data connectivity in the bfsi vertical

Copyright © 2010, Frost & Sullivan

TABLE OF CONTENTS

1 INTRODUCTION..............................................................................................................................................1

2 CONCERN AREAS FOR ENTERPRISES IN THE BFSI VERTICAL ......................................................3

2.1 CONVERGED NETWORKS.............................................................................................................................3 2.2 REGULATORY COMPLIANCE........................................................................................................................4 2.3 VIRTUALIZATION AND DISASTER RECOVERY..............................................................................................4 2.4 NETWORK SECURITY...................................................................................................................................4 2.5 RURAL EXPANSION .....................................................................................................................................4 2.6 INTERNATIONAL CONNECTIVITY.................................................................................................................6

3 THRUST AREAS FOR BFSI SEGMENT.......................................................................................................6

4 WHY MPLS IN BFSI VERTICAL ..................................................................................................................7

4.1 SALIENT FEATURES OF MPLS.....................................................................................................................8

5 TULIP'S OFFERINGS FOR BFSI VERTICAL.............................................................................................9

6 SUCCESSFUL IMPLEMENTATION OF TULIP'S MPLS SOLUTIONS IN BFSI VERTICAL ..........10

6.1 HDFC BANK: RAPID NETWORK DEPLOYMENT.........................................................................................10 6.2 FULLERTON INDIA CREDIT COMPANY: ENABLING COUNTRYWIDE CONNECTIVITY ...................................11

Copyright © 2010, Frost & Sullivan 1

1 Introduction The banking and financial services segment in India has remained at the forefront to automate its business operations to gain increased customer reach, enhanced efficiency, and overall improvement in its performance and productivity. Currently, the banking and financial sector industry (BFSI) is in the midst of technological revolution due to regulatory norms and competition. Staying connected with all its branches, not exempting the ones in remote locations, has become the key concern for all the CIOs in BFSI segment. Banks are focusing on converged connectivity across all their branches through a cost-effective solution. Compared to traditional point-to-point network solutions, multiprotocol label switching (MPLS), Internet, International Private Lease Circuit (IPLC) and Metro-Ethernet services enable the banking and financial institutions to stay connected at a minimal spend and help them reduce costs. It facilitates the deployment of a variety of value-added services, while achieving convergence of data, voice, and video services through an architecture that is extensively scalable and future proof.

Contribution of BFSI to MPLS, Internet, Ethernet and IPLC

*All values are calculated on % basis. The BFSI vertical contributed approximately 40.58 percent to the enterprise MPLS market in the financial year 2009, which is expected to go up to 65.71 percent by financial year 2014. IPLC and Internet services are likely to see a dip in the market share in 2014, as compared to 2009. On the other hand, Ethernet services contributed 1.06 percent in the financial year 2009, which is likely to go up to 3.73 percent in 2014. This signifies the fact that MPLS and Ethernet have a rising demand in the BFSI vertical and this is expected to continue in the future.


This whitepaper explains the increasing significance of data connectivity services to the BFSI vertical and the benefits achieved. Reserve Bank of India’s (RBI’s) recommendation to all banks to shift their application systems to a network-based environment on MPLS shows the growing importance of MPLS and other data connectivity solutions for the BFSI vertical. This study attempts to capture Tulip Telecom Ltd’s (henceforth referred to as Tulip) competencies toward the enterprise data market in the BFSI vertical, where connectivity is gaining higher priority.


2 Concern Areas for Enterprises in the BFSI Vertical

2.1 Converged Networks The core processes in the BFSI vertical have experienced an outstanding transformation in their business processes since mid eighties of the twentieth century, from highly taxing, paper-centric, end-of-the day settlements to the current real-time transactions. The role of connectivity in this transfiguration is evident from the increasing number of ATMs as well as the burgeoning number of rural branches and the growing count of hi-tech-managed data centers. Connectivity and networking have gained prime importance in the BFSI vertical with increasing competition, major expansion plans, mandatory regulatory stipulations, and transmigrated focus on online customer services. This situation has demanded the banks and other financial

Top Priorities

of CIO

Network Security

Regulatory Compliance

Virtualization and Disaster

Recovery

Rural Expansion

Converged Networks


institutions to make considerable investments in their network infrastructure so as to meet their business demands. The need to integrate the organization’s business processes with converged connectivity and thereby bringing uniformity in their service offerings across the country has been increasing lately.

