The Hindu Business Line : ‘IT spending will only go up’

Rarely do you bump into a corporate decision-maker with fingers in both the IT and operations pies. James Yee, Executive Vice-President and Chief Information Officer, UnionBanCal Corporation and its principal subsidiary, Union Bank of California, is one such. A client of iGate Global Solutions, Yee is responsible for the bank’s Information and Technology Group (ITG) and Operations and Customer Services Group (OCSG), overseeing a staff of 2,400. This convergence is an indication that the financial services industry is acknowledging that decisions made for critical technology solutions cannot be independent of business needs.

Yee spent a generous one-hour with eWorld to chat about his offshore experience, current spasms that the world of finance is experiencing and his optimism for the future:

Is there a slowdown in IT budgets in the Financial Services industry in the US, given the tremors of the sub-prime mortgage crisis?

IT investment will actually increase in the next few years because of the technology that is possible now. With the Internet, a lot of non-traditional banks have entered the financial services space and we now have competition that did not exist before and the cost structure is dramatically different. The US enjoyed a good interest rate environment for a long time. Previously there was no pressure on the profit side and the margins were good.

With greater competition, lower cost structure, margins are now smaller. Hence there is pressure on the banks. Given this scenario, the banks have to respond by re-engineering processes and putting more technology capability, so there are less manual processes to get us to a better cost structure.

Also, banks still have old technologies that have existed for 20-30 years — all these are difficult to support. We have to move to Web-based technologies and will need to invest in technology to migrate from old applications to a newer platform.

Pressures on cost are high. For every person you have in technology, there are four-five persons in operations. Technology investment will have to be higher to ensure more automation and more re-engineering to reduce the overall cost and to change the cost structure, rather than a reduction of the technology investment.

If you want to reduce your overall costs, then reducing the technology cost is a smaller lever than increasing technology costs and thereby reducing operating costs. In addition to this, investing in latest technologies will also reduce the cost of running the technologies.

Even if offshoring momentum increases with a slowdown in the US, there is always a lag effect. When the 2000 bust happened, it was about two years before companies here were able to exploit cost cutting opportunities…

I don’t see a slowdown in IT spending in 2008 because competition will make companies spend more on technology. There are no immediate signals for alarm either. In fact, I see just the opposite. We are looking at a significant increase in technology investment for the next three years. Technology investment will make us more competitive in the market place.

The sub-prime mortgage crisis has had an impact on a lot of Financial services companies, including banks. But even that is still a temporary impact. It does not fundamentally change the IT spending and technology investments for Banks.

Do you see convergence of services (IT and BPO) across several Indian vendors?

I haven’t seen any service provider talk as integrated as iGATE. A lot of the Indian IT services companies talk about their BPO offerings but it still is a separate business and a distinct function. They do not have the focus on re engineering operations like iGATE.

How do Indian vendors compare on pricing?

They are all comparable. The differentiator really is in the confidence levels, the intellectual capital and capabilities for executing on continuous engineering and innovation in terms of processes and technology implementation and executive commitment to you as a partner.

Give us an idea of the value of your annual IT budgets and how it has grown…

Interestingly, the IT budgets in the last two-three years have stayed the same. But that’s not the story. Previously, we were doing a lot of work onsite. Now, with the same IT budget, we are moving a lot of work offshore. While the amount of dollar has not changed, the volume of projects has gone up dramatically, because we have moved work offshore and hence the value generated out of these projects is that much higher.

In addition to the increase in the number of offshore projects, the quality of the projects has also improved, especially with iGATE’s Quality Assurance Centre of Excellence. By having them, our delivery of Web-related projects has been top class, in terms of quality of implementation. In the past, we would have had our whole staff doing QA, which means the cost was also high.

For 2008, our overall IT budget will still be the same but I am increasing a significant amount in our offshore expenses with iGATE.

Typically, what have been the cost savings thanks to offshoring?

Given the blending of onsite and offshore work, there has easily been a savings of over 30 per cent.

Have you offshored earlier?

Personally, I started to work with offshore companies in India in 1997-98 and hence I have been familiar with this offshore concept for almost a decade. Four years ago, I came to know Phaneesh Murthy and iGATE when I was with Charles Schwab. iGATE was just coming into the picture then and did a fantastic job of supporting IT requirements at Schwab, especially in the DataWarehousing space.

Why did you choose iGATE?

In 2005, there was work on the information warehouse front where we needed technology help. I had had a great experience with iGATE at Schwab and called them to work with Union Bank of California (UBOC). There were three other offshore vendors at that time. Last year, we realised that being one of the bigger Tier 2 Banks, we had to narrow down our offshore vendors so we could have more focus and they get to know us better. We felt it was better for us to have a single strategic partner than several normal offshore providers. We do continue to work with the others, though. One of the things I liked about iGATE was Phaneesh’s integrated technology and operations (iTOPS) model.

I have been associated with the Banking industry since the 1970s. In the last couple of years, one has been seeing the operations executive and technology executive coming together and the emergence of a Head of TOPS (Technology and Operations) in banks. I joined UBOC as the CIO. But now I have taken charge of operations as well. We found a lot of synergy with iGATE. They are the only one in India with iTOPS capabilities. They are now an extended part of our TOPS team.

How much of your overall IT work with iGATE is iTOPS?

We are looking at two things in the IT area. One is to re-engineer what we can to improve our processing capabilities to deliver services to our customer. The other is to change the cost structure so we could be a lot more competitive, both in terms of the quality of service we deliver and the cost it takes to deliver.

We are going to look at the customer-facing task, the core back-office processing task and how technology implementation would alter those. iGATE clearly understands these two attributes — technology and operations. We are looking at opportunities to re-engineer our processes and iGATE will be a partner in the thinking of that as well as taking some of those components of that work offshore. iGATE has been doing technology work so far but we are beginning to look at iTOPS opportunities.

What does such outsourcing mean for UBOC? Can you give an example of the process that you outsourced to iGATE?

Outsourcing opportunities typically exist in the finance and administrative areas. I am looking beyond that and at Transaction Processing. In the past, cheque processing used to involve paper work. Now thanks to iGATE, it can be done with images electronically. The handling of the cheques, both debit or credit side, can now be handled electronically. One can do away with the physical cheque as long as there is an electronic image of that cheque. With this, the processing of cheques can be handled not necessarily in California but from here in India.

We provide our corporate accounts with Accounts Reconciliation services. In the past, we used to deal with a lot of cheques. Now there is a lot of electronic reconciliation and these too can be handled from in India as well.

iGATE will also be doing some of the BPO work, depending on how we re engineer the processes and the technology we apply to the processes.

What is the value of your business with iGATE, annually?

Our overall IT organisation is about 600 people. We have currently established a 100 people ODC (Offshore Development Centre) at iGATE. This should double to over 200 people within the next year in IT alone. Within the next 12 months, over 25 per cent of our total IT staff will be offshore at iGATE.

What is the kind of work UBOC has offshored to iGATE?

iGATE has set up a QA COE in Bangalore. They are also doing Infrastructure Management Services (IMS), Application Development and Maintenance, Data Warehousing, Business Intelligence and Consulting on Basel. Each of these service lines has potential to grow.

Basel will be a significant engagement. We want to be Basel II compliant. That’s a major initiative and most of the technology work on this front will be done by iGATE from offshore in Bangalore.

bharatk@thehindu.co.in