By Daniel Stanton
Arabian Banking & Finance finds out how hosted solutions and outsourced infrastructure can help financial institutions boost efficiency and focus on what they do best.
The decision to outsource IT services is a tough one for any organisation, but it is even more difficult for financial institutions.
Concerns about regulatory compliance and availability can deter some organisations from making the move to hosted services, but at the same time, maintaining an IT infrastructure can sometimes be a distraction from the core business of managing money.
Mohamed Fouz is the CEO of eHosting DataFort (EHDF), and was previously CIO at Mashreq. He has seen a change in attitude among banks and other organisations in the region when it comes to outsourcing their IT requirements.
"The region is slowly learning and I think they are understanding the value of outsourcing now," says Fouz. "Multinationals coming into the region choose the path to outsource, and local banks are seeing the advantages of that."
EHDF offers services from data centre hosting to fully managed services, data centre consulting, security consulting and managed security, as well as disaster recovery and business continuity.
Fouz believes that all organisations can benefit from outsourcing, whatever their size, but that they will have different needs. "If you're a bank and you want to replicate or put up infrastructure for everything from A to Z, it's going to cost a lot of money because you need to have standard security practices and things like that," he says.
"Not everyone can afford their own infrastructure so it's better to share it. For small banks it makes a lot of sense. And it's the same thing for big banks - they want to control their costs and the best thing to do is share those expenses."
Part of that saving can come from a quicker time to market and lower operational costs.
"Outsourcing can reduce the total cost of ownership of IT by the sharing of services, and reduce the lead time for new products - if they want to launch a product it's very easy because they don't have to replicate the infrastructure," says Fouz. "They would not have to worry about future investments in resources and technology upgrades because we take care of that, which means that they can focus more on their core business.
"Most of the service providers have already invested in and adopted best practices, so every organisation doesn't have to reinvent it again."
Clients will face an extra expense, in the form of increased bandwidth use to connect to the off-site data centre, but again this is a cost that is reduced when it is shared between users.
For organisations outsourcing for the first time, there are bound to be concerns about handing over responsibility for certain processes to an outside organisation.
Apart from the terms of the service level agreement between parties, the design of a data centre can also reassure clients that their data is going to be handled responsibly by a service provider.
"The major concern for any organisation is data security, especially for banks, who are worried about things like customer data," says Fouz. "When we bring in those banks, we don't mix them up, we have them located in separate areas.
‘For example in our data centre you can have cages, and you can have totally isolated rooms. If they would like to monitor their own infrastructure, we can set up cameras and give them monitoring facilities so they can monitor from their own premises. The trust factor is very important, but nowadays independent entities like ourselves have gained the trust factor of banks."
Confidence in the service provider's reliability is especially vital when it comes to hosted business continuity or disaster recovery services.
EHDF works with telecoms providers who have access to data centres in Geneva, meaning that clients can be sure that their IT functions will not be interrupted by, for example, a natural disaster in the country in which they are headquartered.
Some application providers are also offering to host their own solutions for clients. In April, Financial Technologies Middle East (FTME) established the Financial Technologies Centre for Straight Through Processing Services (FT-CSS), a high end technology platform which allows brokers of stocks and commodities to outsource their complete trading and back office processing activities.
"Brokers who sign up for our complete end-to-end Straight Through Processing (STP)-enabled services suite will fully rid themselves of worries about the operational and technical side of their businesses," explained Arshad Khan, director of FTME.
"Not only will they be free to focus full attention on their business, but also cut costs by 50 to 60% as they will not have to spend on technical infrastructure, staffing, software, hardware and maintenance." The STP solution suite integrates and automates processes relating to the full trade life cycle and allows brokers of multiple exchanges to centralise their operations on a single platform.
Document management is another area where inefficiencies can be reduced by taking a different approach. Xerox provides outsourcing services through its Document Advisor Office.
