SAP Business Suite powered by SAP HANA Fact Book. Banking Find Out How SAP Business Suite powered by SAP HANA Delivers Business Value in Real Time

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1 Banking Find Out How SAP Business Suite powered by SAP HANA Delivers Business Value in Real Time

2 Disclaimer This document is not subject to your license agreement or any other service or subscription agreement with SAP. SAP has no obligation to pursue any course of business outlined in this document or any related presentation, or to develop or release any functionality mentioned therein. This document, or any related presentation and SAP's strategy and possible future developments, products, and/or platforms directions and functionality are all subject to change and may be changed by SAP at any time for any reason without notice. The information in this document is not a commitment, promise, or legal obligation to deliver any material, code or functionality. This document is provided without a warranty of any kind, either express or implied, including but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. This document is for informational purposes and may not be incorporated into a contract. SAP assumes no responsibility for errors or omissions in this document, except if such damages were caused by SAP's willful misconduct or gross negligence. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, and they should not be relied upon in making purchasing decisions.

3 SAP Business Suite powered by SAP HANA Banking Banks must seek new competitive advantages in response to changes in customer trust, demographics, and demands, as well as to profit margins reduced by higher capital requirements, compliance costs, and lower-fee income. SAP solutions that leverage the power of the SAP HANA platform lead the way to new real-time business practices in these key areas of banking: General Remark... 4 Finance, Risk, and Compliance... 5 Finance and Risk Data Platform: One-Step Data Management for Downstream Applications... 5 Accounting for Financial Instruments on SAP HANA...11 Governance, Compliance, and Surveillance Compliance and Fraud Prevention and Detection Liquidity Risk Management...21 Manage Funding Liquidity Risk... 21

4 General Remark Use of Generic Line-of-Business Scenarios for Banks In addition to the banking-specific usage of the SAP HANA offering, which is described in the subsequent chapters, banks also demand generic line-ofbusiness (LOB) scenarios finance; governance, risk, and compliance (GRC); human capital management (HCM); and sales. In this context, the following banking applications, scenarios, and process steps based on the SAP Customer Relationship Management (SAP CRM) and SAP ERP offerings were ported to the SAP HANA database starting with release 7.0 of SAP CRM, EHP 3 and release 6.0 of SAP ERP, EHP 7: SAP Deposits Management for Banking application, Suite edition SAP Loans Management for Banking application, Suite edition SAP Collateral Management for Banking application, Suite edition SAP Reserve for Bad Debts for Banking application SAP Financial Customer Information Management for Banking package SAP Account Origination for Banking package SAP Leasing for Banking package General ledger connector for bank analyzer Multicurrency accounting Therefore, customers can use generic LOB scenarios supported by SAP Business Suite applications together with the above-mentioned SAP CRMand ERP-based banking applications, scenarios, and process steps on one SAP HANA database instance. 4

5 Finance, Risk, and Compliance Finance and Risk Data Platform: One-Step Data Management for Downstream Applications Ad hoc interactive analysis from days to seconds* Stress testing and risk aggregation on demand Business Practices Today The information management landscape of banks is typically very heterogeneous. Siloed solutions for risk, accounting, and regulatory reporting built and owned by independent departments make it difficult to get consistent information and to meet enterprise-wide reporting needs. Different technologies and data aggregations lead to significant reconciliation efforts and inconsistencies. Adding to these challenges are the recent mortgage and European monetary crisis, which have led to new regulatory requirements for example, international finance reporting standards (IFRS) 9, Basel Accords II and III, in particular Basel Committee on Banking Supervision (BCBS) 225, 238, and 239 that focus on finance and risk. Today s banking institutions have many reasons to consolidate their information management landscapes, ranging from cost reduction, to greater business insight, to improved market agility. Business and regulators require intraday and simulative analytics functions, very often across functional domains. Ambition Banks have to redesign the data management landscape to gain the following benefits: Consistent data storage No reconciliation effort Immediate reporting Interactive analytics Agile responsiveness Simulation and prediction All large banks are looking for a platform to act as central data storage containing all contracts, customers, transactions, and events that allows risk, accounting, management and compliance reporting, and calculations. This is more than a reporting tool. It is a data management infrastructure. Innovations such as in-memory computing technology now provide opportunities for banks to optimize and simplify their information and reporting architecture. 5

