KARACHI: According to data compiled by the State Bank of Pakistan, computer and information services – including financial software and suites – worth $203 million were imported during the fiscal 2012-13. Clearly, the price for ever-increasing levels of automation within the financial services industry is payable mostly in dollars.
Like most developing countries, Pakistan was slow to jump on the automation bandwagon. Till 2003-2004, ‘tech support’ purchases came to just 12 million dollars. However, now, every task from transferring and withdrawing cash to complicated trade financing and treasury management transaction require a certain level of automation and the volumes spent under this head have been growing steadily (see chart).
International Data Corporation Financial Insights is a company that provides market intelligence on information technology. According to their estimates, the world will spend some 430 billion dollars on IT financial services in 2014 and banks will account for half of this spending. IDCFI is also expecting spending on IT financial solutions by investment houses, brokerage firms, banks and other financial institutions in Asia will grow by seven percent next year.
But even at current spending levels, according to the president of a mid-tier bank headquartered in Karachi, financial software upgrades are the single biggest drain on profits.
“A financial IT solution consists of two or three components,” explains Lutfullah Khan, CEO of AutoSoft Dynamics, a local software provider that claims to have developed the core banking system for 200 branches of Sindh Bank and says it’s working on several such projects for 15 other local banks. “First, you need to deploy the software to make it available for use; then you need an application that will integrate the software with the organisation’s workflow. Sometimes, customisation is also required – for example, foreign software will require tweaking to install Zakat deduction mechanisms to meet the local banking requirements.”
According to Khan, who claims his company has cornered 33 percent of the market share for financial software in Pakistan, foreign software has a relatively higher cost of operation. “You can buy a local core banking system – deployed to enhance efficiency and scalability of digital information management – for approximately one-fifth or a 20 percent of the total cost of a foreign system,” maintains Khan. “And this price will include implementation and hardware.”
But the cheaper-does-it approach isn’t working for everyone and only the small banks are willing to try out the locals. “Private and government ventures in Pakistan do not want to use locally-made financial suites,” says Jehan Ara, president of Pakistan Software Houses Association (Pasha).
For example, says Jehan Ara, Mixit Technologies – a local technology provider that set up the financial information exchange protocol at the Karachi Stock Exchange – caught the attention of the local bourse only after it made inroads into the New YorkStock Exchange. “A Pakistani company Systems Limited made the apps deployed in small and mid-tier banks in the US. But businesses here don’t take a whack at local solutions until a foreign certificate of endorsement is attached with them,” she sighs. While IT officials at domestic banks admit to this, some insist that the software providers need to examine why the made-in-Pakistan label is considered second-best only. “Obviously, I don’t know this for a fact but there must have been some bad experiences that pushed local financial institutions towards firms abroad,” hints a Karachi-based banking official.
While most in the industry admit to the existence of trust issues, there is also said to be the problem of the cut. “A Pakistani bank spent a staggering $35 million to $45 million on the Oracle’s Flex cube – a customer relationship management software,” recounts Khan. “But the system failed to function for years. And the word on the street is that the operation has been deliberately delayed – on the pretext of hardware deployment, upgradation and bug removal – in connivance with an official of the software provider in order to pave the way for a revised agreement and more commissions. How can we possibly compete with that?”
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