"The Document Advisor Office (DAO) is a strategic approach that is designed to bring optimal control, cost efficiency and client responsiveness to the document-related communications needs of organisations on an enterprise level," says Adrian Mitchell, Xerox global services manager, Xerox Middle East.
"The DAO is located on the client's premises and is designed to provide the maximum value in their document management processes by integrating previously individual service areas (each with their own processes, spend, equipment and headcount elements) centrally under one umbrella of a team of industry expert Document Advisors," Mitchell adds. The DAO implemented by Xerox in some of its banking customers' premises includes creative services, print procurement, outsourced production printing, device management and maintenance, and business process services.
"Xerox can provide both the technology and the service to help run some other document intensive business processes within a bank," says Mitchell. "For example, we can provide mailroom services. This entails scanning all the incoming mail for a bank, and then digitally recognising and distributing that information.
"As part of this, we might for example also extract key information from a credit card application form, and pass this on digitally, with all the information in a format ready for a banker to approve."
Mitchell believes that banks in the Middle East are getting over their initial reservations and moving towards outsourcing more process. "In general, banks are becoming more accepting of outsourcing printing related services," he says.
"Security is the major concern, and most will require that any outsourced service is provided on the bank's premises. Xerox has the pedigree and necessary process and controls in place to ensure that we meet service level agreements, and provide the best level of security possible. Outsourcing inherently means that there is no capital outlay, providing funds for the bank for other projects, or to lend to their customers, as that after all is their core business."
He adds: "Likewise, the increasing sophistication of software for composing documents for printing, for web presentment, etc., means extra pressure on the already busy IT departments, so outsourcing lets them concentrate on more key banking systems."
3i Infotech provides solutions for areas including fund management, AML, stockbrokerage, factoring, retail lending management, treasury management, loan origination management, risk management, and core banking, but it also allows users to take their services a step further.
"Our vision is that the banking and finance industry in particular, as the leaders in IT, would be the first to not only use the product but get the full benefit by the service provider providing whatever they do to get the job done," says Hari Padmanabhan, deputy managing director, 3i Infotech.
"This could be a combination of usage of the software product, managing the IT infrastructure, including data security, plus back office processing of the documentation that needs to be maintained. Customers fill out documents and those documents need to be converted into data that can be used in the system, so it's the entry of data, validation of data, and maintenance of that. The entire back office processes for this is being increasingly outsourced by the banking and finance industry."
Padmanabhan says he aims to help financial institutions become "virtual organisations" which only have to worry about the products they take to market. "It is really becoming immaterial where the physical data centre lies, as long as standards are met," he says.
"It's a lot more cost- and management-effective if there's a larger data centre in one place that has a complete disaster recovery built into it and all the checks and balances required to ensure availability. Security and availability are the key."
However, there are still some areas that IT organisations are not keen to outsource. "In this part of the world, banks are comfortable with specific, non-critical areas," Padmanabhan says.
"If it's a non-critical application processing that would be a much easier outsource than something where more critical information is handled.
"It is still very early days as far as business process outsourcing is concerned, partly because the volumes are not as high as in various other markets, and the benefits in terms of cost and time are not that significant."
It may also be hard to convince organisations to run their processes through someone else's infrastructure if they have recently made large investments in hardware and software.
This is contributing to the Middle East's relatively slow uptake of outsourced services, but other regions that have not yet made these investments are not held back by such considerations.
"We're getting a good response out of Africa where they are in a slightly earlier stage of technology adoption," Padmanabhan says. "Here, people have made investment and there are some in-house structures already in place.
"In a new area it's much easier for them to move, but to transfer from an in-house process to something like this takes a little more doing."
Of course, some organisations may handle all of their IT in-house because they think they can do a better job than an outside organisation.
Ray Stanton, global head of security and business continuity, BT Global, says: "If they want to do it themselves there's nothing wrong with doing that."
However, he adds: "You have to be very careful. You have to collaborate, talk to others, get external reference.
"Check to see if you're doing the right thing, and find out on a scale of one to five where others think you are. Because if you don't you are in great danger and will have a very insular view."For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.