The perfect host

One is not surprised anymore when the headlines announce the launch of a new Islamic bank or financial institution. If not a whole new bank, it's definitely a new window. Most bankers and large banks see an opportunity in the Islamic market and have made the moves to dive in.

One of the first questions that comes to mind is "which system?". The big conventional banking software players all promise the best of breed Islamic banking product with glossy brochures and slick PowerPoint presentations. How many of them have delivered a Shariah compliant system? That's an inconclusive debate but banks inevitably choose a "proven" system, falling prey to savvy marketing more than their ability to deliver. The bottom line: a huge seven-figure dollar bill and a long wait for the dream system.

We look at our objectives and wonder what choice they should have made.

The system objectives are to: leverage the technology advantage to serve customers best; to evolve a technology road-map to create a future-proof IT strategy that will comprehensively meet banks' current and future business needs; to help create an IT ecosystem to handle the technology challenges; to maximise value from its IT infrastructure taking a holistic and balanced view; to understand the dynamics of implementing and transforming world class standards, methodologies and best practices in our unique business environments; and to ensure value for the IT spend.

While banks should be sensitive to Islamic practices and trends in technology to offer its customers world class service, the options are few.

So, is the hosted model a solution? The region has definitely been allergic to the hosted solution, but the international market has lapped it up, especially in environments such as hosted payroll and HR applications, e-mail, ATM switching, internet banking and, even closer to home, credit card processing. The region's techies are bound to be able to appease their nervous bosses about its reliability.

The hosted model definitely helps in bringing a lot of perspective into a new bank or financial institution faced with this huge barrier to entry. The cost of an IT system could be amortised over a period of time reducing the impact and sticker shock of a huge system expense up-front. Here are some other points to ponder:

Solution completeness - the hosted model offers a robust application based on best Islamic practices lined up for more than one customer need. It's complete and serves 80% of the needs for a start-up.

Innovation and differentiation - the enhancements that could be added to the base system could be changed to allow a fair degree of customisable changes that every bank could use to offer their more enticing flavour of products and services.

Budget - the application, hardware, operating system, people, and data centre running costs would be shared across the growing client base and would afford clients a reduced cost of ownership. A low up-front cost, with a low fee-based transaction model, would be a definite plus.

Go live heart-burn - the system could be delivered based on as-is functionality with enhancements left for the future to allow the quick-to-market advantage, grabbing market share early on.

Channels and customer reach - the switch sitting between the systems and the channels could also be hosted allowing the luxury of turning on the entire channel almost at the flick of the switch.

Custom offerings - based on multi-country central bank and Shariah variation.

Product implementations - it's imperative to ensure that the rule-based parameterised solution should cater to this. Any hosted provider would be wise to choose a product that allows easy product deployment because the customer advantage is really in the speed of business and ability to launch products on demand.

Now the real question: Where is such a provider? It's a question of time before some leading player seizes the opportunity and goes for the niche. The hosted model, being a clear success in most markets, is poised to enter this market.

Anil Kumar is director of Futech Software Solutions, a consultancy firm specialising in banking technology. www.futechsoftware.com.

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