6 Instant rootcause analysis mobile enabled SAP is able to provide a robust real-time data platform for finance and risk through a suite of applications that either operate directly on the data platform or that are integrated. Challenges Banks are driven by various internal and external factors requiring better visibility into and transparency of their businesses. For example, banks need to project contractual cash flows for underlying transactions when institutions manage millions of transactions. Significant regulatory changes require stringent compliance. Banks need to improve stress testing and accuracy of analysis. When banks have the ambition to build a finance and risk data platform the challenge begins with the typically very heterogeneous landscape of source systems. Data from a variety of sources has to be integrated in real time or periodically. Data modeling and flow management need to be organized centrally and supported by appropriate tools. The finance and risk data platform has to serve different business needs and requires a multipurpose data model. The platform needs to be able to support standard reporting requirements as well as ad hoc analysis. Furthermore, it has to serve the information needs of calculation processes and applications that might be implemented based on SAP and/or third-party applications. More and more results need to be produced in real time. 6

7 Business Innovation with SAP HANA Full drilldown to single cash flows in seconds The implementation of the finance and risk data platform based on the SAP HANA platform addresses the above-mentioned challenges. SAP HANA is the technological basis to consolidate data across the enterprise from SAP and non-sap sources. SAP Business Warehouse (SAP BW) powered by SAP HANA complements the solution with data-warehousing capabilities. Whereas SAP HANA is the core, other components of the SAP Data Management portfolio complement the solution. SAP has a collection of tools for data integration and data quality management that support realtime, batch, and stream-based data integration into SAP HANA. Other solutions support the data modeling and governance process. Innovation in Detail Less materialization: Given the processing power of SAP HANA, many aggregations, transformations, and calculations can happen on the fly. This leads to less materialization and more virtualization of classical data warehouse layers. Redundant data structures, such as cubes, can be replaced by views. Flexibility: New reporting requirements can be addressed more easily and flexibly by creating appropriate SAP HANA views. Simplification of system landscape: Finance and risk applications can be deployed jointly with SAP BW on a single SAP HANA database. This allows a more direct access to the data in the finance and risk data platform and reduces redundancies. 7

8 Data aging: Whenever banks have to handle volumes of Big Data and not all of this data is required on a daily basis, the near-line storage option for SAP NetWeaver running on SAP HANA allows data storage on a cheaper, yet still fast, database (with SAP IQ database software). Reduction of data latency: Given the fact that SAP HANA allows you to work with fewer redundancies, the overall data latency is reduced significantly. Openness: With SAP HANA, business intelligence (BI) tools and applications acquire a new set of interfaces to use for operating on data. Structured query language (SQL) and open data protocol (OData), for instance, are well-known and accepted standards. Reference Data Model: The SAP HANA Finance and Risk Analytics for Banking rapid-deployment solution provides an infrastructure for generating a physical and virtual reference data model for finance and risk in SAP HANA. This foundation is used to run SAP s finance and risk applications and is open to integrate third-party systems via open technology standards. Mobile: The complete information basis can be analyzed and explored using mobile devices. This gives a bank always-on visibility into critical events and situations. Speed: SAP HANA provides tremendous performance improvements. New kind of applications (for example, on demand, intraday simulation, and stress testing) are possible. Benefits Simplify IT landscape with reduction of data layers and needed IT jobs We achieved significant business benefits by using SAP HANA to optimize management of business critical data for banks. This includes: Better performance: SAP HANA fully leverages in-memory computing technology innovations to dramatically improve the performance of the solution. Single source of truth: Finance and risk data management based on SAP HANA provides the single source of truth for finance and risk down to the lowest level of granularity. Ready for use: Predefined industry best practices provide comprehensive scenarios covering data sourcing, integration, harmonization, calculation, and reporting. In addition, the solution supports standardized reporting processes and self-service analytics. Integration: The value of the finance and risk data management solution is increased through the comprehensive integration of analytics solutions, such as BI and finance and risk applications. 8

