swim or sink: essential insights for staying afloat in the banking market place

White Paper Innovation in the Banking Sector February 2012

© PAC 2012 www.pac-online.com

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Sink or Swim? Essential Insights for Staying Afloat in the Banking Market Place.

How innovation can help core business better adapt to the changing market February 2012



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Table of Contents

1. Introduction .................................................................................. 3

2. Executive Summary..................................................................... 4

3. Industry Analysis: Main challenges for the banking sector in 2012-2015 ...................................................................................... 5

4. Innovation in Banks: examples of projects undertaken ........ 10

5. “Emerging models” and new entrants: focus on the UK market ......................................................................................... 16

6. Conclusion: key areas where IT technologies will help banks to better adapt to the changing environment ......................... 19

About SAP: How can our innovative charging and billing solution help your institution? ................................................. 21



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1. INTRODUCTION

The global banking industry is going through a phase of significant change,

as banks and financial institutions have come under intensifying pressure

from regulators, customers and shareholders. These changes are a catalyst

for them to address the inherent weaknesses exposed by the financial crisis.

For far too long banks have relied on legacy processes and systems, and

silo organisations that can no longer support the business effectively.

For banks to survive and grow in the current economic climate, they must

become more innovative. Innovation will be key to achieving significant cost

efficiencies, enhancing differentiation, and will help to better support the

business by more aggressively retaining and winning customers in an

increasingly competitive market. Banks will have to adapt their current

business models and this will significantly impact the way banks work today.

Pierre Audoin Consultants (PAC) undertook a study sponsored by SAP to

investigate how banks can innovate to improve their business and financial

performance. As part of this study, PAC conducted a number of interviews

with business decision makers from Strategy & Innovation, Marketing,

Pricing and Finance departments as well as IT managers to get a

comprehensive view on how various departments, processes and IT

systems are being impacted by changing market dynamics.

This White Paper highlights the key challenges banks are facing across the

globe and identifies important areas that they should address to remain

competitive in an ever-changing regulatory and competitive environment.

This paper will cover the following areas:

• Overview of the key challenges the banking sector is facing;

• Practical examples of how traditional business models can be

innovated;

• Strategies deployed by successful new players in the UK market;

• How IT can help the core financial business master the ever-

changing market.



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2. EXECUTIVE SUMMARY

The banking sector has come under major public and regulatory scrutiny.

Financial institutions are facing challenging times due to cost pressure,

intensifying pressure from regulators, and increased competition alike.

• Based on the current economic outlook, institutions need not only to

improve cost management and margins, but also adjust their

business models, improve their efficiency and deliver more value-

added products and services across their core businesses;

• Attrition, an ever present threat to many banks, forces financial

institutions to rethink their customer service levels, improving trust

and loyalty among their existing clientele;

• Main focus will be on governance, risk, and compliance (GRC) along

with improving risk management, capital and liquidity levels;

• Institutions need to embrace new technologies, like cloud and

mobile platforms as well as the Internet to address future business

needs today, and capture the interest of a new generation of

customers, clients and employees.

More than ever, financial institutions need to create strong value propositions

for their customers, both internal and external ones. Innovation, investment

in new technologies, establishing new business models and new

generations of products will be key elements to successfully manage the

challenges at hand.



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3. INDUSTRY ANALYSIS: MAIN CHALLENGES FOR THE BANKING SECTOR IN 2012-2015

Since the financial crisis hit the global market, we have witnessed an

acceleration of widely ignored market forces including changing consumer

behaviour, regulatory and competitive changes, and the mainstream use of

innovative technologies.

Now these changes, combined with a downgraded economic outlook, are

putting profitable banking models and consequently Return on Equity (ROE)

under significant pressure.

A highly competitive industry with demanding customers…

In retail banking, demand is maturing and customers request higher levels of

customer care, along with more personalised products and services. Banks

are increasingly challenged to maintain existing customer relationships.

The crisis has also negatively affected customersʼ perception of banks and

has heightened awareness of the way in which they interact with the bank of

their choice. Financial institutions around the globe recognize the need to

deliver a more efficient and customer-centric set of products and services

than ever before. Such strategies will help banks to reconnect with their

customers, improve interaction and build customer loyalty. Many banks are

increasingly seeing the need to compete not only on product portfolio, but

superior service delivery, and value-based pricing.

Relationship pricing is one example of how banks can build on existing

customer relationships and the actual value these bring to the institution.