2.2 Regulatory Compliance To maintain uniformity in connectivity in the BFSI industry, the regulatory body has been stipulating various rules and regulations, which demands the CIO to search for a highly reliable and authentic connectivity solution. The Reserve Bank of India (RBI) has recommended all the banks in the country to migrate their entire application systems (Real-time Gross Settlement (RTGS), Negotiated Dealing System (NDS), Structured Financial Messaging Solution (SFMS) and Centralized Funds Management System (CFMS)) to a network-based environment on MPLS. The regulatory stipulation for the all the Regional Rural Banks (RRBs) to migrate to Core Banking Solution (CBS) signifies that connectivity is a key concern area for CIOs.

2.3 Virtualization and Disaster Recovery Currently, two major areas of concern in this vertical are the need to ensure business continuity in the event of a failure and the need to mitigate the incidence of operational risks. Virtualization has become a key enterprise technology, one that can help financial institutions not only consolidate servers and increase efficiency but also create robust business continuity and disaster recovery strategies.

2.4 Network Security For financial institutions, information is a crucial asset; and security of information in their custody is one of the important yardsticks for them to earn the trust of their customers. Obtaining accurate and timely information is absolutely necessary for business transactions. The network security architecture can then be developed in accordance with open standards that are flexible and scalable. It should also allow integration of new security technologies, which the organization may want to leverage in order to gain business advantage.

2.5 Rural Expansion Unique Identification Number The massive project of issuing a unique identification (UID) number to every citizen in the country will facilitate banking in every village, which, in turn, will emphasize inclusion of the poor in the financial system. RBI is planning to have one or two ‘Business Correspondents’ (BCs) in every village who will act as a micro ATM. The BCs would be provided with a mobile phone and fingerprint reader. A person could go to any BC in the country and withdraw/deposit money. The BC has to only


verify the authenticity of the UID number through mobile phone and provide the basic banking services. The following chart shows the probable network connectivity required between the BC and the bank and the UID Central Repository. Similar to an ATM, a bandwidth of 64 Kbps to 512 Kbps would be required between the BC and the respective bank for the former to check the authenticity of UID number of the person who is withdrawing/depositing the money by verifying his or her fingerprint. The bank and the UID repository can be connected by an uninterrupted 2 Mbps to 8 Mbps bandwidth network. This emphasizes the connectivity requirement that would be required in this system and the amount of scalability the network should provide in order to include additional BCs at any point of time.

UID Central Repository

Bank 1

Bank 2

Bank 3

BC

BC

BC

Individual

Finger PrintAuthenticity of Finger

Print

OAC

OAC

Withdrawal/ Deposit of Money

Prototype of UID-Banking Network Connectivity

Note:

• BC – Business Correspondent

• OAC – Online Authorization Code

UID Central Repository

Bank 1

Bank 2

Bank 3

BC

BC

BC

Individual

Finger PrintAuthenticity of Finger

Print

OAC

OAC

Withdrawal/ Deposit of Money

Prototype of UID-Banking Network Connectivity

Note:

• BC – Business Correspondent

• OAC – Online Authorization Code

RRBs The RRBs are expected to play a significant role to achieve the goals of financial inclusion by taking the banking services to the rural areas in terms of geographical coverage and easy customer accessibility. At present, there are 86 RRBs in the country with 15,000 branches covering 585 districts. It has been stipulated by RBI that all the RRBs have to migrate to CBS by September 2011. Currently, 3 of the 86 RRBs in the country have become 100 percent CBS and the remaining are implementing the solution in a phased manner. Microfinance Institutions (MFIs) MFIs are currently in a position to offer financial services, especially loans, to the poor residing in remote villages. MFIs’ field agents operate on the field and transmit information and funds


between customer and MFI. As the amounts of loan offered are very less, the cost of reaching to the customer becomes high in comparison. Activities such as information storage, data analysis, decision-making, and cash logistics are centralized to achieve better control. In effect, the MFI is structured in a circular manner with the head office as its center and the range of the agent network as its periphery. At this juncture, microfinance industry should deploy complete end-to-end communication services with security, enhanced agility, profitability, and productivity. This will help in resource consolidation and to form a centralized information system for entry and retrieval of operational and financial data from any of the offices.