9 Analytics in real time: Thanks to real-time data analysis and accelerated processes, business users get closer to the data to better interact and improve decision making in a timely manner. Fast implementation: Solutions can be implemented faster due to a simpler architecture and configuration. This enables business users to get involved in the project earlier, resulting in better-quality deliverables. Easy access to data: Business users get closer to the data, resulting in improved decision making with more accurate and detailed finance and risk positions. Lower total cost of ownership (TCO): Less redundant data structures (for example, cubes, aggregates, and indexes) lower the overall TCO of a data warehouse significantly. Customer Proof Points >1000x faster risk data analysis* Let s assume you re planning an implementation project and have approximately 500 million records in your risk data mart. Based on our experience with similar customer requirements, we have observed: > 1000 times faster analysis of risk data No aggregates needed thanks to on-the-fly aggregation of risk data Time reduction from four hours to 15 seconds to analyze key risk indicators; mobile enabled From overnight to on-demand intraday stress testing of exposure at default; expected losses and risk-weighted asset risk key figures along all reporting dimensions New capabilities thanks to ad hoc exploration with functionality for drilling down to individual transaction details 9

10 Available Solutions and Outlook SAP plans to integrate the existing finance and risk applications on a single finance and risk data platform running on SAP HANA. Offerings, such as the SAP Bank Analyzer set of applications, are planned to be made available in subsequent steps on SAP HANA and integrated with the finance and risk data platform. New finance and risk applications are planned to be built on SAP HANA. Further improvements in the finance and risk technology platform will focus, for example, on data integration, scalability, and extensions of the finance and risk reference data model. Partners and customers can then develop and deploy their own solutions on the finance and risk data platform. Remark: The outlook provided in the illustration might be subject to changes. 10

11 Accounting for Financial Instruments on SAP HANA Business Practices Today Typically, banks run different core banking applications for different types of financial instruments. While the purpose of those applications is to manage interactions with business partners, they often also include subledger accounting functions. However, because contractual agreements with business partners don t differ according to each specific accounting standard, these GAAP-specific accounting requirements may conflict with contract management. This mixture of tasks and responsibilities can slow down product innovation and result in redundant work (for example, regulatory requirements needing to be applied in each contract-managing application). Because transactional systems typically cannot fulfill all accounting requirements especially complex requirements such as reclassifications, deferrals using the effective interest rate, multiple ledgers, or status changes (for example, from impaired to not impaired) manual efforts are often necessary to correctly reflect those requirements in the books. This is timeconsuming and slows down period closing. Ambition Centralize subledger accounting with the power of in-memory technology With the SAP Accounting for Financial Instruments application running on the SAP HANA platform, banks can decide for a centralized subledger that is fast enough to act as single source of truth at the individual contract level. This central instance covers all accounting requirements and enables organizations to implement regulatory changes only once. Also, SAP provides preconfiguration that reflects industry best practices. This decreases the cost of implementation as well as cost of operation significantly. With SAP Accounting for Financial Instruments on SAP HANA, business users become empowered because they can better maintain business rules. SAP HANA enables ad hoc, real-time reporting without predefined navigation paths. Business users can define any reporting view without help from their IT departments. Faster processing and reporting accelerates cycle times (for example, at period close) and enables faster innovation. Challenges Banks have been running finance applications for more than 40 years now. Often, the applications are quite dated and, because of mergers and acquisition, the IT landscape has become very fragmented, requiring numerous interfaces and increasing operational costs tremendously. Data silos and data duplication result in increased effort for reconciliation. 11