This form of price differentiation by understanding the overall customer

relationship and the consequent profitability each brings to the business,

enables banks to offer rates and charge fees more appropriately for all

products and services provided to each customer segments. On the other

hand, commercial retail customers are rewarded for their loyalty, as well as

being presented with more personalised products and services.

In the coming years, even greater competition is to be expected in servicing

the corporate segment. As another result of the financial crisis, global

financial institutions need to continuously adapt their organisations to focus

even more on providing exceptional service to their existing retail and

RBS: “…given the economic outlook and the difficult trading environment, we are actively working on further cost initiatives across the group….”

Relationship-based pricing is increasingly considered by banks as a way to reward customers for their loyalty, and help drive profitability and wallet share.



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corporate customer base as a means to offset the declining revenues from

investment banking activities.

Regulatory changes demand greater protection of consumers

New regulatory requirements from the Basel III and Dodd-Frank accords on

risk management demand greater transparency of capital and liquidity

levels, and even more protection of consumers. In addition, regulations such

as those derived from the European Payment Services Directive introduced

in 2007 are forcing banks to develop a single consolidated view of their

customers and clients, which is required for reporting purposes. The

Financial Services Authority (FSA) in the UK has also forced UK banks to

consolidate all of the accounts a depositor has with a bank to arrive at a

single view of the customer. This is to enable a faster payout of funds in the

event of a bank failing.

In addition, regulators are also enforcing wider changes to be made in the

banking industry to prevent another financial crisis. Such changes will have

a significant impact on banking processes and operating costs. In the UK, for

example, the Vickers Commission recommended, in September 2011,

“fundamental and far-reaching” reforms forcing banks to increase their

capital and separate their core retail operations from their riskier trading and

investment banking businesses. It calls for a bank’s “ring-fenced” operation

to have a separate board of directors and in addition, to maintain equity

capital equivalent to 10 per cent of their respective risk-weighted assets.

Another example is the US, where bank regulations resulting from the Dodd-

Frank Act, intended to protect consumers, are increasing pressure on banks'

cost structures to comply with these new rules and even more so should

they fail to comply… The act includes an amendment that limits fees on

payments, as well as a requirement to move many over the counter (OTC)

businesses to clearing houses and to divest proprietary activities. The main

issue for banks will not only present itself in reviewing their existing revenue

streams, prevent potential leakage (i.e. fee waivers, exception pricing) but to

find new revenue streams with innovative products and services.

New technologies: critical need to develop Internet and mobile

channels

New consumer behaviour has been forcing banks to develop and enhance

technical capabilities to service their customers through new channels such

Regulatory changes across the globe require banks to create single analytical views of their clients.



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as the Internet and more recently mobile devices. The Internet is now part of

everyday life in almost every country: a recent survey carried out by the

European Commission highlighted that nearly 60% of Internet users in the

27 European Union countries shopped online in 2010; the proportion of e-

shoppers among Internet users ranging from 9% in Romania to 79% in the

United Kingdom (a mature market). The same survey showed that nearly

40% of individuals used Internet banking services: from 2% in Bulgaria to

83% in Norway.

The Internet is also driving the marketʼs expectations to new levels:

customers and clients are becoming increasingly sophisticated in their

demands and expect a consistent service across the multiple banking

channels they use. In addition, customers expect not only a faster response

from their banks but many have now the capacity to ʼshop aroundʼ and

compare products and services offered among different financial institutions

increasing the overall transparency in the market.

Beyond the Internet there have been significant advances in technologies

driven mainly by the IT community, the increased need for convenience and

security among customers; with not only IT companies but also financial

organisations to keep pace with emerging consumer and IT trends to remain

interesting and subsequently competitive in the market. While some banks

more than others have adapted quickly to the rapid changes in the market

place, many have not yet made major investments; yet all need to start or

keep such momentum going.

The fact that many financial institutions are working with home-grown

applications with little room for flexibility and scalability is in itself a

challenge. Providing a seamless cross-channel experience is becoming an

important component in customer retention. Generation Y customers and

businesses expect mobile access to their banking services through tablets

and smart phones. In this hyper-connected world, innovative ways of

interacting with customers are emerging such as electronic or virtual wallets

with a pre-paid account balance, which can be topped up directly from a

userʼs bank account and debited in real-time to pay for goods and services.

