Banking Banks Moving to Cloud Computing for Innovation and Agility in a Real-Time World With margins under pressure, ever-expanding regulatory directives, new competitors, and heightened expectations from customers accustomed to instant updates anytime, anywhere on their mobile devices, banks are turning to cloud solutions. Standards-based cloud applications provide a way to offer services across silos while migrating functionality to new platforms and gradually replacing legacy systems. Banks that have developed cloud services have achieved greater agility and lower operating costs. 2 Adoption of Private and Public Cloud Computing in Stages 3 SAP Strategy and Credentials for Cloud Computing 5 Transition to the Cloud 9 Conclusion
Adoption of Private and Public Cloud Computing in Stages INDUSTRY TRENDS The move to cloud computing within banking is growing at accelerating speed. More than 93% of financial services executives surveyed by SAP believe cloud computing will transform their organization or their industry, and 70% expect cloud to accelerate other technology megatrends. 1 Ovum reports that cloud is business as usual for the majority of retail banks and continues to grow in importance to drive agility and support the whole business ecosystem. Cloud is poised to transform the retail banking industry, driving increased levels of competition, it adds, noting that regulatory compliance is an inhibitor but one that is being resolved. All banks must have a cloud strategy, with the focus on long-term business transformation. 2 Many banks are already experienced with running in private or public clouds. At Bank of New York Mellon, Dr. Swamy Kocherlakota, managing director, global head infrastructure architecture and engineering, says that three years of using a private cloud has improved the bank s ability to innovate, nearly doubled the density on servers compared to virtualization alone, reduced data center power consumption, and largely eliminated manual patching. Other banks have gained by moving analytics and development to public clouds. For example, Bankinter, the sixth largest bank in Spain, reduced the time to run credit-risk simulations from 23 hours to 20 minutes. 4 Banks are using the cloud for applications outside core banking, such as procurement, leasing, and human resources. While some newly established banks are running core retail banking operations in the cloud, analysts think that this trend will accelerate as established banks reach end of life with on-premise systems or end of contract with service bureaus. Banks are looking to the cloud for two main reasons: Agility and flexibility Quickly bring products and services to market with minimum IT investment Penetrate new markets Launch a de novo bank without large up-front capital infrastructure costs Move off a service bureau Migrate to a new core system in stages Cost reductions and simplification Extend multichannel front-end to on-premise applications as a first step in migration Reduce maintenance costs so more budget can drive innovation or profits Replace siloed applications with an integrated system that provides a comprehensive view of customers Move costs from capital to operating expenses Facilitate collaboration both internally and with partners and customers 1. SAP Performance Benchmarking. 2. Kieran Hines, The Critical Role for Cloud in the Transformation of Retail Banking, Ovum, 2014. 3. Tom Groenfeldt, Some Banks Are Heading To The Cloud More Are Planning To, Forbes, July 2014. 4. Ibid. 2 / 9
SAP Strategy and Credentials for Cloud Computing SAP is a global leader in providing enterprise cloud software. We are now delivering SAP Business Suite software in the cloud through the SAP HANA Enterprise Cloud service. And we offer a full range of core banking services on a cloud platform. SAP has an industrial-strength, global cloud presence, with: 16 data centers around the world More than 35 million business users 35 million employees at 6,800 companies in 190 countries More than 12 million users on the SAP Jam social software platform Over US$650 billion in business conducted per year on the Ariba Network by 1.2 million companies Source: SAP internal data sources and analysis US$650 billion In business conducted per year on the Ariba Network by 1.2 million companies CORE BANKING IN THE CLOUD Many banks are running their operations on legacy systems that are more than 30 years old, created well before widespread use of the Internet, much less mobile phones, for banking. They remain in use because replacing them is difficult, time-consuming, and expensive. SAP has been a worldwide leader in core banking replacements, notably at banks in Australia, China, Germany, and the United Kingdom. With its modular banking solutions that support global Banking Industry Architecture Network (BIAN) standards, SAP has been ranked as a leader in core banking by Forrester. 5 SAP has also recently been placed as a leader in the 2014 Gartner Magic Quadrant for International Retail Core Banking. 6 Banks that are using SAP software now will find their technology investment is protected when software is moved to the cloud. SAP provides fully integrated, real-time, omnichannel support of online and mobile access for both business-tobusiness (B2B) and business-to-consumer (B2C) customers. With SAP HANA Cloud Platform, risk, liquidity management, and Basel II compliance are supported by the power of in-memory computing. In addition, sophisticated consumer-style interfaces reduce training time for bank staff. 5. The Forrester Wave: Customer-Centric Global Banking Platforms, Q3 2014, Forrester Research Inc., August 6, 2014. 6. Gartner, Magic Quadrant for International Retail Core Banking, Gartner Inc., Don Free, Ethan Wang, November 13, 2014. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. 3 / 9