12 Banks also face increasing external pressure. Legal requirements change frequently, and stakeholders require information earlier and on a more detailed level. Business Innovation with SAP HANA With SAP Accounting for Financial Instruments on SAP HANA, the subledger for financial instruments uses the power of in-memory computing for accelerating daily and period close and for ad hoc data analysis with unrestricted navigation. Methods go to data rather than data goes to methods Running SAP Accounting for Financial Instruments on SAP HANA enables banks to avoid data replication to SAP Business Warehouse (SAP BW) or any other data warehouse. Reporting accesses the original data directly from SAP Accounting for Financial Instruments using the finance and risk data platform supported by SAP. The SAP HANA platform enables SAP to follow a new paradigm: Methods go to data rather than data goes to methods. That means the finance and risk data platform acts as single source of truth and will hold all original data residing in finance and risk applications from SAP as well as from partners. An application will use SAP HANA views to easily consume results from another application without replicating the data. SAP alone owns the complete stack of database, data model, applications, and reporting and is therefore better able than others to design an integrated solution without redundancy. Eventually, all respective applications will share the data model of the finance and risk data platform, eliminating the need for data transformation and data mapping. Innovation in Detail SAP BW is no longer mandatory. Reporting can be built directly on SAP Accounting for Financial Instruments data that is stored in the source data layer (SDL) and the results data layer (RDL). Respective SAP HANA database views can be built using the SAP HANA studio or other modeling tools such as SAP PowerDesigner. The SAP HANA views are also provided by the SAP HANA Finance and Risk Analytics for Banking rapiddeployment solution. With these views of the SDL and RDL, data can be consumed without using bank analyzer-specific access methods such as primary and secondary data sources. Customers can also continue to use SAP BW, if they prefer. Three different scenarios are possible: 1) SAP BW runs on the same SAP HANA database instance. In SAP BW, only virtual info-provider objects are used. No data is duplicated. 2) SAP BW runs on another SAP HANA database instance. For smaller amounts of data, a federation approach might be used (data is read from the other instance at runtime). No data is duplicated. 3) SAP BW runs on another database instance (SAP HANA database or a classic relational database). As mentioned previously, data can be 12

13 replicated from SAP Accounting for Financial Instruments to SAP BW. This might make sense, especially when SAP BW is used as the central enterprise data warehouse. Benefits With SAP Accounting for Financial Instruments on SAP HANA, reporting and business analysis can start sooner because no data needs to be replicated to a data warehouse. SAP HANA enables flexible real-time, ad hoc analysis with unrestricted navigation, and database indexes predefined by IT are no longer necessary for optimal performance. In-memory technology provides unmatched response times. Business insights are now available on demand on any device, any time. Users can easily consume data directly from the database with well-established access methods such as native SQL or Microsoft Excel (MDX). Running SAP Accounting for Financial Instruments on SAP HANA helps fulfill increasing demand for up-to-date information from internal management as well as from central banks, regulatory authorities, auditors, and analysts. Pilot customers achieved 5x-faster processing with SAP Accounting for Financial Instruments running on SAP HANA. This enables business user to devote more time to other activities at daily and period close. Also, the database size of SAP Accounting for Financial Instruments decreased by 50% (as compared with a highly compressed conventional database). The power of in-memory computing can be used to speed up reconciliation and to avoid data duplication, thereby preventing the need for reconciliation. Faster cycles times (for example, at period close) provide room for business process optimization and innovation. 7hr reduced to 1hr and 25 min for a period-end process chain in SAP Accounting for Financial Instruments* The possible merging of OLTP and OLAP also reduces processing cost because SAP BW is no longer mandatory. Proof Points A pilot customer reduced the runtime of a month-end process chain in SAP Accounting for Financial Instruments from 7 hours to 1 hour and 25 minutes. The application turned out to be extremely scalable; more than 400 processes were running in parallel. The capacity of the application server was doubled to make full use of the power of the in-memory database. At the same time, the size of the SAP HANA database decreased by 50% ( as compared with a highly aggregated conventional database). Road Map and Outlook SAP Accounting for Financial Instruments and the open Financial Database scenarios are the first scenarios that were optimized for SAP HANA. The open Financial Database scenario enables customers to create their own processes using a framework (calculation and value process manager) that provides access to all data in the SDL and RDL via configuration rather than programming. Also, data can be exported to applications outside of SAP 13

