Dexteyra Consulting Group Inc.

ERP trends in banking and financial supply chain management

Sridhar Srinivasan*

June 10, 2010

Introduction

The failure of the financial markets in USA has led to a financial crisis that was initiated by the lack of liquidity. The catastrophe has now engulfed the entire industrial sector across extended geographies including North America, Europe, and Asia Pacific. The banking sectors involving investment banking and also, the personal banking are currently under a Federal scanner as well as under a scanner of its customers and the general public.  Now, since the economy has started showing embryonic signs of recovery, the US Federal Administration is debating on the regulatory controls to be imposed on the banks. The banks however have already started taking pro-active measures to enable technology to provide more visibility and transparency of operations to its end-customers. These changes have imposed newer challenges for technology companies that provide information technology (IT) based products and services to the banks.

As a result, the global IT landscape in the banking sector is undergoing through a major change. The thrust is to provide compelling solutions that allow the banks to be competitive.

Business and Technology Drivers

Banks are moving away from the home grown solutions to third party vendors such as core banking systems (CBS) providers to help them with changing technology demands. This trend will allow the banks to focus on their operations to deliver banking services as their key offering to yield a better credibility with customers.

The major IT products on the offering for banking applications include Accenture’s Alnova, Oracle’s Flexcube, Infosys’s Finacle, CSC’s Hogan, Polaris’s Intellect, and a most recent entrant in the market  - SAP’s industry solution (IS) for Banking, financial supply chain management (FSCM), and Loan Management. It is projected that SAP will lead in market penetration due to the flexibility of its system architecture and the company's dedication to web services through its netweaver platform. Major banks such as UBS AG, Deutche AG, Commonwealth Bank of Australia (CBA), and Bank of Canada among others have already initiated pilot implementations of SAP.

Banks are looking for software’s that focus on operations as a part of their larger FSCM activities and also for products that drive more transactional business to lower the cost of exchanging information with their customers and business partners. The new dimensional software solutions need to provide a robust architecture. The systems should have a user friendly interface and must be portable to any database and operating system. The functionalities should encompass various banking requirements such as branch, teller, sales platform, internet, mobile applications (includes phone payments and “real-time-anywhere-banking’), ATM, customer data analytics, customer relationship management (CRM), customization capabilities, and currency support. The call for services includes maintenance, post implementation support, training, and a robust change management process. The capabilities to support front-office and retail delivery channels are desired as well.

Interestingly, the worldwide spending on IT in banking is projected to reach $200.3 billion in 2010, a 4.2% increase from a spending level of $192.2 billion in 2009.

Trends and Challenges in Banking IT

It is high time now for the banks to again think about Risk Management from a holistic perspective. In reaction to subprime losses and the collapse of structured credit markets, there are renewed calls for a higher level of transparency, structural integrity, and operational controls that leave a lot to be desired. Financial firms are under pressure to re-examine underwriting practices; to align the various parts of the credit management value chain; to address the potential conflicts of interest; and to address financial valuations associated with the velocity of market movements. Regulatory and stakeholder scrutiny has increased. Therefore, the linkages between origination, credit portfolio management, credit control, and the administration need to be managed consistently.

Financial institutions are facing numerous challenges in terms of increasing customer expectations on ease of product use, integrated customer information management, and long term data sustainability. The customers require the banks to focus on products that provide them with customer profitability analytics, relationship pricing, and dynamic pricing (pricing based on specific market and/or customer factors). Therefore the banks need to adapt to enhanced content management and business process management centric technologies to automate their decision-making processes.

It is projected that the banks will continue to focus on service oriented architecture (SOA). This will help them to ensure data integrity, single view of customer information, reduce application redundancy, ease of data sharing, and reduce maintenance.

Areas for use of technology

Banks use technology in several areas such as cash management, securities lending, and customer master management. Technology products help to avoid check frauds, electronic bill payment, credit management, collections management, liquidity management, and treasury management. These products also support a full range of treasury derivatives and cash instruments involving foreign exchange, money markets, full back office processing capabilities, General Ledger, and limits management. The challenge is to support continuous 24x7 trading across various geographical regions.

Banks are adapting to newer IT based products to reduce high cost of ownership. The thrust is to migrate to newer web based systems. These products enable the banks to have a centralized database and the capabilities to interact with external data sources and interfaces. Banks also need to support varying reporting formats within their payment portals to cater to different client segments and to comply with regional reporting formats, for example; CODA for Belgium, Norma for Spain, and so on.

Conclusion

Advanced technologies such as panel touch screens, laptops, and smart-phones are transforming the customer interface at branch by enhancing capabilities to browse and will quicken  access to their banking information. Interestingly, SAP has bought Sybase Inc. during May 2010, a capability that will provide its ERP offering with a technology to deliver accounting software and other programs through smart-phones. The evolving ERP offering will enable more consumer analytics and will support the branch's customer service representatives to readily identify profitable customers, expedite account applications, and offer relationship pricing such as fee waivers.

 

*Mr. Sridhar Srinivasan is currently working as an Intern with the Business Research / Strategy BU of Dexteyra Consulting Group Inc. Mr. Sridhar is pursuing his MBA, specializing in Strategic Management, IT and Finance from Schulich School of Business, York University, Canada. He holds a Bachelor’s Degree in Electrical Engineering from Bharathidasan University in India. He has worked for around 6.5 years in the IT industry. Sridhar’s interests include reading magazines and working out in the gym.

 

 

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