BUSINESS BENEFITS By moving core banking solutions to the cloud where they are maintained by SAP, banks can focus on their business instead of their technology. A modern core provides greater agility, liberating bank users from the constraints of outdated systems so they can be ready for acquisitions or divestitures. Customers, both retail and commercial, work, live, and play in a fast-paced, real-time world. When they move money, they want to see the changes on a mobile phone or computer in seconds, not the next day. In the future, banking access points are apt to change as retail customers look to transact through social media sites, and corporates link enterprise resource planning (ERP) systems or online e-commerce sites directly to their accounts. SAP solutions can accommodate new banking activity while holding down error rates and reconciliation costs. Core banking solutions from SAP transform the business of banking where back-office complexity, some of it resulting from mergers and acquisitions, is common. For example, it s not uncommon for banks to have hundreds of processes or multiple systems supporting a single process. SAP solutions enable banks to integrate the back office on one real-time system, reducing complexity and cost. Banks benefit from a single instance of a widely used system that draws from the wisdom of multiple bank users. The cloud also offers the opportunity to improve a bank s capital levels by shifting capital expenditures to operating costs. A single, integrated system provides straightthrough processing from account opening to transactions and balances for retail customers. SAP HANA Cloud Platform affords a real-time dynamic view of customers, such as location and social media activity for a customer that has opted to receive targeted offers while shopping or dining. For corporates, it provides a comprehensive view of accounts from treasury dashboards. SAP is a global leader in providing enterprise cloud software, delivering SAP Business Suite software in the cloud through the SAP HANA Enterprise Cloud service and offering a full range of core banking services on a cloud platform. 4 / 9
Transition to the Cloud SAP has developed a methodology for guiding banks in the transition to cloud computing. It offers onboarding and migration services designed to help firms move their software to SAP HANA Enterprise Cloud. SAP partners, including leading systems integrators and consultancies, can also provide migration design and project management. SAP HANA Cloud Platform is also available from other cloud hosting companies, such as IBM, and, in a developer edition, on Microsoft Azure. Because banking applications from SAP have been developed as standardized components, banks can adopt one component at a time to create a private or public cloud or a hybrid environment. SAP FINANCIAL SERVICES NETWORK SAP Financial Services Network lets banks provide a standardized connection in the cloud to corporate ERP systems so they can provide their full range of commercial services, including payments and related information, without supporting custom interfaces for each corporate client. Banks can monitor transactions and corporate accounts and offer strategic finance options such as loans for supply chain financing and short-term investments of surplus funds. The network makes the bank and the SAP ERP application part of an extended value chain and can significantly reduce the cost of payments and improve supply chain management. With SAP Financial Services Network, banks can: Lower rejection rate through payment automation Resolve issues more quickly by supporting negotiations over payments, discounts, and adjustments for shortages or damage Make processing faster and more efficient by transforming SAP ERP transaction files to bank formats and routing them between the bank and corporate customers Improve cash management through real-time views of incoming and outgoing payments Use deeper views of customer business to improve opportunities for cross-selling additional services such as foreign exchange or supply chain finance Support companies in their decision to concentrate their ERP-generated transactions at the bank Visa Inc. has announced it will offer its Visa commercial clients a simplified way to pay by Visa through SAP Financial Services Network. The combination of Visa and SAP Financial Services Network will simplify payment processing by helping companies move from paper to electronic procurement. 5 / 9
CITIGROUP: LAUNCHING SAP FINANCIAL SERVICES NETWORK Historically, corporate clients have been faced with many challenges when integrating with their banking partners for managing their transaction banking needs, says Mayank Mishra, managing director and global head of channel services for Treasury and Trade Solutions at Citigroup Inc. Size, complexity, and reliance on nonstandardized legacy systems have all resulted in banking architectures that are unique to each bank. And as a result, corporations and banks have been carrying the burden of higher connectivity costs and juggling multiple relationships with each other. Thus, in an effort to streamline connectivity and remove integration barriers, Citigroup partnered with SAP to co-innovate SAP Financial Services Network, a cloud-based, multibank services platform to seamlessly connect banks with their corporate customers, Mishra adds. With SAP Financial Services Network, there is now an exciting new solution for the SAP community, Mishra continues. Recognizing the potential this provides for both corporate clients and banks, Citigroup was the first organization to join the network. The true benefit of this solution is that SAP becomes an integration services provider by connecting the corporate user to multiple banks. This simplifies the integration model for the corporate user by consolidating effectively all bank interfaces into one, and banks now have a standardized interface for SAP uses. While the current focus is on cash management services, Citigroup and SAP are looking to expand this to cover all aspects of transaction banking globally. Cloud technology provides the ability to respond to market changes more quickly with ready to go infrastructure and application components that dramatically shorten timescale. 6 / 9
