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Simplicity Is Key To Competing In Complex Capital Markets

sougatadatta

two men discuss capital marketsThe past five years have been extremely challenging for banks and capital markets.  Basel III and Dodd-Frank have not only made things more complex, but they’ve also dealt a blow to the bottom line.  According to McKinsey & Company, Basel III and other regulatory compliance could potentially cost anywhere from 3 to 5 percent return on equity (ROE).

Global firms are faced with different regulations in every country in which they operate.  Adding to that complexity, governments are demanding greater transparency, reporting, and documentation.  And, at the same time, new CCAR stress testing is becoming more burdensome every year – what was satisfactory in 2014 may not be acceptable in 2015.

The increased scrutiny means an increase in data processing for financial services firms.  But legacy systems that aren’t synchronized have separate silos for different businesses and asset classes, and often have agonizingly slow batch-processing that make regulatory compliance difficult.  Many firms have managed to cope by throwing a lot of bodies at the problem, especially outsourced data reconciliations and clean up – a strategy that isn’t sustainable over the long haul.

All this complexity – in architecture, processing, data acquisition, integrity, and reporting – is squeezing resources available for revenue generation, and for true innovation.

Some firms have figured out that if they must expense to meet regulatory requirements, they should find a way to use their new-found access to intelligence to transform their business for the future and greater market competitiveness.

Regulatory compliance is the initial driver, but competitive advantage is the end result.

Making the next step a giant step forward for capital markets

The fact is that financial institutions today can’t afford to be encumbered by old, inflexible technology.  Those who are not innovating and adapting will fall behind, unable to satisfy customer and market demands.

But developing a golden data source that provides fast access to complete, correct, consistent data across the enterprise – the same information that’s used to report earnings, and calculate profit and loss, but also for risk and regulatory reporting – is no longer an unattainable goal.  And it doesn’t have to reside in a single database; it could be in many that function as one, with uniform governance and data models across the organization.

There are two ways to capitalize on killing complexity.  The first is to create a robust platform for high growth or expansion, in businesses, geographies and in sheer transaction volume.  The second is to use business intelligence to optimize capital allocation across legal entities, increase growth and revenue, lower operating costs, and provide better customer experiences.

The SAP HANA platform makes both possible.  When deployed in the cloud, it simplifies data architecture, and reduces latency, complexity, and cost.

Financial services companies that are reducing complexities and running simple are becoming more agile, transitioning away from their old environments and opening new opportunities for the future. Run Simple today.

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sougatadatta

About sougatadatta

Sougata Datta is the Senior Director, Digital Enterprise Platform Group - HCP, at SAP. His specialties include business intelligence, solution architecture, data warehousing, data modeling, software development and analytics.

Time For Banks To Fight Back

Laurence Leyden

Metamora, Illinois, USA --- USA, Illinois, Metamora, Close-up of man photographing checque --- Image by © Vstock LLC/Tetra Images/CorbisThe financial services industry has suffered consecutive blows in recent years. The global banking crisis, new regulations, empowered customers calling the shots, not to mention a new breed of digital disruptors out to steal market share, have wreaked havoc on business as usual.  Profits have been slashed, reputations have been damaged, and management has been blindsided.

The only way forward is change – a change of business model, a change of mindset, and a change of ecosystem.  It’s a major upheaval, and not to be taken lightly. Banks in particular have operated largely the same way for the past 300 years. Management is facing a once in a generation reassessment of 21st century banking.

Changes in customer behaviour, including 24×7 omnichannel service expectations, lack of loyalty by current customers willing to exchange privacy for easier access to information, generational expectations of future customers – “screenagers” and tech savvy Millennials – and technology advances in cloud, mobile, real-time data, and predictive analytics make yesterday’s business model redundant.

Banking isn’t actually about banking anymore. It’s about enabling people’s lifestyles. That means you have to completely re-think how you engage with customers. The lessons are everywhere in parallel industries. Nokia, for example, thought it was about the phone, not the customer experience. Digitisation has both emboldened and empowered customers. Ignoring this fact is pointless. You need to cater to what consumers want. That means your back-end systems need to be integrated, consistent, contextualised and easy to deploy across any channel.

There’s also a whole new ecosystem required to support this new business model. Banks are facing disaggregation as they no longer own the end-to-end value chain, as well as disintermediation as new market entrants attack specific parts of the business (think Apple Pay). Smart banks are forging relationships with different and unexpected partners, such as mobile and retail organisations, even providing products from outside of the group where they are the best fit for a customer’s needs.  As I’ve said in one of my previous blogs, there’s a new mantra for modern banking: “Must play well with others.”

Old-fashioned banking is gone, and with it so have old style processes, business models and attitudes. Nobody wants to be the last dinosaur.  It’s time for the industry to dust itself off, and step up. Embracing change is easier – and far more profitable – than risking irrelevance in the widening digital divide.

