Mr. Faust, the global economic crisis is threatening more and more companies – including banks, of course. How is SAP supporting financial institutions with its solutions in these difficult times?
Right now, we’re experiencing a new market environment that’s highly volatile and thus much harder to predict. It’s affecting banks in particular because financial flows are now interconnected globally and proceed at a very high speed. This means crises have an immediate global effect, no matter whether they’re triggered by mortgage lending in the United States or high levels of national debt, as we’re seeing in Europe right now. When it comes to lending money, banks have grown skeptical of their customers – and even of each other. The risks involved aren’t transparent enough. This in turn is causing stakeholders and regulators to take action in order to limit banks’ exposure and protect them against risks by bolstering their equity. Banks are experiencing something they haven’t seen for quite some time: Capital is becoming increasingly scarce which now puts pressure on banks’ spending behavior. This has immediate consequences for banks’ IT. In the past, banks have been able to afford highly customized and complex system landscapes – which are inflexible, centered around certain products, and prone to running up tremendous maintenance costs. Today, banks need to change their behavior and consider external support, especially in IT. Having had success in outsourcing their hardware and IT services, more and more banks are starting to use standard software. It’s not surprising that, according to a Forrester survey, the majority of IT decision-makers at banks in Europe and the U.S. already report pursuing a hybrid IT strategy with a mix of custom development and third-party software. In light of increasing cost pressure that favors the implementation of such software, this trend is now going to spread much more quickly. It’s a huge opportunity for SAP.
Are all the areas of the banking business feeling the effects of the crisis in equal measure, or are their differences?
There are definitely differences. After a long period of great success, investment banking is really suffering from the current crisis. We’re seeing financial institutions make a much stronger effort to diversify with regard to risk and return in their business. Many if not all of them are now focusing more on wholesale and retail banking again. As I said, most banks are following IT strategies that combine custom developments with existing application software. Here, SAP is in an excellent position to offer robust, scalable, and highly flexible architecture that integrates very well into the existing complex, heterogeneous landscapes. Our solution’s extensive set of standardized banking services enables customers to bring their newly bundled products to market much more quickly and price them according to each individual customer relationship. This turns banks’ IT from a bottleneck/cost factor into a driver of innovation.
SAP solutions also cover important regulatory requirements banks have to meet – IFRS 9 and Basel III, for example. Accompanying the sharp rise in such requirements is a transition away from introducing new regulatory requirements on certain key dates toward a constant process of introducing new regulatory measures into banks’ process and IT landscapes. This increasing trend is the major reason why SAP is investing significantly in this area.
In addition, innovative mobile technologies are leading to extensive changes in the banking industry. The increased mobility, meanwhile, is forcing banks to shift from a previously product-centric focus to a more customer-oriented approach. In the context of mobile banking and mobile payment, new providers – such as telecommunications companies and others – are also entering the conventional banking business, thus producing new models of competition. Multichannel strategies for banks are becoming much, much more important as a result. Hybrid applications like the Sybase Mobilizer solutions, which run on devices and operating systems from every popular manufacturer and represent a mixture of online and mobile banking, are only just the beginning of a new era for Banks to interact with their customers.
Another innovative technology that’s going to accelerate the transformation process at banks is in-memory computing. With it, SAP is helping banks run faster, simpler, and more cost-effectively in many areas. SAP HANA enables SAP to offer real-time banking, in new areas by merging transactional and analytical processes. With the power to process data at lightning speeds, a bank agent can for example generate extensive customer interaction analyses in just minutes and integrate them directly into discussions with clients. SAP HANA also makes it possible to achieve significant improvements concerning data scope and analysis- speed in financial and risk reporting, both on end of period and on an ad hoc basis. This will aid in addressing banks’ lack of transparency and speed.
All in all, it’s clear that the industry is in a greater state of flux than ever. Banks are pondering IT strategies that will help them face the challenges I’ve mentioned. Their complex IT infrastructures, particularly in the back office, have grown over the past decades and are very hard to change. This is an area where SAP provides banks with very specific support. Along with technically robust solutions, many customers are also looking for business and IT transformation services. To meet this demand, SAP just hired another 150 experts to work solely on banking. Together with our potent ecosystem of partners SAP helps banks to manage the challenges involved in such transformational programs.
Tell me about the new release of Banking Services from SAP. What innovations does it feature?
With its innovations for banks – including those in Banking Services from SAP 8.0 – SAP is addressing precisely those areas in which banks are dealing with serious adversity at the moment: regulations, customer-oriented multichannel strategies, and back-office cost efficiency. Let me give you a brief explanation of just a few of the many innovations.
