The author of this article, Muzammil Patel is the co-founder and global head of strategy and corporate finance at Acies.
As per Gartner, spending by banking and investment firms on software and services is likely to exceed USD 623 billion annually. This, however, tells us only half the story. The main driver that attracts software providers to the BFSI sector is the evolution in the sector itself.
Domain trumps generalization
Generalized software from other sectors retrofitted to BFSI is unlikely to see success because of significant specialization caused by increasingly intricate regulations and market practices. Building a successful software product in the BSFI sector is not about spending on customer acquisition and neither is it about building large platforms.
It is all about finding a specific problem and solving it.
The concept of an all-encompassing core is redundant
Solutions that are not dependent on legacy systems and work on the concept of data federation and statelessness are likely to find more favor with the sector than those that need massive data warehouses or have dependencies on the core.
As this sector disaggregates, each new revenue model will form its own core with federated data. Software providers should be less worried about displacing the core and more focused on the most efficient architecture.
The monoliths are getting replaced faster than you think
Monolith software and monolith expertise to configure or build on this software are becoming redundant faster than one would imagine.
While the demand for skills for the upkeep of these solutions is likely to stay steady for some more time, there is very little innovation or growth expected in these areas.
Software creators in the BFSI space should steer clear of the temptation to build on monoliths or link their success to legacy ageing software.
The key to success in the sector is being focused on agnostic software – software that is agnostic to a particular database does not depend on legacy software, is agnostic to a cloud provider, and is agnostic to proprietary technologies.
Very little patience of MVPs
Minimum viable products are good for demos but are unlikely to get purchase orders. Most software providers tend to be mistaken that encouragement about an MVP is the desire to invest money by the customer.
The sector has seen its fair share of innovation and has already invested in both successes and failures.
Legacy tech is getting squeezed out every day
With the advent of software-as-a-service (SaaS), no-code platforms, and federated data, legacy tech has lost its luster.
Legacy tech comprises any proprietary vendor technologies that increase the cost of ownership including proprietary database technology, web servers, and other software development frameworks.
Transaction-based revenue models provide a clearer win-win
Transaction-based revenue models provide an upside to the software provider as well as give the customer the assurance that there is enough skin in the game.
Software that works in the real world is critical to success and there has been plenty of legacy investment in the sector into software that simply didn’t work after promising a lot. Moving to transaction-based revenue models is an upside to both the provider and the customer.
Mutualization of infrastructure is key to driving operational efficiency
Digitalization for operational efficiency has most certainly helped the sector reduce operational risk and rationalize costs.
However, given that most operational overhead caused by regulation is repetitive, standard across the industry, and largely driven towards managing low-probability events, mutualization across the industry is the holy grail of software development in the sector.
Surviving and thriving in the BFSI sector is increasingly becoming less about capital and more about expertise and ingenuity.
Speed to market, eliminating dependence on IT teams, and focusing on specific problems and solutions is the way to break into a sector that is likely to always stay competitive for software providers.
About the author
Muzammil Patel is the co-founder and global head of strategy and corporate finance at Acies – a product development company that operates in the BFSI sector. He works closely with financial institutions and corporate clients, providing advisory and technology solutions to deliver transformational programs that address their regulatory and business challenges. In his previous roles, Muzammil has worked with Deloitte as a Partner and EY as an Associate Director