2.6 International Connectivity As the banking and financial organizations become increasingly connected, more business opportunities emerge in serving the connected market. The materialization of increased bandwidth enables connectivity to grow exponentially from one country to another. Designed to meet the global needs of today's business environment, MPLS VPN, IPLC, Ethernet leased line services provide local-to-global connectivity to the BFSI industry. International connectivity services provide banking and financial institutions with the capability to communicate efficiently anywhere in the world, having data, video and voice on a common platform. Communication applications can be Point-to-Point, that is, between two specific locations, or Point-to-Multipoint, that is, from one location to many locations simultaneously. With global connectivity, banking and financial institutions can benefit from increased local-to-global coverage, reliability, scalability, flexibility and efficiency.

3 Thrust Areas for BFSI Segment Customer Focus Banks are keen on maintaining and managing historical records, which, in turn, necessitate storage requirements. An increased focus on CRM from both software and services point of view is predominantly noticed in the BFSI vertical. This introduction of enterprise-wide software requires increased real-time connectivity for the enterprise’s core business processes. Rapid business expansion plans are also likely to have banks opening up new branches in remote locations, which necessitate the deployment of highly scalable network. Connectivity to the remote branches and facilities, such as mobile kiosks, are again anticipated to have significant importance in the banking sector. Increasing Competition With the entrance of foreign banks, the competition in this vertical has grown manifold. This, in turn, has increased regulatory stipulations from RBI to standardize connectivity infrastructure in all the banks in India. To overcome the increasing competition and to gain a competitive edge,


banks are deploying data leakage prevention solutions and encryption solutions to maintain the privacy and confidentiality of user data. Indispensible Role of Connectivity Retail banking is witnessing the implementation of technology solutions to expand the range of customer offerings. Internet banking, phone banking, mobile banking, ATM, and bill payments have been the key offerings that banks are using to entice customers. Many banking sectors, such as corporate banks and retails banks, have implemented core-banking software and communications systems to enhance their operational efficiency. These new offerings and solutions are taking the banking industry one step higher. It necessitates the deployment of highly reliable, scalable, and robust network infrastructure, which provides utmost continuity and redundancy to their business processes.

4 Why MPLS in BFSI Vertical At present, MPLS is being used extensively in BFSI vertical for data transfer because of its inherent advantages. MPLS provides an effective and efficient network across an enterprise’s branches located in various geographies. This is because its architecture is structured in such a manner that enterprises can cross-connect their locations over the existing network, /while availing extensive scalability. It eliminates the complexities of network design and ensures seamless flow of data. It significantly sorts out the issue of last-mile connectivity. Banks having traditional point-to-point network connectivity at all locations face the following challenges:

Inherently complex network resulting into much higher cost to monitor and maintain

Inconsistent delivery of Service Level Agreement (SLA) commitments of 99.99 availability because of too many point of failures

Lack of accountability because of multiple vendor engagements

Being expensive due to multiple redundancy and

Complex Network High maintenance cost

Too many points of failure Inconsistent

Delivery

Multiple Vendor Engagements Lack

of accountability

Multiple Redundancy High cost

Traditional Point-to-point

Network

MPLS/ VPN Network

Complex Network High maintenance cost

Too many points of failure Inconsistent

Delivery

Multiple Vendor Engagements Lack

of accountability

Multiple Redundancy High cost

Traditional Point-to-point

Network

MPLS/ VPN Network


high cost of connectivity and support

A shift from this traditional point-to-point to MPLS-based connectivity for a bank’s domestic and international network could help these banks overcome all the limitations posed by the former network infrastructure. In addition, the banks can achieve a saving of 40 percent on the network cost. Apart from this, MPLS network ensures an uptime of nearly 100 percent and a much-improved availability. Moreover, limited outages assist these banks to reduce their support costs drastically. MPLS is a technology used for speeding up network traffic flow, making it easier to manage, especially in a sector, such as BFSI, where traffic management is very crucial and essential. MPLS connectivity gets rid of the complex network configuration and lessens the burden of network maintenance involving large manpower and costs.

4.1 Salient Features of MPLS

Scalability: MPLS network provides the best scalability when compared to other connectivity solutions. No additional investment in equipment or infrastructure is required to upscale bandwidth with MPLS network. All that is required is an additional port, which is expected to require just 24-hours upgrading the bandwidth. However, in other solutions, obtaining a physical circuit is likely to take more than a week. Hence, the time factor in rolling out MPLS is minimal. Alternatives, such as Very Small Aperture Terminal (VSAT), are highly expensive and incur additional costs in providing security by way of encryption. Currently, the rural population, which forms 70 percent of the 1.2 billion total population, has access to limited banking services. With the provision of UID numbers to the citizens, the banking services are expected to reach the rural masses. To accommodate this growing number of transactions, banks should implement highly scalable MPLS network.

