For the founding team at i-flex, the Indian software company, things came full circle last month.
The company’s management team, led by chairman and managing director Rajesh Hukku, took up parallel jobs running the new financial services unit of i-flex’s controlling shareholder, Oracle.
It was the first time Mr Hukku and his team, including vice-chairman R Ravisankar, had worked directly for a multinational since they broke away from the former Citibank in the early 1990s and formed i-flex, one of the world’s largest sellers of banking software.
“Obviously, the Oracle balance sheet is much bigger than the i-flex balance sheet,” says Mr Ravisankar, explaining the rationale for going with Oracle. “Therefore, the ability to grow the business through acquisitions becomes much faster through Oracle initiatives rather than just purely i-flex.”
The move is part of an increasing investment interest by Oracle in i-flex, which is one of India’s most successful information technology companies, with revenue of $478m last year, up 39 per cent, and more than 280 banking customers in 100 countries.
I-flex operates in an area considered to be the cream of the information technology industry – branded software products. Just as PC users recognise software such as Excel or Acrobat when they open their laptops, i-flex’s flagship product Flexcube is one of the main software packages used by financial institutions across the world.
Branded software products remain only a small part of India’s IT and IT-enabled services sector. Of the sector’s total estimated revenue in the fiscal year ending in March of $31.3bn, excluding hardware, software products accounted for less than $6.5bn.
I-Flex was originally formed in 1992 as Citibank Information Technology Industries Limited, or Citil, a unit of Citibank whose primary task was to serve banks in India.
Citibank originally in-vested $400,000 in Citil for a 41 per cent stake and sold the remaining shares to employees and those from another Citibank unit. The unit developed Flexcube, which is now used across the financial services sector, from retail and investment banking to asset management and internet stockbroking.
Mr Ravisankar says earlier banking systems took the basic customer account – in those days typically a savings account – as their core entity and tried to build around it.
As banking became more complex, programmers were forced to write new software from scratch for every new product. As a result, the system became unwieldy, as did the customer experience.
Launched in 1997-1998, Flexcube took the customer as the central entity of its system. It developed compatible software components for each new service or banking process, using the customer as the common thread linking them together.
“Right from the design phase the system recognises that you can look at a customer relationship across the entire bank,” Mr Ravisankar says.
“If a customer has a huge deposit with you and he’s one of your valued million-dollar customers and he has a credit card that becomes overdue in the credit card system, you don’t want to send him a rude letter saying I’m going to repossess your stuff without being aware that he’s one of your most valued customers,” says Mr Ravisankar
Flexcube also broke down financial processes into their common components. Calculating interest, for instance, is done for everything from bonds to deposits. So this can be made into an individual component ready to be slotted in when programmers are developing new software for a product.
As Flexcube took off, Citil changed its name to i-flex Solutions. The company continued to expand quickly, forming a unit called Reveleus that offers software for risk analysis that, among other things, helps banks meet compliance standards under the Basel II capital adequacy rules.
It began to amass acquisitions, culminating in last year’s purchase for $123m of US-based Mantas, a company specialising in software to detect, among other things, money-laundering.
Two years ago, Citigroup sold its 41 per cent stake for $593m to Oracle. Mr Ravisankar says the Citigroup name was becoming an obstacle as i-flex began approaching the US group’s top-tier western rivals.
“The Citigroup name getting replaced by Oracle, that is a big enabler for our
business and we’ve seen already the number of top-tier banks that have come onboard since then has been quite healthy,” says Mr Ravisankar.
Oracle tried to buy up all of i-flex’s shares but ended up with about 82 per cent. In spite of this, it has begun pushing ahead with its plans to begin bundling i-flex’s offerings together with its other financial products.
Oracle last week announced the first big initiative of this kind, under which Mr Hukku and Mr Ravisankar’s new “financial services global business unit” will be offering, as one package, Flexcube alongside a customer relations management system owned by Oracle.
The shift by senior i-flex management to Oracle has prompted some to argue, however, that the Indian company has no future as a standalone entity.
It is also facing increasing competition from formidable Indian outsourcing companies, notably Infosys Technologies, whose branded financial software is gaining traction in the market.
Infosys and others are equally strong rivals in the war for scarce talent in India – an important concern for a mid-sized company such as i-flex, whose 8,500 employees are spread across the world.
Mr Ravisankar denies, however, that i-flex is destined to disappear into Oracle. He points to its consulting business, under which i-flex is using its understanding of banking practices – developed through years of breaking down financial processes into their basic components – to help clients install the best systems.
“We are offering a kind of a start-up kit consisting of proven best practice obtained from dealing with a huge range of financial institutions around the world,” he says. “We just launched it but we are getting a lot of interest in that.”