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‘CIOs should ensure visible ROI at start of project’
In a interview, Brian Pereira asked Sandeep Phanasgaonkar, President and CTO of Reliance Capital about the new technologies being implemented and the challenges. By Brian Pereira, InformationWeek, August 05, 2011

Can you tell us about some of the new technologies and platforms that Reliance Capital is evaluating? How do you evaluate technology and decide what is right for the business?

We have a sister company that is a large Telecom player, so naturally we are evaluating mobility. We are also looking at financial inclusion. There are 100 million bank accounts in India for a population of 1.2 billion people, and 650 million mobile subscribers. So everyone feels that mobility is a powerful tool for increasing financial inclusion.

For us it’s about evaluating reach, how much business can be mobilized, the cost of mobility, acceptability of mobility by customers and agents; training people — and how effective it is in terms of operations. It may take several years before all this attains maturity levels and gains acceptability in business.

We are doing a lot of customer self-service now on the mobile phone. Trying to do new business on the mobile platform is a challenge; for financial business a large amount of data needs to be accepted. You also need to fulfill KYC norms. And a financial payment needs to happen through payment gateways. The cost of the transaction has got to be acceptable to you. So it (mobility) is a combination of several factors, but we feel it is a powerful tool. And we feel that in the next two years, we should be able to get a fair among of traction on this tool.

The second area is business intelligence. Not too many companies have adopted BI. It became a necessary factor for us, because of so much competition. Most financial companies have realized that the days of rapid growth are behind us. Growth rates vary between 20 – 40 percent, sometimes less. So it is vital to retain the existing base of customers. We try to minimize risk and increase profitability. One needs to look (more closely) at customer and transactional databases. One needs to look at historical trends.

But how should a financial services company implement BI? What is the sentiment about BI? What kind of challenges do you face in implementing BI?

First you need to convince stakeholders about how effective BI is. Look at the historical data and create a model. Then do a prediction. Let’s say you have four years of data. Take three years’ data and analyze it. Then create a forecasting model and predict what will be the fourth year’s results. If the fourth year results match what the model is generating, then you know you are on right track. You can then refine the forecasting model with clearer strategies for 2012-13 and beyond.

There are huge expectations from BI; many CEOs feel it is like a magic wand that will offer solutions to retaining customers, managing the competition and increasing profitability. There is another set of people who feel that they will be threatened by the fact that they will now be told what to do by a computer tool. So there’s a bit of challenge we are facing here, but over time there will be more acceptance for BI.

We are looking at BI for doing cross-selling, for ensuring that our customers in our various businesses get the benefits from us as a group etc. But there are regulatory restrictions in terms of insurance data being used for other businesses. Neither can we incentivise customers for giving us business. So these are challenges.

Tell us about your assessment of Cloud Computing.

The concept of Cloud Computing came up during the financial meltdown in 2008-09. Our IT budgets were hit and our teams were downsized. At that point of time we had a new CEO coming into our organization and he told me that my IT costs had to become fully variable. That means IT costs needed to be proportionate with sales. We know that 60 percent of our IT costs are fixed in nature and this includes costs for AMCs, hosting fees etc. We struggled to comply with the CEO’s request and our IT budgets reduced drastically. And then we discovered the subscription-based model of cloud computing — it is a variability model.

There are certain inhibitors for cloud. People are still trying to get their business models and TCOs right. There are regulatory issues as to where data can rest, also security-related issues, the fact that everything is going on the Internet, and anytime, anywhere access. We need to start doing pilots and see how cloud adapts to our respective businesses.

We are going through a phase where the market is volatile and we have also seen a lot of scams lately. Can you highlight the importance of Risk Management in the context of business performance, the impact of stringent regulations, legal liabilities and volatile market performance? How do you minimize the impact of all this on customers and shareholders?

As you know BFSI is a highly regulated industry. Some of the key areas that come under risk are lending business, asset liability management (ALM), the investment in debt and equity markets, asset management etc. There is also a huge amount of frauds happening in general insurance, motor insurance, and in health insurance. On an average, we see 70 percent ratio of claims in this industry. So the viability of the industry is in question. On the life insurance side, the gestation period is high for getting Return on Investment. So it is important to ensure that you can achieve profitability as fast as possible.

Within the Reliance Capital Group we have created risk management capabilities in individual businesses. We also have a consolidated risk management view across Reliance Capital. All the businesses use SAP as the common financial system and this helps us in analyzing financial numbers. We are also implementing an ALM system and then we have SAS as our BI platform across the entire Group. We will take aggregated data across the businesses into a central data warehouse, analyze that and see what is the risk exposure.

 

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