Dynamic Node Allocation: MPLS has an inherent feature of dynamic allocation of nodes for the additional branches that need to be integrated with the core network. The increasing importance of rural banking and regulatory guidelines to implement CBS in RRBs has created the need to dynamically add nodes. All branches of RRBs after CBS implementation will access core banking and other applications from data center located in various regions. In this scenario, it is ideal for the RRBs to implement MPLS solutions.

Convergence: MPLS-enabled network simplifies the overall network infrastructure with the convergence of multiple technologies. Financial institutions can eliminate multiple, complex overlay networks and are able to transport a variety of new applications over the network using voice, video, and data. Simplification of the network greatly reduces capital and operating costs.


Virtualization: The architecture of MPLS allows the creation of a virtual network that allows enterprises to have seamless connectivity. The virtualization of any network offers enterprises the ability to provide services and host applications to all the end points of the network from a single central source. This value proposition of MPLS enables the banks and other financial institution to remotely manage and access their desktops at the rural branches. It also aids them in installing multiple operating systems on a single server, thus reducing the amount of hardware required to run the business.

Business Continuity: The any-to-any traffic routing capability of MPLS offers another major advantage of business continuity. In an MPLS network, traffic can be easily diverted to any other location on the network in the event of failure or unavailability of a particular network node. It also enables the financial institutions to connect their geographically dispersed data centers with disaster recovery centers.

Security: The core architecture is never exposed and steps such as packet filtering and monitoring can ensure that the network is resilient to different forms of attack such as denial of service. MPLS solutions, coupled with Internet Protocol Security (IPSec) provide additional features such as encryption and authentication, which are very essential for business critical applications.

Network Management: Managed network services help banking and financial institutions automate, simplify, and integrate their networks to reduce operational costs and improve productivity. Designed to increase network efficiency and availability, managed network services use the best tools for ensuring high availability and end-to-end management. Managed Network services can also help the BFSI industry meet their business needs by monitoring and managing their network devices, performance management, fault management and so on.

5 Tulip's Offerings for BFSI Vertical Tulip’s major share of MPLS revenues come from the BFSI sector. The company has helped leading banks and financial institutions resolve their complex business challenges with secure and reliable services. It helps these organizations to gain a competitive edge by providing comprehensive and cost-effective solutions and enabling branch and stakeholder connectivity, Internet access, and managed services, supported by its on-site and remote technical expertise. With its state-of-the-art infrastructure facilities, Tulip is able to provide its BFSI customers with the best MPLS services available in the market, with proactive monitoring of the entire network. The company helps its customers to manage the traffic effectively by prioritizing the functionality based on different applications and providing converged services. Tulip’s MPLS service focuses on connectivity and continuity, which are the two main issues that a network should address. It overcomes these issues by providing any-to-any connectivity, and the provisioning of a disaster-recovery mechanism ensures a more resilient network.


Tulip Telecom offers full design and implementation of the global connectivity services for the BFSI sector through their fully managed next generation networks, which connects major global business destinations in over 300 countries across the United States, Europe, Middle East and APAC. It connects Tulip’s BFSI customers’ global offices seamlessly, by the help of strong alliances, to provide high-speed connectivity with end-to-end network management. Tulip offers Global MPLS VPN, IPLC and Ethernet Private Line solutions, which have a rich set of features that include scalable bandwidth, network topology options, and the right choice of interfaces. All Tulip International PoPs have carrier grade transmission modes with cable systems across the Atlantic and Pacific paths with route, path redundancy and resilience. The network architecture provides secured service, with multiple levels of protection. This enables Tulip to offer very high network availability to its BFSI customers. Tulip’s Managed Services offering for the BFSI industry are designed to provide complete managed services suite to the banking institutions, helping them in the process to focus on core operations and exit the non core areas. The entire gamut of Tulip’s Managed Services can monitor and manage customer’s desktops, network, servers, database and applications. Tulip’s Managed Services is backed by best-in-class tools, certified resources, and ITIL-based standardized processes. This provides Tulip’s BFSI customers the best of both world’s- scalability and flexibility, over their information systems, without either the difficulties or increased cost of running them. Tulip’s BFSI customers having complex requirements of server/network hosting, co-location, back-up and storage services, can avail Tulip’s Data Center services being powered by Tier 3+ Data Centers in New Delhi, Mumbai, Navi Mumbai, and Bangalore. The Data Centers are ISO 20000-1 & 27001 certified and provide BFSI customers with the world-class infrastructure to co-locate their business critical IT equipments. Tulip also specializes in delivering turnkey Data Center build-out projects.

