Tokenisation will drive financial services to the last mile: KFin's Sreekanth Nadella

KFin Technology Limited, a cloud-based financial solutions provider, is experiencing rapid growth as it expands across the globe, while solidifying its market leadership in India. The Hyderabad-based company remains dedicated to spearheading innovation in global capital markets by incorporating cutting-edge technology and focusing on strategic market opportunities. In an interview with TechCircle, Sreekanth Nadella, Managing Director (MD) and CEO of KFin Technologies, explains how key technologies such as cloud computing, big data, advanced analytics and blockchain are propelling the company's growth and services. He also discusses the growth potential for the company in India as well as in international markets. Edited excerpts:

What kind of growth opportunities do you see in the Indian market? What's driving your growth?

India is the most exciting capital market among large economies in the world, with unique growth opportunities driven by increasing financialisation and the growing wealth of Indians. Our core businesses, including investor solutions for mutual funds, alternative investment funds, wealth and portfolio managers, private retirement schemes, issuer solutions for the equity and bond markets, and central record keeping agency for pensions, have consistently grown at a compound annual growth rate (CAGR) of over 20%.

The expansion of demat accounts, the surge in IPOs, and the general inflows into the capital markets through systematic investment plan route will positively impact all our core businesses. In India, we currently provide investor solutions to more than 50% of the mutual fund companies, shareholder services to more than 6,000 listed and unlisted companies including most of the Nifty 500 companies, fund administration to approximately 40% of alternative investment funds, and second largest central record keeping agency to national pension scheme managing more than 1.2 million pension subscribers.

Our market-leading position across all asset classes allows us to capitalise on India's growing wealth by expanding our solutions and services into the asset management space, utilising data and tech-driven solutions. At KFintech, we have outpaced industry growth and expect more than 20% growth in the near term. With favourable macroeconomic tailwinds for India, we are confident of this growth trajectory, especially as India progresses toward becoming a $5 trillion economy by 2030.

The FinTech sector is undergoing a lot of technology innovations. Which technologies are you most excited about for your organisation and the sector in general?

India is currently witnessing some of the highest volumes of trades across all asset classes, including equity, mutual funds, and derivatives and technology has been instrumental in expanding the reach of capital markets to a broad population segment. Key technologies like cloud computing, big data, and advanced analytics are driving our growth and improving our services. 

Cloud computing allows us to process transactions quickly and reliably, enhancing our client services. Big data and analytics provide valuable insights to attract and engage customers focused on wealth creation. The mobility stack has transformed India's financial services sector, making it more accessible and convenient for a wider audience. This trend is expected to continue shaping the consumption of financial services in the future. While generative artificial intelligence (AI) is still in its nascent stages, it holds immense potential beyond chat engagement, especially in analytics, where we foresee significant advantages as the technology matures. 

In today’s digital landscape, security has become a top priority for businesses. Tokenisation addresses critical aspects of security, privacy, and data protection in financial services and will likely gain widespread adoption within the next 12 to 24 months. We can already see rapid adoption of the technology globally and a robust governmental framework is on the horizon. We believe tokenisation, the process of converting an asset or the ownership rights of an asset to a digital form using blockchain technology, will further extend the reach of financial services to the last mile.

Which areas in technology will be your focus in the next one year and why?

In the upcoming year, our main focus is expanding financial services to more Indians, promoting wealth creation and shifting from saving to investment. Mobility is crucial for this transformation, and our acquisition of WebileApps allows us to develop a user-friendly digital platform. This will attract more investors to the capital markets.

Cybersecurity and data privacy are also top priorities. We understand the importance of protecting client data and have maintained a secure digital experience with no breaches. We are committed to maintaining this high standard.

Investing in RegTech and SupTech is another key focus. These technologies ensure regulatory compliance and effective supervision as the financial sector evolves. Our platforms, Digix and Quest, provide comprehensive solutions and have earned prestigious awards for their efficiency and reliability.

What kind of overseas opportunities are you looking at?