THE CLOUD-BASED MARKETPLACE WITH THE ARIBA NETWORK Many organizations still rely on manually raising and forwarding paper purchase orders to suppliers and manually processing paper invoices. They expend high levels of time and effort in reconciling paper invoices, correcting errors, and fielding supplier inquiries when they could be focused on finding better ways to manage cash. The Ariba Network is a global, cloud-based, B2B market where more than 1.2 million buyers and suppliers are conducting US$650 billion per year in business electronically. It is designed to enable collaboration between buyers and suppliers and provide efficiency in corporate procurement through strategic sourcing processes, including effective use of contracts and catalogs and attachment of information about goods and services to the payments (the purchase order is returned as the invoice with the payment). For a bank, especially one operating internationally, the Ariba Network provides the ability to interact with suppliers in regions around the globe while maintaining purchasing controls and compliance centrally. A bank can rationalize the number of suppliers, maintain data on its top 90%, and better analyze its supply chain for issues involving service-level agreements (SLAs), risk, and sustainability. Buyers enhance financial outcomes by directly negotiating payment terms, such as discounts for early payments, buyerprovided finance for suppliers, and the currency to be used in payment. The Ariba Network delivers: Enhanced buying power and lower costs Discovery of new sources of supply Reduction in supply chain costs and risk Better visibility and predictability Real-time management of working capital Lower system maintenance costs and improved availability By combining information about goods and services with information about payments, the Ariba Network can help banks: 7 Achieve a 20% improvement in their working capital Realize supply savings of 4% to 15% in unit price Realize up to 60% improvement in purchasing compliance Benchmark procurement productivity, matching statistics, automation, and throughput SAP Financial Services Network lets banks provide a standardized connection in the cloud to corporate ERP systems so they can provide their full range of commercial services without supporting custom interfaces for each corporate client. 7. The Ariba Benchmarking, 2013. 7 / 9
SUCCESSFACTORS SuccessFactors, an SAP company, provides comprehensive, cloud-based HR solutions designed to work the way people do. For example, they help businesses speed up the identification and hiring of appropriate candidates and get new employees engaged from the first day. The SuccessFactors HCM Suite has been ranked as a leader by technology analyst firm Forrester. 8 SAP (SuccessFactors) has been placed in the Leaders Quadrant of the 2014 Gartner Magic Quadrant for Talent Management Suites. 9 In banking, where an average of 70% of operating expenditure is spent on employees, 80% of money center banks trust the growth of their organizations to SAP. 10 SuccessFactors HCM solutions deliver: A complete global solution across all HR functions Data analysis, insight, and guidance for maximum business impact Flexible and extensible architecture to start anywhere and go everywhere FIELDGLASS Fieldglass, now part of SAP, extends HR tools to the contingent workforce part-time employees, contractors, and consultants that have become such an important part of staffing in the agile enterprise. The cloud-based applications help employers quickly engage the people they need in dynamic markets. When combined with the collaborative procurement functionality of Ariba solutions and the HCM solutions from SuccessFactors, Fieldglass applications position SAP to help businesses manage their entire workforce from initial recruiting and onboarding to ongoing development, performance management, retention, and retirement. 8. The Forrester Wave: Learning And Talent Development, Forrester Inc., March 12, 2013. 9. Gartner, Magic Quadrant for Talent Management Suites, Gartner Inc., Ron Hanscome, Jeffrey Freyermuth, and Yvette Cameron, June 2014. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions o Gartner s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. 10. SuccessFactors Benchmarking, 2013. 8 / 9
Conclusion Global banking and commerce take place in a highly competitive world. Banks in particular are under pressure; they cannot afford to stay on costly, inflexible systems while competitors move to new cores that are real time, integrated, and ready to connect to mobile users or to e-commerce networks. As Ovum notes, cloud technology provides the ability to respond to market changes more quickly with ready to go infrastructure and application components that dramatically shorten timescale. 11 SAP provides an integrated, comprehensive, cloud-based finance and business universe. Core banking connects to users of SAP Business Suite applications. SAP Financial Services Network, running in the cloud, connects banks to most corporate ERP systems, while the cloudbased Ariba Network provides a global electronic marketplace that brings together buyers and sellers. SuccessFactors is a world leader in cloud-based solutions for human resource planning, recruitment, and retention. Banks and corporations have tremendous cost-effective business opportunities in this environment. And because these solutions are cloud based, they can be implemented quickly and run less expensively. SAP has developed a methodology for guiding banks in the transition to cloud computing. Working with experts at leading consulting firms, SAP provides migration design and project management as needed. Because SAP has developed banking solutions in standardized components, banks can deploy one component at a time, usually beginning with components for HR or leasing before achieving the greatest value a new, cloud-based, core banking system. FIND OUT MORE To learn more about cloud solutions from SAP and how SAP can help banks transition to the cloud, visit us at www.sap.com/banking. 11. Op. cit., Ovum. 9 / 9 Studio SAP 30608enUS (15/04)
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