Pre-paid accounts such as e-wallets also reduce the number of transactions

to process. Smart mobiles can make contactless payments using on-device

charging and balance management capabilities embedded in a smart card

on the phone. Smart cards open up opportunities for personalised offers to

be made for online and offline services and for third parties to offer coupons

and real-time offers at the point of sale.

Evolving market expectations: Customers and clients increasingly require real-time quotation.



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Financial institutions have an opportunity to join forces with third parties to

capture additional revenue streams that might otherwise elude them such as

offering mobile rate plans. Sophisticated partner revenue management

calculation and settlement mechanisms are necessary for a seamless, close

looped payment process.

Pressure from new entrants

In the last decade, a number of countries have undergone deregulation to

battle with the high concentration of institutions within the financial services

sector. The concentration of the banking industry is particularly high in

continental Europe, where the leading five banks (BNP Paribas, Deutsche

Bank, Royal Bank of Scotland, HSBC and Barclays) own 70% to 80% of the

overall market. Deregulation coupled with the development of e-business

has given way to increasing competition from payment institutions.

These new entrants mostly focus on products and services around Internet

and mobile payments, and tend to come from the telecoms or Internet

industries. Companies such as PayPal, TNS, Google, or Buyster (JV

between three major operators in France) see significant revenue-generating

opportunities in the banking sector through offering services like credit

transfer and/or direct debit services. Offering these services provides them

with an entrance to banking services. In their race to offer the “best service”,

banks ought to be cautious not to be squeezed out of this market, which

presents income-generating opportunities around fee-based pricing.

Need to improve cost management and to rethink business models

All the above-mentioned market forces, together with the current economic

climate, put traditional banking models under significant pressure.

Banks need to improve cash management and transparency of their

financial position, to put a greater focus on high-value customers, to

rationalise costs, and to deliver more value across the organisation.

However, financial institutions are faced with the challenge to keep costs to a

minimum through setting efficiency targets, while attempting to meet higher

customer expectations. In doing so, banks are reluctant to generate an

overwhelming number of products that can lead to unclear credit scoring.

Some banks are working on simplifying and enhancing the transparency of

In their race to offer the “best service”, banks ought to be cautious not to be squeezed out of the lucrative internet-based credit transfer market.



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their product portfolio, reducing the number of products delivered per branch,

which can go up to hundreds in some extreme cases.

Banks need to develop customer centric approaches

Investment Banking: need for improved control over margins and

sales activity

Investment banks have been significantly hit by the credit crisis in the late

2000ʼs, with large institutions such as Bear Stearns and Lehman Brothers

collapsing, and other banks being acquired by rivals. In addition, a number

of banks around the world have been nationalised, due to being bailed out

by their respective governments such as the Royal Bank of Scotland, 82%

nationalized in 2009.

Investment banks have to deal with two major pain points: they need to

implement new risk requirements, and develop new offers relating to the

implementation of Basel III, MIFID II or the Dodd-Franck act in the US.

In addition, investment banks are facing similar issues to the rest of the

industry: the need to improve productivity, to deploy automated processes

and to improve risk management.



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4. INNOVATION IN BANKS: EXAMPLES OF PROJECTS UNDERTAKEN

How do banks react in view of these challenges? How do they innovate?

Research shows that in most cases innovation involves smart use of IT and

strategic investments.

New generations of products and services are designed to reconnect with

customers and clients, improve customer analytics, consolidate a view of the

customer across the enterprise, develop new channels, and meet market

expectations. This section provides insight into the practical solutions that

are developed by proactive players.

New offers and renewed focus on customer-centric approaches:

towards new product delivery architectures in the retail business

In order to meet customersʼ expectations for a more targeted offering, banks

are forced to re-examine their existing sets of products and services.

To do so they will use different approaches: diversify in new segments such

as real estate or insurance, propose bundled offers with airline partners,

develop new online services, and mobile banking.

Banks have also recently announced products and services that integrate

social networking platforms. Commonwealth Bank of Australia launched

CommBank Kaching in October 2011, which includes facilities for retail

customers to make peer-to-peer payments through their Facebook accounts.

Some retail banks have integrated Twitter into their iPad application for

customer service. In a similar fashion, Citi Paymentsʼ Facebook application

allows mobile operators to take top-up payments from customers via

Facebook.

