutions

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