Running on Tech: Tulu Islam, CIO Habib Bank Limited

In 2003, HBL commenced on a journey to significantly upgrade its IT infrastructure by investing in a new core banking solution and adopt a centralized data processing strategy.  Couple that with the obvious strengths which include the fact that it serves more than 5 million customers, has a presence in the form of 1500 branches across 25 countries around the world, a vast distribution network and a rapid rate of adoption of technology, HBL is comfortably ahead of the banking competition curve in Pakistan.

“Banks are going to end up becoming technology companies. Just about everything you want to do in banking, is driven by technology. You cannot do banking without IT – it’s a lot more than just crunching numbers and the only caveat here is that you have to use the solution intelligently.”

There are an increasing number of business and support groups which are increasing their dependence on technology.  Most CIOs today will readily admit that technology, which was previously viewed only as a utility or a simple service provider, is now embraced as a business enabler. “You can simply not do a lot of things you need to in today’s world, or even roll out a lot of new products for that matter, if you don’t have a strong technology infrastructure. In the case of HBL, our dependency on IT is even greater because of the sheer number of branches we have as well as our product mix.”

HBL began its investment into its IT infrastructure earlier than its peer banks because of the amount of interest there was from the top management. “We’ve been fortunate to have the buy-in from the top management and the Board of Directors which is how we began making investments six years ago. I believe today we are able to enjoy the benefits those investments are bringing in,” says Tulu.

The key achievement which Tulu is proud of during the 18 months that he has been the CIO of Pakistan’s largest banking network, was to build a new core network infrastructure to meet the growing needs of the Bank. “It was a multi-phased approach and we were working with several vendors at the same time. But I think what made this implementation even a bigger challenge was the fact that we didn’t take a green field approach. Building from no infrastructure might have been easier and quicker but we did not have the luxury to do so.  We had to make sure that we were able to service our customers, keep our existing networks running seamlessly and still migrate in phases. The fact that I didn’t receive any customer complaints during this migration, is perhaps the best indicator of our success!” Project partners included IBM, PTCL, Cisco Systems, ISS, Tandberg, amongst others, which taught the CIO one critical lesson.

“When you deal with multiple vendors where everyone has different requirements and needs specific infrastructure in place before they can start their contribution, you need to have a stringent timeline and everyone has to be in synch with one another.” That’s the kind of clockwork precision Tulu Islam, CIO of Habib Bank Limited, had running in his organization through the entire project. “People around you must be informed about what you are doing and when changes are going to be scheduled. The communication channels must always be open.”

Flashback
In the past 10 years, the number of players has grown quickly and the banking landscape has changed immensely. “In my opinion, there are three things that have really brought on this change: one, the number of banks that are operating today. Second, the number of products that are being offered to the market and third, the number of delivery channels.

Today,” explains the CIO, “there are almost 40 banks in operation, although this number is likely to reduce due to market consolidation. There has also been an increase in the number of products and services that are being offered in the market – especially in the area of consumer banking.” Consumer banking only started in Pakistan about 15 years ago and the products that the banks are rolling out these days, has only been made possible because banks have the systems and technology to do so, which did not exist previously.

“The third phenomenon has been the increase in alternate delivery channels. Branch banking now comprises of just 50% of the transactions and other delivery channels such as ATMs, phone banking, internet banking, POS and mobile banking are becoming increasingly popular. No longer does the customer need to physically visit the branch for his banking transactions – he can do them from his computer, phone or through use of his cards anytime of the day and from anywhere in the world. I think these are some of the areas that have brought on the greatest change in the banking sector in Pakistan.”

So if the technology infrastructure is in place, what about the regulatory challenge for financial institutions to be more dynamic? “Well, the regulatory environment has actually improved considerably over the years, the key role having been played by the State Bank of Pakistan. I think one of the major areas where the State Bank has been able to make its mark is to insulate the local banks from the global financial crisis. The regulator is very clear on what banks can and cannot do, and perhaps because it is not as easy for banks to implement exotic instruments as they do in the developed economies, the global financial crisis tsunami has largely bypassed the banks in Pakistan”.