14 Bank Analyzer applications. All other scenarios of SAP Bank Analyzer, such as profitability analysis, will follow. In the future, the finance and risk data platform will also integrate balances of the general ledger as well as views of financial consolidation and financial planning. This will provide a single source of truth for the office of the CFO in banks. At the same time. optimization of SAP Accounting for Financial Instruments for SAP HANA will continue. SAP strives to transform current batch processes into real-time processes. Simplification of data model and process steps will pave the way. In order to turn SAP Accounting for Financial Instruments into a public cloud application, configuration options will also be drastically simplified. Product Landscape Requirements SAP Accounting for Financial Instruments on SAP HANA is available for release 8 of SAP Bank Analyzer. However, it requires an upgrade of the underlying SAP NetWeaver technology platform from release 7.11 to release 7.40 or higher. Also SAP Accounting for Financial Instruments needs to be upgraded from FSAPPL400 to FSAPPL450, which also includes upgrades of software components FINBASIS and SEM-BW. Please note that only SAP Accounting for Financial Instruments and the so-called open Financial Database scenario are released for FSAPLL450. All other applications of Banking Services from SAP include add-ons and localizations that cannot run on the same instance. SAP now also supports SAP HANA for production use on vsphere 5.5, a component of vcloud Suite, for scaling up to a 1 TB virtual SAP HANA appliance. 14

15 How to Get Started SAP HANA is the standard DB for SAP Accounting for Financial Instruments Because of all the previously mentioned advantages, from now on, SAP recommends always implementing SAP Accounting for Financial Instruments on the SAP HANA database. The first step is sizing for defining the optimal hardware configuration. For this, experts from the SAP Active Global Support organization (SAP AGS) should be involved. Of course, it is also possible to move a productive instance of SAP Accounting for Financial Instruments to the SAP HANA database. There is no need to adjust business configuration when switching from a conventional database to SAP HANA. Only a very few technical settings regarding data access might vary. The following steps have to be taken: 1) Upgrade the existing SAP Accounting for Financial Instruments system from SAP NetWeaver 7.11 to ) Upgrade the existing SAP Accounting for Financial Instruments system from SAP Banking Services FSAPPL400 to FSAPPL450 (also requires upgrade of FINBASIS and SEM-BW) 3) Copy the upgraded system from the classic database to an SAP HANA database instance The SAP Consulting organization and SAP AGS provides standard services for each migration step. In addition, specialized consulting partners for SAP Accounting for Financial Instruments offer respective services. Migration to SAP Accounting for Financial Instruments on SAP HANA is only possible as of AFI release 8. If SAP Accounting for Financial Instruments runs on a lower release, it has to be upgraded to release 8 first. A one-step upgrade procedure is available for that. As can all SAP HANA-enabled applications, SAP Accounting for Financial Instruments can be run on the SAP HANA Enterprise Cloud. This provides additional benefits such as shifting capital expenditure to operational expenses by subscription models, reducing the cost of operation and operational risk, and getting permanent access to technological innovations. 15

16 Governance, Compliance, and Surveillance Compliance and Fraud Prevention and Detection Business Practices Today Point solutions for fraud management are no longer sufficient In the past five years, there has been a renewed interest in fraud management solutions in banking accompanied by a fresh wave of implementations. This has happened for two primary reasons: Stricter regulation and supervision A general push is under way to tighten supervision of the financial system, and a U.S.-led crackdown on money laundering and terrorist finance has led to renewed interest in prevention Technology drivers The rise of Internet and mobile banking has increased the speed and volume of transactions. These technologies have made financial crime easier to commit and made the job of compliance and fraud teams harder to accomplish. As a result, banks need to improve and consolidate their existing fraud programs and systems. Point solutions for the various fraud scenarios are no longer sufficient. Banks require a holistic approach to detect and prevent financial crime. Therefore, they allocate resources, processes, and technology to effectively monitor compliance and detect, prevent, and investigate financial crime holistically. 100x improved and faster fraud detection process* Ambition Banks must keep up with quickly changing fraud patterns, reduce damage caused by fraud and irregularities, and comply with stricter regulations and laws in all countries where they do business. With the power of SAP HANA, fraud can be detected faster, rules can be calibrated interactively, and new rules can be created more easily. SAP HANA enables banks to address the various fraud and financial crime scenarios holistically, based on one integrated platform, as illustrated in the following: 16