Emergence of a middle office connecting the delivery chain

To be able to offer online services and retain or attract customers, banks

need to have the right applications in place in their back-offices to support

bundling of services, personalised offers and relationship based pricing. “A

new ʻdelivery architectureʼ is being shaped in retail banking: we expect a

change in traditional go-to-market approaches in the coming years”, notes

A “new architecture is being shaped” in which smart tools connecting the overall delivery chain and the great amount of data available play a key role.



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André Cichowlas, Head of Financial Business Unit at Capgemini. “We

predict the established front- and back-offices will evolve to include a

ʻmiddle-officeʼ”. This middle office will be made of smart tools connecting the

overall delivery chain. Its purpose will be to centralise and make best use of

available customer data, rationalise and clarify the portfolio of products

offered to customers according to pre-defined rules, assist front and back-

offices in simulating the best path of action for the organisation, etc.

The pricing and scoring rules,

pre-defined by the organisation,

will allow this middle office to

suggest the “next best actions”

to take. These “next best

actions” will suggest the best

products to offer in view of credit

scoring rules, the best invoicing

mechanisms, or channel priorities. This new architecture constitutes an

effective method of personalised pricing.

“Pro-active players have initiated reengineering of delivery channels and

processes, using BPM (business process management)”, concludes André

Cichowlas.

Leveraging analytics for improved segmentation

More than ever, a better understanding of clientsʼ needs and of customer

segmentation is required. In order to identify high-value clients and tailor

offers to their needs, banks are investing in tools and facilities that can help

improve customer profiling and analytics.

Banks are working on improving leverage of the large volumes of customer

data to better understand their customers. Through the use of analytics,

banks can enhance customer segmentation and anticipate customer

requirements. Knowing the customer will enable banks to put together more

tailored products, and identify cross-selling opportunities.

A new generation of offers: an example from corporate banking

Corporate clients expect their financial partners to help them improve cash

management in a global context. Many of the banks are focusing on

expanding their cash management products and services to enable

Banks are working on improving the usage of the large amount of customer information available.



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corporate clients to optimise their working capital, and to set up international

cash pooling facilities, payment or factoring facilities.

In doing so, banks sometimes find it difficult to fund the level of investment

required to succeed in the cash management business.

A financial institution interviewed in the study, provides a good illustration of

how focused IT investments can help determine the required financial

equation to launch specific offers which address a market need.

This major player introduced a reverse factoring platform to meet the needs

of some important corporate clients that have been long-term customers.

These clients were requesting financial services that would help them

improve cash management and support a network of smaller suppliers in the

current challenging economic climate. Reverse factoring is a process that

enables a purchaser (usually a major company with high credit scoring) to

initiate a factoring process to help their network of suppliers to finance their

receivables more easily.

The financial equation is sometimes difficult to achieve in reverse factoring,

and it can be challenging to reach the required level of profitability, partly

because of the higher administration and invoicing costs incurred.

The financial institution interviewed created an electronic process platform to

address these constraints. This platform included several best of breed

analytical and invoicing tools and helped enhance efficiency through the

automation of the payment and collection processes, while reducing costs

and speeding up the process.

The bank has reaped a number of benefits as a result of implementing the

electronic process platform. These include: satisfying large account

requirements, acquiring new clients (suppliers), diminishing activity ratios

and average collection time on these offers.

Internet banking as a core line of business… BNP Paribas adopts an

innovative approach to online banking

For some time, Internet banking was perceived as an opportunity to improve

customer satisfaction and to facilitate economies of scale across the

organisation. However, in most initiatives, Internet banking was treated as a

separate channel.

In the aftermath of the “brick vs. click” era, the Internet channel was viewed

as a multimedia platform and as the main alternative to the branch network.

Electronic platforms including best of breed analytical and invoicing tools enabled improvement of both top and bottom lines of the new offering.



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Banks undertook massive investments in building efficient but remote e-

banking channels. The approach was then to set up the channel, … and

expect the back-office to consequently adapt.

The approach soon revealed some shortcomings: each channel tended to be

stuck in its own logic, if not in opposition to other channels.

In order to avoid these shortcomings, BNP Paribas Online Banking decided

to develop its own approach to online banking.

BNP Paribas Online Banking was born from an acceleration programme

three years ago. It now employs 1,000 people and manages 2.4 million

clients. 9% of savings accounts of BNP Paribas France are now signed up

online, 80% of personal stock trades are placed through the Internet.

Created as a start-up within the retail bank, the organisation wants to

position itself as enabling the transition from a traditional bank to the bank of

tomorrow.

