The Hindu Business Line : Wipro Tech bullish on insurance, banking

THE Finance Solutions division of Wipro Technologies has seen a 44 per cent compounded annual growth over the last few years. It contributes about 18 per cent to Wipro Technologies's total revenues. Business Line caught up with Mr Girish Paranjpe, President of Finance Solutions at Wipro Technologies, to get his perspective on the industry and an update on his division.

Excerpts from the interview:

How do you see the IT market shaping up in the financial services space? Do you see any shift as far as the deals are concerned?

The height of outsourcing in the financial services came about three or four years back and it is in a fairly mature state now.

The last two years have been good for the industry and everybody has done well. Spending is on the upward side and the pressure to shrink and downsize is not there anymore.

However, multi-year billion-dollar deals are going out of fashion. This means that the experience of some of the large multinationals outsourcing large deals has not been good. It is not due to the fault of the providers alone.

When one signs a five or seven-year deal, the benefits tend to flow only from the third of fourth years onwards. For the providers, the benefits start to flow only in the third, fourth or fifth years. The only way to make a deal work is to make a watertight contract, which introduces inflexibility.

When things change, it makes sense to see that the nature of the contract itself is changed. The average deal sizes are in the $5-10 million range.

What is catching on is that in those industry segments that are doing well, companies have started investing in streamlining their internal IT department. Now that they have a little bit of leeway, they are trying to look at projects, which are beneficial in the longer terms.

Over the last couple of years several of the large financial institutions have set up their captive centres in India. Do you see them eating into your business?

The entry of captives is both good and bad news; bad in a sense that we could have gone and got the deals. Some of the stuff that they are doing is what we could have done. This looks like we are losing out to captives. Of course, India as a country is not losing; but third party vendors are losing.

As we have seen in other industries, having captives is beneficial in the long run. Companies owning captives in India will be confident of sending more complex work here. This helps in building the talent pool that can understand the technology and industry in depth.

The thing about captives is a fashion that comes and goes. Who knows that next time there is a downturn and if people are uncomfortable with their remote operations, they may sell off just like some of the telecom companies did.

While it does look like a challenge in the short term, in the long term it is very good. There is a risk of losing people to captives, as global vendors offer better compensation. But they are unable to offer any variety and change. These firms think of offshore and onsite work as watertight compartments.

For many young people employed by these firms in India, this is disappointing, as they will not gain any experience of working in different location overseas.

How is your integrated IT and BPO model shaping up?

These are early days. Though it is promising, I see a fairly long haul. Unlike in IT services, where there is some semblance of standardisation, there is hardly any standardisation in BPO.

This is because companies in the same industry have different processes. The lack of standardisation heavily weighs on the cost structure. Luckily, we have this cost arbitrage, which in some ways is a huge lab for experiment.

Otherwise, customers would not have experimented. Because of the cost arbitrage, even if there is variety, lack of uniformity or an inability to consolidate, the concept is still workable.

Where do you see the growth coming from for Wipro Technologies? Which are the new areas that look promising?

We are optimistic about growth in areas such as life insurance, banking and to some extent from brokerages. Two to three areas look promising. There's significant spend happening on addressing compliance and regulatory issues.

Whether it's a local or global regulation, it is the top priority on chief investment officers'agenda now to make sure that compliance-related work gets priority. We see a lot of work happening in that area. Basel II implementation is another area.

In Europe, we are doing work on depolarisation, a new development in insurance. Life insurance firms in Europe are now allowed to own distribution entities. On the infrastructure side, companies are keen to try this sliver-based outsourcing. Instead of outsourcing the entire functions, chunks of work are being outsourced on remote basis. Remotely managing databases, networks, servers and software delivery are some examples.

I am very bullish about this, which could give us big push. System rationalisation is another key area.

As the pressure increases to drive down the transaction cost, people are looking at rationalising their systems by eliminating multiple platforms.

There is talk that new client wins are coming in at 10-15 per cent higher rates. When does this reflect on your earnings?

In some ways, prices were artificially low a few years back because of the downturn. The moment people came back to economic reality, rates were hiked automatically.

Our business is such that not a big portion of our revenues comes from brand new business. It takes two to three years before the new customer becomes a big contributor to the total revenues.

Only then, it will reflect in the bottom-line. This does not mean that existing customers will never increase their rates. It is much easier to set a baseline for a new customer.

Almost all your peers, especially in India, have a product offering along with their services arm. Is Wipro keen on having a quasi-product in its offerings?

I am not a big fan of the product idea. About 80 per cent of the financial services market is in North America, Europe and Japan, which is the target market.

I feel the product offering is not a way to grow further in the target market. Even those who have one would think so.

I also feel that the souls of services and product companies are different.

A product firm does not care about whom it sells to and they just want to sell their product. Services companies do not say that and are product-agnostic.

How are you trying to position yourself vis-à-vis competition?

It is a very competitive business. Everybody is trying to compete to win deals with large providers.

There is consolidation at the vendors' end and some consolidation at the other end. The top 70-80 financial services firms control about 60 per cent of the overall market.

In India, all the top four to five players are the biggest providers to the financial services segment. The competition is deal by deal.

In some deals, providers do well, in some other deals, they don't. In some cases, the customers have chosen the provider they plan to work with.

Each of us has got a set of dedicated customers. In that case, it's a two-horse deal. In some industry sectors and service lines like life insurance, we sweep the floor.

In some places, where we have a breadth of services, we are the number one choice and have a clear advantage.

We have organised by the division industry verticals since five to six years, which has helped us to be ahead of the curve.

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