17 Holistic approach based on a single and integrated platform The SAP Fraud Management for Banking application powered by SAP HANA provides the right controls and enables efficient processes to cope with requirements across the various financial crime scenarios and meeting the regulatory requirements based on one integrated platform. Challenges Banks have to tackle a growing number of fraud-related challenges: Increasing complexity resulting from a siloed approach to financial crime that increases the effort required to coordinate point solutions Stricter and faster-changing regulatory environment Stricter supervisions with intention of imposing heavy fines Increasing risk to reputation resulting from the negative impact on customer demand and share price Exponential increase in the frequency and sophistication of fraud, waste, and abuse Diverse, complex, and constantly changing fraud schemes and strategies Large number of false alarms (false positives) Huge volumes of data from multiple sources Operational and organizational silos 17

18 Business Innovation with SAP HANA Using the power of SAP HANA, banks can combine data from multiple sources and run detection rules in ultrahigh-volume data environments with unmatched speed. Calibration and simulation of rules can be done interactively on the full data set. SAP HANA search enables approximate string match searches in structured and unstructured data. With the embedded predictive analytic library, banks can detect fraud patterns and optimize detection rules. Global fraud management dashboard showing the number of open alerts, efficiency, average processing time, and top-10 countries by risk value across various regions Innovation in Detail The SAP Fraud Management for Banking application enables banks to analyze, detect, investigate, and prevent fraud and irregularities in ultrahigh-volume data environments. It targets both fraud and compliance scenarios that can be based on SAP and non-sap data sources. The fraud management application makes the following innovations possible: A holistic approach: Because point solutions are costly and do not provide deep insight across various topics, banks are currently looking for a platform that can address all use cases related to financial crime. Because SAP HANA can handle massive data volumes at low latency, it can help banks meet this challenge. Faster detection: Currently banks have extreme difficulty in detecting fraud promptly, making it nearly impossible to prevent it. As shown in the proof of concept (POC) described later in this document, banks can significantly reduce evaluation run times. This is the prerequisite to detecting fraud earlier and for implementing better detection methods. Greater accuracy: As proven by false positive rates that are far too high, the current rules and methods that can be used for fraud detection are neither effective nor efficient. With the online calibration tool provided by SAP Fraud Management for Banking, banks can calibrate and back test their implemented fraud detection methods to improve their efficiency. 18

19 Fraud management dashboard showing the most important information at a glance: alerts, top- 10 countries by risk value, fraud detection efficiency, average processing time, total risk value, and more Benefits Paradigm shift: Thanks to its real-time processing functionalities and better and faster fraud detection functionalities, SAP Fraud Management for Banking can help banks shift their paradigms from fraud detection to prevention. Simplified IT landscape: Significant reduction in cost results from leveraging one platform to combat financial crime and simplify the IT landscape. Effective integration: SAP Fraud Management for Banking readily integrates with SAP core banking solutions. Significant reduction in cost: Fewer fraud irregularities resulting from better fraud detection methods and lower false positive rates (thanks to online calibration of detection methods) result in more efficient and effective overall fraud management. Compliance: Predefined content helps support compliance (for example, with the Foreign Corrupt Practices Act, or FCPA). Reduction of false positives: Interactive calibration and simulation functionalities reduce the rate of false positives. Efficient investigation: Simplified data exploration, use case-specific user interfaces, and collaboration and documentation capabilities enable efficient investigation. Proof Points A proof of concept (POC) for fraud management for a tier-one bank was done based on an anti-money laundering (AML) scenario. The current banking solution requires between 40 and 60 hours for an entire evaluation run. This is far too long and consequently prevents the bank from detecting 19