6 Successful Implementation of Tulip's MPLS Solutions in BFSI Vertical

6.1 HDFC Bank: Rapid Network Deployment HDFC Bank, which has its registered office in Mumbai, is a scheduled commercial bank with a nationwide network of 1,506 branches and 3,573 ATMs in 635 Indian towns and cities. HDFC Bank has been on an expansion spree by aggressively opening up branches in metros, smaller cities, and remote areas. Providing connectivity to these remote locations within a particular time limit was the biggest challenge for the bank. HDFC was, therefore, in search of a service provider who could provide them state-of-the-art connectivity solution within the limited period of time.


Tulip was able to address these problems of HDFC and provide the bank with the required connectivity solutions. With its excellent network coverage across more than 1,500 cities and last-mile wireless connectivity, Tulip was able to provide HDFC with the best services available in the market. HDFC Bank deployed Tulip’s MPLS VPN solution in 500 cities, including A and B-class cities, on fiber and wireless on the last mile in the remote areas. Tulip has also provided the bank with Metro-Ethernet networks for their high bandwidth requirements on fibre in B and C-class locations. Furthermore, 20 Mbps fiber link has been provisioned connecting the bank’s head office to their data center located in Mumbai. Two backhaul links, each of 60 Mbps, have been deployed on fiber, one in Bangalore and the other in Mumbai office. Benefits to HDFC With their available fiber infrastructure across the county, Tulip is able to provide a highly scalable and customized MPLS connectivity solution in a limited span of time which usually ranges from 3 days to 1 week. This capability of Tulip has helped HDFC bank to go forth with their expansion plans in A and B-class cities and even to the remotest parts of the country. Tulip has also maintained high uptimes with industry standard SLAs, with which it has delivered satisfactory services to HDFC. Tulip’s successful implementation of MPLS in a large bank such as HDFC is a testimony to its ability of providing reliable connectivity across India. This case also stands as an example of Tulip’s exemplary services and customer satisfaction.

6.2 Fullerton India Credit Company: Enabling countrywide connectivity

Fullerton India Credit Company (FICC) Limited is a non-banking financial company (NBFC), which began operations in India in January 2006. It is a subsidiary of Fullerton Financial Holdings Pvt. Ltd. Having made a relatively late entry into a financial market inhabited by numerous players, FICC targeted a rapid rollout of its branches and services across India. One of the requirements for FICC was rapid availability of robust network links for last-mile connectivity to these branches. MPLS VPN services from Tulip enabled FICC connect more than 850 branches and make them operational within a short span. “Tulip is one of our Top 4

Ajit Tiwari, Deputy Vice President,

HDFC Bank., says “Tulip has always

maintained a good turnaround time in

terms of feasibility and circuit

delivery”

“Tulip helped us migrate some of our critical

RF links to Fiber. It has been a good

experience; the best part was that the links

were implemented in a short time-span with

less downtimes. We went with Tulip because

of their country-wide presence, especially in

tier-3 and 4 cities. We look forward to continue

this strong partnership in the coming years”

Ajay Vernerkar

Senior Vice-President – Technology, FICC


Most Important Partners,” says Ajay Vernerkar, Senior Vice-president – Technology, Fullerton India Credit Company Limited. In 2007, FICC and Tulip also entered into a ten-year total outsourcing deal, encompassing current and future areas of ICT. Tulip has provided Facility Management Services (FMS) for FICC’s total IT infrastructure, where Tulip has deployed Level 1, 2, and 3 managed services engineers at the customer’s location. Tulip ensures reduction of the total cost of ownership (TCO) for FICC, which continues to decrease in future too. Tulip has also provided high-speed Internet bandwidth on fiber, backed by their Metro-Ethernet networks, connecting FICC’s head office and branches in Mumbai.

data connectivity in the bfsi vertical

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