Virginie Fauvel, Head of BNP Paribas Online Banking explains: “We wanted

to address the new ways of banking, not be an isolated channel. This is BNP

Paribasʼ specific approach to Internet and mobile banking. Beyond, ʻmulti-

channelʼ we want to directly integrate Internet and mobile banking into the

established bank. For us, Internet is a core business line with all the

departments any other line of business would have: technology, of course,

but also marketing, back-office, customer services …”

This is a pioneering approach in the online landscape.

Now that the offers are designed (in November 2011, BNP Paribas launched

its mobile banking services, setting the e-wallet), the challenges for the

years ahead are: to improve analytics, to improve sharing of data between

the departments, and to further develop the online business.

The innovative “cross-channel” approaches, such as the one deployed by

BNP Paribas, can be defined as the next step where all channels

communicate collaboratively between each other, supported by the same

level of customer information, and enabling clients to move from one channel

to the other with a consistent experience.

Back office is key ...

Launching new services also provides the opportunity to create lean

processes and to automate some of the interactions between front and back-

Innovative cross-channel approaches: all business lines communicate collaboratively, supported by the same level of customer information.



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office to enhance performance and drive out operational costs, enterprise

wide.

The opportunities to improve processes, and therefore cost management,

are manifold: introduction of new services (such as reverse factoring),

introduction of new Internet and mobile “channels”, or as a result of an

important M&A activity.

Leveraging lean processes enables streamlining, consolidating, identification

of synergies, and overall helps support efforts towards building new

business models.

The benefits that can potentially be achieved are:

• Improve control over costs and quality management, enabling a

reduction in the number of errors and mitigate operational risks;

• Economies of scale at all levels: equipment (printing, etc.) and

immaterial (e.g. time);

• Reduce time-to-market when implementing new products and

processes;

• Benefit from of a 360° view of the customer and increased customer

focus.

Financial Agency (FINA), the leading Croatian clearing house in financial

mediation and in application of information technologies, recently launched a

service line targeted at businesses and citizens that encourages electronic

billing and addresses the imperative need for organizations and banks to

automate and standardise internal billing processes. FINA expects its clients

to benefit from improved margins thanks to reengineering their processes.

Investment banking

Investment banks are currently working on enhancing back-office

automation, an area that had been neglected in the years prior to the

financial crisis.

Last year the US Securities and Exchange Commission, an important

institution, approved the use of a type of SWIFT message in trade

confirmations, helping to eliminate errors in the confirmation process.

Where new products are launched (such as the recently created Exchange

Traded Funds), banks are usually more focused on making sure the product

gains traction in the market and the banking operations behind are run more

efficiently.



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Increasing fraudulent activity and rogue trading in recent years have also

forced banks to reassess their internal processes. For example, in 2008,

Société Générale uncovered a $3.7bn fraud by a rogue trader, and more

recently, in 2011, UBS announced that it had lost $2.3bn due to

unauthorized trading performed by a director of the bank's Global Synthetic

Equities Trading team. Banks increasingly recognize the need to protect the

investment activity from external and internal attacks and to reassess their

governance, risk and compliance processes, among other things.

In periods of increased volatility, investment banks are looking for smart

software that can cope with complex and changing fee structures.



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5. “EMERGING MODELS” AND NEW ENTRANTS: FOCUS ON THE UK MARKET

Opportunities for new banking players due to decreasing customer

loyalty

In mature markets such as the UK and the US, financial institutions have

made some major investments in order to improve credit risk. However,

despite this, banks were unable to shield themselves from the credit crisis

that led to an all-time low in customer loyalty. Poor customer service levels

have added to the negative image of the established banks. This has

opened up opportunities for new banks (foreign institutions or non-traditional

organisations such as retailers) to enter local markets, which have

previously presented high barriers to entry due to lack of competition and

high levels of customer loyalty.

The current negative perception of traditional banks has made customers

more receptive to new banking institutions, which are articulating a clear and

strong message around their intentions to provide high levels of customer

service.

For example, in the UK, Metro Bank, a US bank and completely new entrant

to the UK retail market, Tesco Bank and Virgin Money have been investing

significantly in expanding their retail banking business. Metro Bank aims to

open 200 branches by 2020, while Tesco bank seeks to open in-store

branches across its supermarket chain with the aim to launch its current

account offering in 2013. More recently, in November 2011, Virgin Money

successfully acquired government bailed-out bank Northern Rock, and has

since launched Virgin Savings Accounts. Virgin Money has over one million

customers worldwide.