20 fraud early and implementing better fraud detection methods (that would also increase the evaluation time). 1200x faster evaluation* The data volume used for the POC was 10 million customers, 20 million accounts, and one billion of transactions. The data was uploaded to SAP Fraud Management for Banking and between 7 and 10 of the most important fraud detection rules for AML were implemented. The results of the POC showed that the evaluation process could be reduced from 40 hours to two minutes, or in other words, the evaluation process could be made 1200 times faster than before. The results also showed that the bank could take a holistic approach to fraud, improve fraud detection by accelerating the detection process significantly, implement better fraud detection methods, and calibrate the currently implemented rules on the fly. Road Map and Outlook SAP Fraud Management for Banking provides functional and content extensions on a quarterly basis. One platform for all fraud use cases! The plan is to offer a fraud management platform for controlling financial crime in The solution is intended to target both fraud (for example, payment fraud, application fraud, and deposits fraud) and compliance scenarios (for example, AML and the countering of terrorist financing) that can be based on SAP and non-sap data sources. SAP HANA enables these scenarios to run on one integrated platform, supporting a holistic approach and providing better insight into financial crime. SAP plans to develop this solution together with customers through a coinnovation partnership. The customers developing the solution together with SAP would have the following advantages: Banks supporting the co-innovation approach would be able to influence the prioritization and the content of the development directly. Time to market would be very low because new functionality and content is expected to be shipped every three months. Product Details and Prerequisites See installation guide for release 1.1 of SAP Fraud Management on SAP Help Portal at How to Get Started Implementation of SAP Fraud Management for Banking can start small, with just a few data tables and rules. This helps to ensure faster time to value in weeks than rather months. From there, the data sources and rules can be extended continually, based on priorities provided by customers. 20

21 Liquidity Risk Management Manage Funding Liquidity Risk Business Practices Today To minimize the risk of missing capital for fulfilling payment obligations, various activities relevant to funding liquidity risk have to be executed: Collect cash flow information from various front-office or risk systems. Calculate contractual and economic forward liquidity exposure as well as the counterbalancing capacity on a regular basis. Calculate key regulatory figures on a regular basis. Seamless drill-down from key figure to granular data providing intuitive understanding of results Report internal and external key figures and support their detailed analysis. Execute stress testing of the calculated figures. Ambition As a result of the credit crunch, in nearly all financial institutions, liquidity risk has become the most important risk category. The widening of credit spreads means higher liquidity costs requiring a highly efficient and effective management of liquidity risk. Therefore, interactive liquidity risk management enabling the analysis of instantaneously generated forward liquidity exposures is a key capability. As a result of the financial crisis, banks need the ability to perform ad hoc definition and analysis of stress scenarios. In addition, a long list of new regulatory requirements needs to be covered. In the first place, Basel III requires key indices, such as the liquidity coverage ratio, to ensure the short-term resilience of a bank s liquidity risk profile. Also required is the net stable funding ratio a medium- to long-term cash-flow key performance indicator for available-to-required funding. Timeliness is more crucial than ever, requiring high-speed calculation processes. Banks need to forecast future developments to better manage risk potentials. Technology with mobile capability is needed to enhance collaboration throughout the organization. 21

22 Challenges Liquidity risk management should be possible in an interactive way but many financial institutions struggle with inconsistent cash-flow data, getting correct cash-flow data to the right place, calculation performance, and timelines. Finally and quite importantly, banks are not able to execute quick analysis to support decision making. The following reasons are responsible for a poor liquidity risk management: Conventional systems need hours to generate forward liquidity exposure, especially when huge amounts come into play. Free up Capital for higher return investments through liquidity cost reduction Analyzing the provided results is often time consuming due to long answer times. Market changes require new stress-test definitions, but their introduction usually takes weeks, which is no longer acceptable in today s volatile environment. What-if analysis in terms of new business means unacceptably long execution cycles. Forward-looking simulations in terms of internal and external key figures are usually not supported or their execution is restricted to specific parameters. The impact of acquisitions and internal reorganizations often can t be estimated. Collaboration between risk, treasury, and finance departments is not supported, delaying decision making. Many highly skilled people have to execute the reconciliation tasks as processes that are partly manual, slow, and error-prone. Inefficient liquidity risk management requires relatively high liquidity cushions resulting in extra liquidity costs. 22

