I am just wondering what differentiates IDA from other vendors. Indian banking software space seems to be dominated by TCS BANCS, Finacle (Infosys), and Flexcube (Oracle). And the global banking space seems very competitive too (likes of Temenos, Mambu, etc.).
So why do we believe that IDA will keep winning clients against these behemoths, who have all the resources to make custom-tailored solutions. Is IDA targeting smaller banks/firms who don’t have the budget to hire the likes of TCSs, Infosys’s? Or geos in which competition is not intense?
One reason could be cost. Similar to how Tejas Network puts it. IDA gets to do its R&D at significant discount to global peers. This in turn may give it greater pricing flexibility vis-a-vis its peers.
Maybe of the seniors could clarify this from the management on the next con-call.
One major difference between other banking solutions like Finacle and Intellect solution is it is based on Cloud First Model wherein the customers(here in this case Banks, Financial Institutions) can have pay a you grow model which saves cost and in this times of Covid many organizations are opting for this instead of heavy capex.
What I enquired in the banking space is a typical medium size Indian bank will need to shell out approx 100Cr on a Finacle. So instead of that Banks can use the Opex model wherein they can start with an average utilization and scale as requirement grows. I have just given Indian banks for example, IDA is not focusing on Indian banks and targeting Europe and US banks what I can see.
Yes any company can do that but we have to understand here that the software stack which is built needs to be redesigned. The applications can be built in monolithic architecture wherein the Web, Application and Database can be on a single server. In this design you need to plan the resources on the hardware beforehand, so suppose if you plan to achieve 1lakh transactions per second after 5 years then you need to plan the resources in your system beforehand so that you dont get short of resources in future.
The other way is microservices based architecture wherein you decouple all the functions like Web, App, DB can be on different servers and can be scaled as and when required. So in this case the customer who is implementing the solution stack he can plan for 1 or 2 years only and as and when the number of transactions increase he can add more capacity and the same will be load balanced across different servers. This is why the Cloud Service providers are getting more and more business as the customer who is shifting to cloud does not need to plan for next 3-5 years. That customer can add the capacity as and when required in the Cloud. IDA offers this microservice based architecture to their customers and they have designed this stack in last 2-3 years.
I have enquired in the banking space and Finacle is still using Monolithic design. They are strong when it comes to Indian market. They may be redesigning their stack but I am not sure when.
Again second point is when a Bank choses a particular solution then it plans for next 10 years at least so there is stickyness to the business.
For most core enterprise applications at least in the BFSI space, cloud does make a difference but not as much as it is hyped. As you go up the cloud stack from network to server to applications, shareability goes down drastically in this space, to the extent it start matching on-prem software.
Yes, for peripheral applications where pay-as-you-go is a thing in form of SaaS or whatever, it makes a lot of sense. Switching cost for core banking or insurance platforms is tremendous. It is major vendor lock-in which takes 5 years to fully switch (for a medium size org). So all that applies to a typical SaaS offering, doesn’t work here.
Monoliths can be ported and scaled on cloud too. Two decade old platforms were also written to scale. And it is not that Incumbents are sitting idle. They are investing heavily to upgrade themselves. Especially when the volumes are fairly predictable, it gives them ample time to adjust for their existing implementations.
In short, it is wonderful that IDA is building futureproof platforms, but one must take it with a pinch of salt.
My view would be that they are not just offering a this for that solution. It being an opex vs a capex is just one aspect of it. There is more to their solutions than just that. Additionally, they are adding a lot of value through their offerings and not just providing a solution for traditional problems.
It’s been a great discussion. The way I am understanding the landscape is that IDA is a small fish in a big pond which has many whales roaming around. I feel IDA right now is in a phase where it is trying to build brand equity and gain acceptance in the market, therefore it has to go into markets/clients where it is not competing with TCS/Infy/Oracle. In enterprise software, one area where typically smaller players lag the big boys is in the ability to handle high amount of transactions (i.e., there solutions lack scale), and probably this is why the management in the last con call said that they are not thinking about high-value deals right now, and want to reach $400M+ revenue first, before they start thinking about larger deals.
With what I know today about IDA (and I’ll admit it’s not much given that we are talking about enterprise software, so it’s not easy to get firsthand idea about product quality and differentiators), I feel it will do well until it reaches a certain size (again not sure what that size will be, given the TAM is huge, but there are many competitors as well), after which it will take different type of skills to win in the market.
@sanjeev_thakur You are right that switching costs are high. In one of the concalls management had highlighted that banks in Europe/US has not migrated to the new microservices based platform since last decade and were using legacy ones but due to Covid this migration has been accelerated as the banks started feeling they will lag behind if they do not migrate their applications to the new age platforms which are microservices based.
@varun_sharma If you see the competitors IDA is not competing with local ones like TCS/Infy. They are competing the global players like Temenos.
If you check at the salary/quality of engineers IDA is hiring , you can have a guess that they are not competing with local players. you need to pay above average to get good engineers to make products .
Below is a link from 2018
I get that it’s not competing with local players, I should have better worded my response to reflect this.