Adopting innovation to address challenges faced by established banks

To build competitive advantage in the market, these new banks are focusing

on building trust and differentiating themselves by providing high levels of

customer service. New banks in the UK are placing significant efforts in

building customer relationships through investing in branches and coffee

lounges to encourage more face-to-face interaction. The UK, for example,

“New banks” are entering the market as regulatory changes and reduced customer loyalty lower barriers to entry…

Revenue leakage: Banks are losing revenue through transactions and ad-hoc services that are not being billed.

Metro Bank has around 35,000 customers in the UK, 15,000 ahead of target (Q4 2011), since its UK launch in 2010.



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has seen a gradual decline in branches as the established banks look to cut

costs and take advantage of the rising popularity of online-banking.

Faster time to market is also an area of investment, and identified as a key

differentiator, by the new banks. While established banks have invested

efforts into delivering new product offerings more rapidly, these efforts have

focused on simply launching new products to the market, and have

neglected other areas of customer service, e.g. customer on-boarding,

dealing with customer complaints, service-to-cash. For example, Metro Bank

has made a promise to customers that they can set up a new account, apply

for new services and make use of their services in less than 15 minutes.

Fast time to market and offering a consistent and high level of service across

multiple channels are areas that a number of established banks around the

world have failed to meet satisfactorily. This is partly due to the on-going

battle with home-grown and legacy systems that are no longer able to keep

pace with changing business and market requirements.

Legacy systems need to be overhauled for banks to not only compete better

in the market, but also to enhance internal efficiencies. Revenue leakage is a

key example where banks lose vast amounts of money, through transactions

and ad-hoc services that are not being billed due to operational

inefficiencies, inadequate pricing solutions and lack of automation. Legacy

systems that do not communicate with one another add to the woes. To

prevent revenue leakage, banks need to be able to price products and

services accurately, and bill them accordingly throughout the entire customer

relationship, in a seamless and automated manner.

Increased competition from new entrants is forcing established banks to re-

examine their strategies. Banks are going back to basics, and in a number of

cases are overhauling their IT systems to put in place more flexible

technologies that can respond faster to changing market dynamics.

Leveraging technologies to enable business change is crucial

IT is a critical component in the delivery of customer service. In order to

successfully execute the business strategy and enable business innovation,

new banking entrants are turning to external IT suppliers for support. These

banks understand the need to focus on their core business, and leave IT to

specialised vendors. New banking entrants are in a position to learn from the

established institutions that have found themselves battling with complicated

and cost-intensive legacy systems.



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It is vital that core business processes such as customer on-boarding, sign-

up for add-on products, approving a loan and service-to-cash are optimised

to provide a seamless end-to-end service. Lack of automation can lead to

great inefficiencies, unbilled services and impact service levels and time to

market. Automation alone is not enough, however, as the service-to-cash

process of a bank for example also requires the connection to various

institutions such as corporate customers and data providers.

Metro Bank in the UK is an example of one bank that has fully embraced IT,

and has been working extensively with external IT suppliers. Today, the

bank has eight technology staff and maintains minimum IT in-house. A lot of

its technology has been outsourced, and software licenses have been

purchased from third-party providers.



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6. CONCLUSION: KEY AREAS WHERE IT TECHNOLOGIES WILL HELP BANKS TO BETTER ADAPT TO THE CHANGING ENVIRONMENT

In order to respond to the dynamic environment, banks will have to use IT in

order to deal with an exponential increase in customer data, to optimize

back-office processes and address increasingly complex business rules.

The research carried out by PAC revealed that practitioners are focusing on

the following key technology criteria to help meet business requirements:

• Capacity to handle high volumes of data that is increasing at an

exponential rate;

• Relationship-based pricing and real-time services capabilities;

• Ability to deal with complex business rules set by the core business;

• Powerful search engine that facilitates data capture and sharing of

information;

• Standardization to enable a seamless end-to-end process with a

greater focus on customer;

• Sophisticated tools that allow integration of data across the

enterprise, to reach a single and accurate view of the customer;

• Solutions that help support localisation of banking subsidiaries and

to enhance control between these businesses and their

headquarters, in a secure environment;

• Tools which handle multi-channels, multi-currencies, and multi-

entities capabilities.