Busy with its own crisis unraveling, for the most part, analysts agree that the businesses in Pakistan have been somewhat cushioned from the repercussions of the global financial crisis. “I think the regulations are also driven by the political and economic environment globally and locally. I’m referring to the global trend of controlling money laundering and terrorism financing. If anything, I think the regulations imposed by the State Bank have been very conducive to growing the banking sector in Pakistan.”

The number of bank accounts in Pakistan, according to Tulu, is just over30 million whereas the number of SIMs that have been sold to date, are a little more than 90 million. There is a clearly a gap between the number of bank accounts and cell phones which comes to somewhere. Simple math dictates that there are more than 50 million people who have cell phones but no bank account, which is a huge opportunity. “Of course it is, but the challenge to bridge this gap is not one of technology, but that of trust. People trust banks, thereby keeping their money there. Telcos provide the utility and network through which they can do their transactions, but they cannot manage the actual money. A successful partnership for mobile banking requires a clear understanding of the roles and responsibilities for both the bank and the telco. To enable the ‘unbanked’ to become part of the financial system, is where the branchless banking regulations come into play.  However, it will take some time to ensure 100% readiness for banks and for customers to embrace branchless banking in large numbers. Nevertheless a number of banks, including HBL, are very excited about the opportunity which branchless banking presents.”

“As a rule of thumb, IT departments make up about 5% of the total organizational headcount. The total headcount of the bank is approximately 14,000 and we have about 250 people who are HBL employees in the IT department and another 200 or so employees in our partner firms who work full time to support out technology department”.

Making It All Work
Around the world, the financial and telecom sector are two verticals that engage in a considerable amount of outsourcing. Pakistan is no different. But what has the experience of HBL’s CIO been working with vendors and partners? “We certainly know banking, but there are others who are better at specific tasks or projects. We collaborate and partner with external service providers to benefit from their experience. And these initiatives have helped us to cut down not only monetary spend, but also save on our bankers’ valuable time.

When you have to keep ahead of the competition, what has the experience been in working with consultants or experts who reside outside of Pakistan? “It’s funny you ask that, because when a vendor walks in and pitches a sale for a product, he tends to forget about the security advisory ‘technicalities’,” laughs Tulu. “If there is an opportunity, sales people will market the product regardless of the security situation in the country. Video conferencing and other creative solutions also help us to overcome these challenges of IT professionals being unable to visit the country. I also think that the security situation in Pakistan is nothing new – travel to Pakistan has been an issue for the past several years and I think we have all come to learn how to cope with the crisis.”

And speaking of video conferencing, the bank recently had video conferencing sites up and running at several of its domestic and international branches. “Now not only do we save on the travel expense but also can interact with more team members in our distant locations on a more frequent basis. There is an amazing peace of mind. The time it would take to travel to an international location for a meeting, coupled with the airport hassles, are all saved through a simple high speed connection.”

The basic framework of outsourcing in banking is to look towards the regulator. “The regulator has guidelines issued which dictate that non-core banking services may be outsourced, which is what most banks are doing currently.  We conduct the assessment of a non-core function and try and determine whether outsourcing would be a more efficient way to manage the operation.” Every business is under pressure to either increase or, at the least, maintain its bottom line and any cost cutting that can take place, will usually prevail. Couple the evolution of technology with the rapidly growing demands in the market, Tulu gives an example that hits home. “Until a few years ago, we used to have 23 data centers just in Pakistan that would do the processing and data crunching we needed at that time. Today, we are in a position where our computing demands have increased substantially, with nearly one million transactions processed per day, all from one single data center. These include not only the Pakistan branches transactions but also for most of our international locations. Technology has, and will continue to evolve to accommodate our growing needs.”

Look at the bigger picture. Bring it all together and you can see a clearer perspective. In addition to the skill and legacy that banks such as Habib Bank Limited create, one of the reasons for their expansion, growth and competitiveness is the fact that they are running on tech.

For more details, please visit www.hbl.com