I’ve briefly summarised only some of the key drivers of digital transformation, but you can find much more insight – including views from thought leaders in banks, insurance companies, fintech providers, challenger banks and aggregators – by downloading the eBook from the recent SAP Financial Services Forum: The digital evolution – As technology transforms financial services who will triumph.

It’s essential reading if you’re going to successfully fight back.

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Laurence Leyden

About Laurence Leyden

Laurence is general manager of Financial Services, EMEA, at SAP and is primarily involved in helping banks in their transformation agenda. Prior to SAP he worked for numerous banks in Europe and Asia including Barclays, Lloyds Banking Group and HSBC. He regularly presents on industry trends and SAP’s banking strategy.

Why Banks Should Be Bullish On Integrating Finance And Risk Data

Mike Russo

Welcome to the regulatory world of banking, where finance and risk must join forces to banking executiveensure compliance and control. Today it’s no longer sufficient to manage your bank’s performance using finance-only metrics such as net income. What you need is a risk-adjusted view of performance that identifies how much revenue you earn relative to the amount of risk you take on. That requires metrics that combine finance and risk components, such as risk-adjusted return on capital, shareholder value added, or economic value added.

While the smart money is on a unified approach to finance and risk, most banking institutions have isolated each function in a discrete technology “silo” complete with its own data set, models, applications, and reporting components. What’s more, banks continually reuse and replicate their finance and risk-related data – resulting in the creation of additional data stores filled with redundant data that grows exponentially over time. Integrating all this data on a single platform that supports both finance and risk scenarios can provide the data integrity and insight needed to meet regulations. Such an initiative may involve some heavy lifting, but the advantages extend far beyond compliance.

Cashing in on bottom-line benefits

Consider the potential cost savings of taking a more holistic approach to data management. In our work with large global banks, we estimate that data management – including validation, reconciliation, and copying data from one data mart to another – accounts for 50% to 70% of total IT costs. Now factor in the benefits of reining in redundancy. One bank we’re currently working with is storing the same finance and risk-related data 20 times. This represents a huge opportunity to save costs by eliminating data redundancy and all the associated processes that unfold once you start replicating data across multiple sources.

With the convergence of finance and risk, we’re seeing more banks reviewing their data architecture, thinking about new models, and considering how to handle data in a smarter way. Thanks to modern methodologies, building a unified platform that aligns finance and risk no longer requires a rip-and-replace process that can disrupt operations. As with any enterprise initiative, it’s best to take a phased approach.

Best practices in creating a unified data platform

Start by identifying a chief data officer (CDO) who has strategic responsibility for the unified platform, including data governance, quality, architecture, and analytics. The CDO oversees the initiative, represents all constituencies, and ensures that the new data architecture serves the interests of all stakeholders.

Next, define a unified set of terms that satisfies both your finance and risk constituencies while addressing regulatory requirements. This creates a common language across the enterprise so all stakeholders clearly understand what the data means. Make sure all stakeholders have an opportunity to weigh in and explain their perspective of the data early on because certain terms can mean different things to finance and risk folks.

In designing your platform, take advantage of new technologies that make previous IT models predicated on compute-intensive risk modeling a thing of the past. For example, in-memory computing now enables you to integrate all information and analytic processes in memory, so you can perform calculations on-the-fly and deliver results in real time. Advanced event stream processing lets you run analytics against transaction data as it’s posting, so you can analyze and act on events as they happen.

Such technologies bring integration, speed, flexibility, and access to finance and risk data. They eliminate the need to move data to data marts and reconcile data to meet user requirements. Now a single finance and risk data warehouse can be flexible and comprehensive enough to serve many masters.

Join our webinar with Risk.net on 7 October, 2015 to learn best practices and benefits of deploying an integrated finance and risk platform.

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Mike Russo

About Mike Russo

Mike Russo is senior industry principal, Financial Services, with SAP. Mike has 30 years of experience in the financial services/financial software industries. This includes stints as senior auditor for the Irving Trust Co., New York; manager of the International Department at Barclays Bank of New York; and 14 years as CFO for Nordea Bank’s New York City branch – a full-service retail/commercial bank. Mike also served on Nordea’s Credit, IT, and Risk Committees. Mike’s financial software experience includes roles as a senior banking consultant with Sanchez Computer Associates and manager of Global Business Solutions (focused on sale of financial/risk management solutions) with Thomson Financial. Before joining SAP, Mike was a regulator with the Federal Reserve Bank in Charlotte, where he was responsible for the supervision of large commercial banking organizations in the Southeast with a focus on market/credit/operational risk management.

The Future of Cybersecurity: Trust as Competitive Advantage

Justin Somaini and Dan Wellers

 

The cost of data breaches will reach US$2.1 trillion globally by 2019—nearly four times the cost in 2015.

Cyberattacks could cost up to $90 trillion in net global economic benefits by 2030 if cybersecurity doesn’t keep pace with growing threat levels.

Cyber insurance premiums could increase tenfold to $20 billion annually by 2025.

Cyberattacks are one of the top 10 global risks of highest concern for the next decade.