The research further identified key areas of investment in the next 12 to 18

months:

• Technical development and formation of partnerships to ensure

visibility on all mobile devices (e.g. smartphones, tablets) to deliver

banking services;

• Security, defined as 0 hacking;

• Automation of back-offices and branches to improve relationship

between front- and back-offices;

• Empowerment of business users (marketing/ account managers,

etc.) to enable them to manage relationship via application software

and tools;



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• To improve data management, data capture, and data mining. The

purpose is to leverage data to analyse customer segments and

propose tailored service bundles;

• Improvement of real-time analytics to help customers understand

their charges better.

The banking landscape is undergoing major changes as the challenges

outlined above constrain banks to adopt new business models. Regulations

such as the ring-fencing between the retail and investment banking activities

in the UK are a key example of how significant some of these changes will

be - impacting business infrastructure, processes and systems.

Consumerization, innovation and emerging technology trends, such as

mobile banking, are leading to increasing alignment between business and

IT. The market is witnessing a greater involvement of the core business in

the IT decision-making process since they understand the strategic impact of

IT to their daily tasks and in executing the business strategy. Moreover, staff

from the line of business increasingly perceives IT as a key investment to

enable innovation.

Banks are innovating their business models and channels to differentiate

their services in the market, in a number of different ways, including creating

customer-centric processes, optimizing back-office processes and

implementing increasingly complex business rules.

Financial institutions whose channels-to-market do not include mobile

services and whose legacy infrastructure is unwieldy and inflexible should do

some serious soul-searching on renovating their applications and revamping

their business models to ensure their survival beyond 2015.



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ABOUT SAP: HOW CAN OUR INNOVATIVE CHARGING AND BILLING SOLUTION HELP YOUR INSTITUTION?

A Modular Best-of-Breed solution to support the service to cash

business process

SAP offers the next generation end-to-end solution to streamline your

complex and challenging business needs. Our innovative convergent

charging and billing software consists of three main components: convergent

charging, convergent billing and customer financial management which

integrate seamlessly with SAP CRM or any other 3rd party solution you may

have deployed. Combined, these applications form a sophisticated end-to-

end platform, enabling financial institutions to efficiently manage payments,

collections and accounting – optimizing financial care for large volumes of

customers and transactions.

The modular next-generation billing platform for the service to cash process

allows companies to manage complex revenue sharing with both up and

downstream partners while deploying elements within existing IT software

landscapes – adding value where it is needed most and providing

companies with the reliability and efficiency they need to manage billing and

real-time payments across a diverse matrix scenario.

Business

Applications

Description

Real-time price

quotations

Benefit from sophisticated pricing simulation and

personalized offer management to generate targeted

quotations in real-time for business and individual

customers.

Relationship

based pricing

Differentiate your services and apply insights into

your customer segmentation to charge customers

based on their relationship with you and essential

value/ profitability to your bank.

Consolidated

billing

Use a modular and easy to integrate solution to

produce a single consolidated bill for business and

individual customers and ensure that all fee revenue

is collected.



22

Factoring Leverage flexible revenue calculation and collection

capabilities to manage accounts receivables for

business customers on their behalf. Support

international transactions in multi-currencies. Scale to

handle the volume of transactions with confidence.

Clearing Houses

and Exchanges

Post trade compensation. Apply sophisticated

business rules and volume-related discounts to

compensate all parties seamlessly including brokers.

Mobile payments Electronic or virtual wallets can be set up in any

currency and the balance can be credited or debited

in real-time. Offline and online charging can be

accomplished in a contactless fashion thanks to on-

device charging capabilities.

Credit

bureaus/agencies

Simplify, streamline, manage your complex charging

and billing models for your corporate and retail

customers alike.

High Volume

Credit Card

Transactions

For card issuing banks: process high volumes of

credit card transactions. For credit card companies:

manage respective complex charges and fee models

for each issuing bank and merchants that use their

payment processing systems.

About SAP:

As market leader in enterprise application software, SAP (NYSE: SAP) helps

companies of all sizes and industries run better. From back office to

boardroom, warehouse to storefront, desktop to mobile device - SAP

empowers people and organizations to work together more efficiently and

use business insight more effectively to stay ahead of the competition. SAP

applications and services enable more than 176,000 customers (includes

customers from the acquisition of Sybase) to operate profitably, adapt

continuously, and grow sustainably.

For more information, visit http://www.sap.com/solutions/business-

process/next-generation-billing/index.epx

Twitter: @SAP_Banking, @SAP_NextGenBill

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