ASP Model Implementation of Core Banking in India - The Next Big Opportunity?

The core banking wave hit the Indian financial services around a decade ago and a majority of both public and private sector banks have implemented a modern centralized processing system. The focus now shifts to the cooperative banks, both urban and regional banks, which are numerous in number and spread across the span of the country. The cooperative banks are small in size and are typically cash-strapped for heavy IT investments. For a large number of cooperative banks, investing on hardware and software components for a core banking system and upgrading/maintaining them would overshoot their budgetary limits. The solution for this comes in the form of Application Service Provider (ASP) model implementation of a core banking system, where the hardware is maintained in a shared Data Center owned by a third-party vendor. The Data Center can host the core banking systems of all the contracted banks in the same hardware but with separated databases. This method is popular in North America and some parts of Europe, but has not caught up in other geographies. The ASP model is not new to India and had been introduced around the mid 2000s to the financial sector. However, it never took off well because of the apprehension among banks regarding the security of the data. However, many leading core banking vendors including TCS, Infosys, Oracle, Infrasoft etc are now providing their core banking solutions in the ASP model, thus building the trust among the smaller banks. The model is beneficial to regional rural banks, which are being sponsored by larger banks like SBI and Central Bank, as they can host their data in the IT infrastructure of their sponsor bank. Almost all the core banking vendors offer ASP implementations of their solutions and make it customizable according to the banks’ needs. The market is wide open for system integrators who are experienced in implementing core banking solutions across the branches of RRBs, urban cooperative banks, state cooperative banks and microfinance institutions. The vendors providing the data center would ultimately be responsible for the maintenance, providing connectivity and offering uninterrupted reliable service for a negotiated cost, thus relieving the small banks of a major chunk of their capital expenditures. The Reserve Bank of India expects all the RRBs to move to a modern core banking system by 2011 and the ASP model provides an excellent opportunity for the small banks to opt for. The only question is - are the banks comfortable of hosting their data in external servers?