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Getting Started with SAP for Banking

An overview of SAP for Banking and matching space on SAP Community Network.

For many banks today, the focus is on growth on acquiring new customers, expanding existing customer relationships, entering new markets, and, of course, increasing profitability.

The opportunities for growth are great-but so too are the challenges. Recently, the credit crisis and an increased focus on risk management have made headlines. But a number of other, deeper changes are continuing to reshape the industry, as well. Customers have rising expectations for service and convenience across contact channels-and a declining sense of loyalty. Industry consolidation is making wide market reach and economies of scale more important. Regulatory requirements and compliance issues are becoming more complex and more demanding, especially as the industry becomes more global in nature. And competition continues to grow as banks vie with one another for customers and non-bank players-such as automotive finance units, online financial services companies and pre-paid payment card providers-enter the scene. Looking ahead, it is clear that banks will have to find ways to be both more innovative and more efficient if they are to compete.

Information technology (IT) can play a key role in helping banks to meet those challenges. In terms of innovation, IT can enable new products and bundles of products that target key customer segments and communities. It can also open new distribution channels and provide tools for tailoring loans and managing risk more effectively. In terms of efficiency, information technology can help banks monitor and manage globalize operations, automate processes, and integrate and consolidate back-office activities across geographic boundaries.

IT is also key to enabling banks' growth strategies. Mergers and acquisitions depend on systems that can help integrate organizations, reduce duplicate processes, and unify business processes under a single bank brand. Organic growth strategies require methodologies that enable banks to understand and serve customers across channels globally, monitor and respond to competitors' actions more effectively, and create the capabilities and internal culture needed to both manage globally and meet local market requirements as they enter new geographical areas. And growth strategies based on performance require systems that let banks harmonize activity across product lines, serve specialized niches and support the shift from siloed data and processes to an integrated enterprise in order to cut costs and increase margins.

Opportunities, Challenges and Collaboration

The fundamental importance of IT in banking is widely recognized. The industry has invested heavily in systems, and it continues to do so-with great expectations. In a recent survey, the majority of banks said that they expect to use their systems to gain competitive advantage over the next three years.

At the same time, however, banks also recognize that their IT may not be able to provide all that they need. Recent research shows that nearly half of surveyed banks believe that their systems represent a strategic disadvantage or constrain their ability to deliver on strategic promises. Systems may not be able to provide the flexibility and agility, or support for new business models, that banks are going to need. Banks' homegrown systems are typically being asked to do more and more, and provide support for everything from online banking to 24x7 global operations-as well as keep up with the governance and compliance requirements of Sarbanes Oxley, Basel II and other regulations. As banks work to change systems, they have a particularly critical need for clear migration paths. In many cases, their systems are at the heart of the business, which means that banks need to evolve IT carefully to avoid disruptions to internal operations and customer-facing processes.

Keeping IT in step with business needs is a challenging task, and a lot to ask of any single institution. As a result, many banks are beginning to look beyond the traditional home-grown, "go it alone" approach, and instead look for opportunities to collaborate. The goal is to draw on alliances and ecosystems of partners to achieve greater speed, flexibility, efficiency, and cost-effectiveness-in much the same way that collaboration has helped the aerospace and automotive industries address change and global competition.

The Foundations of Collaboration

As they move into this collaborative world, banks will need to consider a number of IT-related factors. For example, SAP believes that the banking industry will need to develop a business process platform that brings together infrastructure and applications in a flexible, integrated and cost-effective fashion. A business process platform can enable banks to:

  • Implement their own collaborative and innovative business models quickly and efficiently.
  • Achieve the integration needed to drive greater efficiency.
  • Draw on various technologies that meet their specific needs to create market differentiation and competitive advantage.
  • Move forward in an evolutionary fashion, leveraging existing IT resources while incrementally adopting new applications and processes.

Service oriented architectures (SOA) are emerging as a key enabler of such business process platforms. SOAs allow banks to re-use and re-assemble software components to enable new processes-simplifying and accelerating the ability to adapt IT to business needs while lowering the total cost of IT operations and shortening time-to-market for new products and services.In this emerging world, standardization is also of growing importance. The banking industry has made progress in the development of standards for a number of technologies and processes. For example:

  • The Single Euro Payments Area (SEPA) effort has led to a set of business and technical standards for creating a Europe-wide cards payment system.
  • TWIST, a nonprofit group that includes banks, system suppliers, electronic trading platforms and market infrastructures, is developing and rationalizing XML standards to simplify the connection of the financial and physical supply chains.
  • SAP and some 130 banks and software providers are collaborating to define services and develop definitions and standards for SOAs.

Nevertheless, there is still room for more progress on the standards front. As more standards are developed, they will streamline banks' ability to unbundle the value chain to work with outsourcing partners for IT support and basic activities such as loan payment and mortgage activities-thereby increasing agility and efficiency. In addition, banks are likely to continue to run heterogeneous IT landscapes that include homegrown and packaged software for some time, and the move to standards will make it easier to maintain and operate those systems-as well as to make the transition to new applications and processes as needed.

Meanwhile, analytics and business intelligence technologies are playing a growing role in the industry, and banks expect their importance to increase in the next few years. Already, such systems are being used to identify trends and develop insights in a growing range of activities, from risk management and customer segmentation to multi-channel service and regulatory compliance. Looking ahead, they will enable banks to monitor performance, identify key customers and market opportunities and continuously learn and improve.

Finally, it's important to note that IT is just part of the story. Banks will also need to embrace new approaches that align their people and the organization with the changing demands of the business. To that end, they will need to adopt new workflows, drive more collaborative approaches to working across internal and external boundaries, and foster increasingly customer-focused cultures. Otherwise, many of their efforts to evolve the IT landscape may well fall short in the long run.

Banks have long understood the value of IT. As the future unfolds, they have the opportunity to build on that foundation, and explore new ways of using their systems to support both innovation and efficiency. Those that can do so-and work collaboratively to adapt in a changing world are likely to thrive and grow.

Former Member

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