Over the past five years, international expansion has been a core strategy for KFin Technologies. We aspire to be a leading technology solutions provider, recognising that the time has come for an Indian company to be the best fund administrator in the world. Our approach has been to offer a comprehensive service stack, including fund set up, digital onboarding, fund administration including fund accounting, transfer agency, digital solutions, regulatory compliance, and data domiciliation. We have successfully established a presence across South East Asian countries and manage critical funds from Canada. This positions us to capitalise on the $20 billion annual revenue industry of global fund administration, where the current share of Indian fund administrators is almost negligible.

The global fund administration market represents a significant opportunity, with global alternative AUA expected to grow to $23.3 trillion by 2027 from the current AUA of over $16 trillion as per Preqin estimates. Even capturing a small percentage of this market can generate substantial revenue. We have already secured clients in Malaysia, Singapore, Thailand, Hong Kong, Philippines, and Canada and are in the advanced stages of expanding into Dubai and parts of Europe. This global expansion is not just about increasing our footprint but also about setting new benchmarks in the industry.

When looking at competitor benchmarking, which key technology areas do you think you need to improve to stay ahead of the game?

We compete and collaborate with different players across the various lines of business we operate in. Our competitive landscape is diverse, with different competitors in share transfer, equity and bond markets, mutual funds, alternatives, and international markets. While our strategy focuses on understanding our competitors' strengths and weaknesses. We predominantly follow a bottom-up approach in provisioning our service, considering we are often among the leading players in most of our service lines. For example, we haveled the way in cloud adoption and data integration, positioning ourselves ahead of many competitors. Additionally, we have initiated tokenisation solutions for alternatives and other large business segments.

Currently, we do not participate in incidental and ancillary services like KRA and depository participant-related work. Instead, we leverage a multi-tenant model to avoid single points of failure and enhance the robustness of our services. Our strategy is to continue driving innovation through the multi-tenant model for the benefit of our customers. We aim to expand our technological and functional proficiencies, particularly in the international space. We focus on deepening our platform to support more exotic fund structures beyond the relatively standard structures in India. By enhancing our technology capabilities and leveraging our domain expertise, we aim to deliver superior solutions that meet the evolving demands of the global financial services industry.

How are fintech companies dealing with new data security challenges?

Data security requirements are constantly evolving, impacting not just fintech companies but all entities handling sensitive data. The current approach to data security across the industry has often been reactive and fragmented, lacking a unified framework or strategy. Different companies adopt various data protection strategies based on their expertise and technology domain. However, there is a need for clear guidelines, either established top-down or adopted proactively by the sector, to ensure a standardised approach to data security.

At KFin Technologies, we have always prioritised data security and infrastructure protection. The decision to transition our entire data centre operations to a Tier IV data centre is a testament to this. Our approach to data security is comprehensive and robust. We employ Role-Based Access Control (RBAC) and Attribute-Based Access Control (ABAC) mechanisms to manage access authorisation effectively. We also use automated reasoning engines, such as IAM Access Analyzer and Access Advisor, to proactively identify and correct access misconfigurations.

Furthermore, we utilise guardrails and control towers to detect and prevent resource misconfigurations, ensuring our systems remain secure. Our proactive stance on data security is integral to building trust with our clients and maintaining the highest service standards in an increasingly complex digital environment.

What are the upcoming or new technology solutions we'll get to see from KFin Technologies?

We recently introduced XAlt, a robust platform for alternative investment funds and asset managers to efficiently manage client investments. This is a significant milestone for KFin Technologies, as XAlt is our first platform built on modern software-as-a-service (SaaS) architecture. Clients benefit from reduced time to value, simplified development processes, and a 5-10% reduction in software build time.

We are soon coming up with KLIKKONNEKT, a versatile kiosk solution designed to enhance the user experience for mutual fund customers and distributors. This innovative solution aims to expand market presence, reduce costs, and improve accessibility and efficiency in financial transactions. The solution will offer personalised assistance, decrease transaction rejections, minimise human errors, automate compliance checks, and enhance data accuracy. Real-time transactions will be ensured, reducing the current turnaround time. 

While initially, we plan to launch the technology in 15 cities, our vision is to deploy it across India, making them as accessible and ubiquitous as ATMs. We look forward to collaborating with asset management companies to add more features. By providing users with a broad range of services seamlessly, KLIKKONEXT will revolutionise mutual fund application processing.