23 Business Innovation with SAP HANA The SAP Liquidity Risk Management application powered by SAP HANA helps banks meet key challenges in managing liquidity risk by enabling business process innovations: Real-time calculation of forward liquidity exposures and counterbalancing capacity Professional visualization of the results with state-of-the-art user interfaces Seamless drill-down from group-level results to individual cash flows Ad hoc, interactive stress testing Basel III compliance and simulation of key figures, such as the liquidity coverage ratio, through time Minimization of liquidity costs through efficient management of collateral made possible by instantaneous calculation of selling strategies supporting their optimization Revolutionized decision making thanks to interactive stress testing and new business simulation and to collaboration between relevant departments Interactive, dynamic stress testing enabling multidimensional insights into risk potential Visualization of forward liquidity exposures and counterbalancing capacities under normal and stressed conditions, showing where detailed analysis could be started interactively into various dimensions 23

24 Innovation in Detail with SAP HANA Real-time calculation: Aggregations can be executed on-the-fly and forward liquidity exposures and counterbalancing capacity can be calculated quickly (often within seconds), even if hundreds of millions of cash flows come into play. Seamless drill down: Elimination of aggregate tables puts a whole new spectrum of information within reach. This way, results are analyzed from the group level down to the individual cash-flow level. The steps of slicing and dicing are defined by the user, and intermediate results are shown through professional user interfaces. Iterative stress testing: Due to very short answer times, business-relevant parameters can be changed for arbitrary portfolios, and the impact on liquidity profiles and collateral can be analyzed directly. End-to-end process can be reduced dramatically from hours to seconds, simplifying architectures Simulation: Possible future developments can be analyzed through ad hoc cash flow simulations. The outcome of different selling strategies for available collateral can be analyzed interactively. Different market liquidity scenarios are taken into account through haircut management. Simulation over time is enabled through parameterization of renewal, roll-over, and runoff rates, which can be linked to arbitrary portfolios down to the single trade level. New business: To support decision-making processes across departments, new business portfolios (for example, bond issues, hedge instruments) can be introduced interactively on the cash-flow level, and the analysis of the outcome can be performed in collaboration with different departments, such as risk, treasury, and finance. Mobile version: An integrated mobile version enables collaboration between departments anytime and anywhere. Real-time calculations help to guarantee quick communication. 24

25 Benefits We have achieved significant business benefits by using SAP HANA to optimize and rethink business processes: Analytics in real-time: Calculate and analyze data in real-time through dynamically defined levels of detail. Consistent data: Help ensure consistent static data and cash flow data across all operative systems. Interactive what-if analysis: Through interactive stress testing various potential changes from the perspectives of customer behavior, market development, and bank strategy can be analyzed interactively. Reduction of liquidity costs: With cash flow simulation, various customer behaviors, market developments, and bank strategies can be compared, enabling the bank to reduce liquidity costs. Enhanced decision making: The ability to take into account new business portfolios and the support for collaboration among different departments enables organizations to make decisions about liquidity usage. Regulatory compliance: Basel III requirements are implemented, and the current configuration from the regulator can be analyzed in a stress test to determine the impact of upcoming regulatory changes. Forecasting regulatory key figures: Calculating forward liquidity coverage ratios is enabled via simulation through time, taking into account user-defined dynamics in the portfolio development. Proof Points Let s assume you re planning an implementation project and have millions of cash flows. Based on our experience with similar customer environments, we have observed the following improvements: Faster calculation of forward liquidity exposures and the counterbalancing capacity, as shown in state-of-the-art user interfaces Transparency resulting in better visibility into cash flow at the item level to support root-cause analysis From hours to seconds: dramatic reduction in end-to-end process throughput time resulting from interactive analysis of the provided liquidity risk profiles Iterative stress testing supporting what-if analysis to enable collateral optimization Freeing up of capital for higher return investments through liquidity cost reduction Regulatory compliance supported by additional simulation through time, allowing forecasting of key regulatory figures on simulated portfolios 25

26 Road Map and Outlook Please see the chapter Available Solutions and Outlook in the section Finance, Risk, and Compliance earlier in this document. Product Landscape Requirements Please see the installation guide for release 1.1 of SAP Liquidity Risk Management. * Source: SAP internal lab tests as of Sept All performance KPIs are preliminary. SAP internal lab measurements and productive customer performance can deviate. 26

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