Banking Services from SAP 8.0 provides comprehensive regulation coverage, particularly with the extensive updates to Basel II and IFRS. We’ve also provided our customers with stress-testing functionality that enables them to perform ad hoc analyses of credit risk, giving both internal and external stakeholders the constant transparency they need to assess a given bank’s credit portfolio.
Meanwhile, SAP’s acquisition of Sybase has given us m365/Mobilizer and Sybase Unwired Platform/Afaria as optional, compatible means of integrating mobile and online banking with the SAP for Banking applications. The first examples from our customers are already showing the extensive innovative potential of these offerings: banks’ clients are enjoying a new customer experience thanks to real-time bank services applied directly to those channels. Also the cost efficiency of these channels enables banks to tap into all-new customer segments that were previously unprofitable.
Banking Services from SAP 8.0 also offers an abundance of innovations in the way banks do business with private and corporate customers. The flexible models now available in the areas of pricing and product configuration make it possible to combine products for specific customers and price them according to each specific customer relationship. This enables banks to set themselves apart in their business with private customers, such as by bundling traditional banking products – savings accounts, credit cards, mortgage loans, and so on – at a combined price, which they can then also adjust based on credit rating, profitability, and other parameters. Also in working with corporate customers, banks now have access to even more flexible functionality for sweeping and pooling across account hierarchies.
With Banking Services 8.0 from SAP, and with other SAP technologies like SAP HANA, we offer rapid-deployment solutions based on clearly defined scope with product and process-specific pre-configuration. An initial scenario is already available in end-to-end processing of consumer loans, and more are soon to follow for data migration, financial reporting and transaction history. This will enable banks to implement and integrate SAP for Banking solutions at a significantly higher speed with reduced risk and costs.
To what extent have customers contributed to the new solution?
SAP has always strived to work closely with its customers, and this case is no different: Banks want strong partners, and we’re often their first choice. Deutsche Bank, for example, played a major role in the design of the functions for handling M&A scenarios. One of the goals of such scenarios is to minimize direct consequences for bank customers when changing the underlying IT platform; clients should keep the same account numbers, for instance. Another goal is to take advantage of cross-selling potential, which starts with cleansing existing customer data for further analyses. In Germany, Deutsche Bank is using Banking Services from SAP 8.0 as a platform for its strategic acquisitions in retail banking.
There are already pilot customers for Banking Services from SAP 8.0. Have they already reported on their initial experiences?
At the moment, we have three pilot customers: Deutsche Bank, Commerzbank, and Société Générale Société Générale is transforming its accounting because its previous heterogeneous, decentralized IT landscape barely supported expansion. It was also replicating a large amount of data with different technologies. Now, Société Générale wants to simplify its processes. Commerzbank also wants to transform its accounting based on SAP Bank Analyzer. Its recently completed acquisition of Dresdner Bank led to the merger of the two banks’ transactional systems. Deutsche Bank, meanwhile, is transforming its core banking. We’re going to help it change its business processes in traditional retail banking. They’re really excited about what they’ve seen so far.
What advantages does Banking Services from SAP 8.0 offer bank employees in their everyday work?
Thanks to its organic growth in connection with the integrated SAP BusinessObjects portfolio, Banking Services from SAP 8.0 is a platform that makes current data accessible to lots of employees from different organizational hierarchies in real time. Take ad hoc analyses for example: with the help of SAP Crystal solutions, users can create interactive dashboards and conduct mass reporting at branch offices. In addition, we have a number of highly innovative tools in our portfolio in mobile business intelligence with SAP BusinessObjects Explorer. With SAP HANA technology, flexible and dynamic configuration of reporting is possible in real time. Those who have implemented Banking Services from SAP 8.0 are ideally equipped to take on the future.
Technical innovations can help prevent economic crises, but as we’re currently seeing, that alone isn’t enough. What do banks need to do outside of the field of IT?
In my opinion, banks need to get back to following the real economy. They need to distance themselves from many synthetic products that provide little or no value to the customer and are so complex that not even bankers themselves understand them anymore. This has to go hand-in-hand with banks achieving a new level of transparency: Risks need to be identified and assessed more quickly and comprehensively by both internal and external stakeholders. This is the only way to regain the trust that’s been lost recently.
As I’ve explained, IT can and must make an essential contribution to greater transparency, simplicity, and cost efficiency. We at SAP want to play a big role in this transformation of the industry and believe we together with our partners are in a great position to do so.
Photo on page 1 is of Gerald Faust, head of banking at SAP. Photographer: João Castellano / Ag. Istoé