The point I was trying to make is that IDA is not competing against big players because it just can’t, at least not right now, and this is reflecting in the kind of markets and customers IDA is acquiring (happy to be corrected on this one). After reaching a certain size, ultimately IDA will have to compete with bigger players (it could be Oracle or someone else). For me, it’s just difficult to see right now how IDA might adopt to this, and keep growing.
(This is not a commentary on IDA’s technology or abilities. It’s just a general observation trying to understand the market.)
you are not comparing like to like…in the above analysis. all rnd is getting expensed whereas intellect capitalizes it…like to like, temenos does ebit of 37 per as of last quarter vs 20 per that intellect does.
Enterprise software has always been a “Demo And Reference” business. The key hurdle for IDA for wining in Developed markets is credibility, and that just takes a lot of time and making early customers referencible. Architecture is a differentiator for getting shortlisted and all their key competitors like OFSS, Temenos, Finastra etc claim the same cloud and Modern architecture capabilities. After that shortlist, during the RFP process the track record and customer references become very important. Temenos scores very well on that, and IDA will find it tough to convince prospects, hence the cautious approach on very large pursuits that Arun talked about in the conf call. As the customer footprint increases, and more customer implementations mature and become referencible, the virtuous cycle will help boost sales efforts.
Given the size of IDA customer installed base, it seems unlikely that loss of one client will materially impact revenues and profits in a huge way, unless it is litigation with a major amount being claimed as damages. There are always unhappy customers, and some are litigious, but very rarely do failed implementations result in major financial damages. Does anyone have tangible data or publicly available links about this client issue and potential impact ?
IDA is no stranger to controversies, Arun was even arrested by Indonesian police in 2002 on made up charges by a client.
And yes, lets cut innovators some slack, the first set of Teslas actually caught fire.
Temenos is a market leader in Core Banking system with no other player coming in even close to them in geography or client base. The Enterprise Application (specifically financial applications) are very difficult nut to crack because these applications form the core of bank’s business. In current context following items are assuming maximum importance while completing the sales cycle
Tech Stack : Mambu has created huge waves in Core Banking segment by winning a large number of deals and is next to Temenos in new deal wins in 2020. They have a Low-Code platform with microservice based architecture and are thus favored largely by new age banks. And, there is a huge wave of New Age Banks that has come in which is driving the business of core banking application (and associated applications). Finastra has got a new age solution and has won a decent number of deals in this space but the market is led by Temenos even though they dont have the latest architecture and is still monolithic. So what makes Temenos click?
Temenos clicks because of its highest number of references with presence across geographies. Many a times banks require references of clients in their geographies and thus newer players may suffer (specifically in core banking applications). References is the last phase of sales cycle, and Temenos also excel in the 1st phase i.e. Sales Initiation. The Sales team has got access to key decision makers and most of these deals are decided on the basis of relationship and proximity to the key decision maker. This is not meant to say that there are some illegal stuffs, but accessibility and relationship with decision makers is a very crucial factor in these deal making. However, sales do not solve the product issues and thus product capabilities are extremely important
Product capabilities are of significant importance (especially for established banks) and with current evolution of application infrastructure - openness of application to easily integrate with other applications is a very critical factor. Finastra scores very big here because they have the largest suite of industry standard applications with implementations at banks of varying sizes. There is no other player in industry which can match the expanse of solution offering and thus they are extremely good fit if a customer is looking for multiple solutions (e.g. Core Banking, Risk, Transfer Pricing, etc.). Most of the products would have basic capabilities pre-built but ability of product to be customized is extremely crucial and that brings to the 4th key factor in sales cycle i.e. Implementation.
Implementation is a very important component of these product growth. Any banking implementation is driven through RFI/RFP process and generally these processes are managed by consultants. Thus strategic and implementation partnerships becomes extremely important tool for both lead generation and solution delivery. Temenos has an excellent partnership setup and a number of top most IT service providers are their implementation partners. These partners also help in lead generation since banks do involve Accenture, Deloitte, Infy etc. in overall cycle.
Getting all aspects from these product perspective requires significant time, investment and focus from management and thus many a times firms specialize in certain section of banking solutions (e.g. Murex, Calypso is a specialist for Trading applications, Temenos for Core Banking solution) and make sure that these products support easy integration with other applications. Banks also never compromise in the quality of applications and are rather ready to procure applications from different providers, unless one provider is able to meet all their requirements.
There is an evolving trend wherein providers like Finastra partners with other providers and then pitch in unison to RFP to plug any gaps in the application landscape e.g. if Finastra does not have leading Loan Origination system they would tie up with a LO provider and would offer it as a pre-integrated solution to the bank.
Does anyone have any views on the insiders selling? I don’t understand for a company with such a huge TAM and great future earnings growth, why would promotors not hold high stakes and sell instead? What am I missing here?
Disc: Tracking keenly since last few months, no position yet
How can VP and AVP make such silly mistakes unless they were desperate to get rid of their shares? Check the information submitted by the company below.
Also, Laila Beane, Chief Customer Officer and Head of Consulting at Intellect SEEC, has sold shares worth 2.3cr @604 per share in a single transaction.