Companies are collaborating with a wider network of partners, embracing distributed systems, and meeting new demands for 24/7 operations.

But the bad guys are sharing intelligence, harnessing emerging technologies, and working round the clock as well—and companies are giving them plenty of weaknesses to exploit.

  • 33% of companies today are prepared to prevent a worst-case attack.
  • 25% treat cyber risk as a significant corporate risk.
  • 80% fail to assess their customers and suppliers for cyber risk.

The ROI of Zero Trust

Perimeter security will not be enough. As interconnectivity increases so will the adoption of zero-trust networks, which place controls around data assets and increases visibility into how they are used across the digital ecosystem.


A Layered Approach

Companies that embrace trust as a competitive advantage will build robust security on three core tenets:

  • Prevention: Evolving defensive strategies from security policies and educational approaches to access controls
  • Detection: Deploying effective systems for the timely detection and notification of intrusions
  • Reaction: Implementing incident response plans similar to those for other disaster recovery scenarios

They’ll build security into their digital ecosystems at three levels:

  1. Secure products. Security in all applications to protect data and transactions
  2. Secure operations. Hardened systems, patch management, security monitoring, end-to-end incident handling, and a comprehensive cloud-operations security framework
  3. Secure companies. A security-aware workforce, end-to-end physical security, and a thorough business continuity framework

Against Digital Armageddon

Experts warn that the worst-case scenario is a state of perpetual cybercrime and cyber warfare, vulnerable critical infrastructure, and trillions of dollars in losses. A collaborative approach will be critical to combatting this persistent global threat with implications not just for corporate and personal data but also strategy, supply chains, products, and physical operations.


Download the executive brief The Future of Cybersecurity: Trust as Competitive Advantage.


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To Get Past Blockchain Hype, We Must Think Differently

Susan Galer

Blockchain hype is reaching fever pitch, making it the perfect time to separate market noise from valid signals. As part of my ongoing conversations about blockchain, I reached out to several experts to find out where companies should consider going from here. Raimund Gross, Solution Architect and Futurist at SAP, acknowledged the challenges of understanding and applying such a complex leading-edge technology as blockchain.

“The people who really get it today are those able to put the hype in perspective with what’s realistically doable in the near future, and what’s unlikely to become a reality any time soon, if ever,” Gross said. “You need to commit the resources and find the right partners to lay the groundwork for success.”

Gross told me one of the biggest problems with blockchain – besides the unproven technology itself – was the mindset shift it demands. “Many people aren’t thinking about decentralized architectures with peer-to-peer networks and mash-ups, which is what blockchain is all about. People struggle because often discussions end up with a centralized approach based on past constructs. It will take training and experience to think decentrally.”

Here are several more perspectives on blockchain beyond the screaming headlines.

How blockchain disrupts insurance, banking

Blockchain has the potential to dramatically disrupt industries because the distributed ledger embeds automatic trust across processes. This changes the role of longstanding intermediaries like insurance companies and banks, essentially restructuring business models for entire industries.

“With the distributed ledger, all of the trusted intelligence related to insuring the risk resides in the cloud, providing everyone with access to the same information,” said Nadine Hoffmann, global solution manager for Innovation at SAP Financial Services. “Payment is automatically triggered when the agreed-upon risk scenario occurs. There are limitations given regulations, but blockchain can open up new services opportunities for established insurers, fintech startups, and even consumer-to-consumer offerings.”

Banks face a similar digitalized transformation. Long built on layers of steps to mitigate risk, blockchain offers the banking industry a network of built-in trust to improve efficiencies along with the customer experience in areas such as cross-border payments, trade settlements for assets, and other contractual and payment processes. What used to take days or even months could be completed in hours.

Finance departments evolve

Another group keenly watching blockchain developments are CFOs. Just as Uber and Airbnb have disrupted transportation and hospitality, blockchain has the potential to change not only the finance department — everything from audits and customs documentation to letters of credit and trade finance – but also the entire company.

“The distributed ledger’s capabilities can automate processes in shared service centers, allowing accountants and other employees in finance to speed up record keeping including proof of payment supporting investigations,” said Georg Koester, senior developer, LoB Finance at the Innovation Center Potsdam. “This lowers costs for the company and improves the customer experience.”

Koester said that embedding blockchain capabilities in software company-wide will also have a tremendous impact on product development, lean supply chain management, and other critical areas of the company.

While financial services dominate blockchain conversations right now, Gross named utilities, healthcare, public sector, real estate, and pretty much any industry as prime candidates for blockchain disruption. “Blockchain is specific to certain business scenarios in any industry,” said Gross. “Every organization can benefit from trust and transparency that mitigates risk and optimizes processes.”

Get started today! Run Live with SAP for Banking. Blast past the hype by attending the SAP Next-Gen Boot Camp on Blockchain in Financial Services and Public Sector event being held April 26-27 in Regensdorf, Switzerland.

Follow me on Twitter, SCN Business Trends, or Facebook. Read all of my Forbes articles here.

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