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

White Paper Innovation in the Banking Sector February 2012

1

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

© PAC 2012 www.pac-online.com


Table of Contents

2 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



1. INTRODUCTION

3 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.



2. EXECUTIVE SUMMARY

4 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.



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

5
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
RBS: “…given the economic
outlook and the difficult innovative technologies.
trading environment, we are
Now these changes, combined with a downgraded economic outlook, are
actively working on further
cost initiatives across the putting profitable banking models and consequently Return on Equity (ROE)
group….” 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
Relationship-based pricing is
increasingly considered by customer relationships and the actual value these bring to the institution.
banks as a way to reward This form of price differentiation by understanding the overall customer
customers for their loyalty, relationship and the consequent profitability each brings to the business,
and help drive profitability
enables banks to offer rates and charge fees more appropriately for all
and wallet share.
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



corporate customer base as a means to offset the declining revenues from
investment banking activities.

6 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.

Regulatory changes across In addition, regulators are also enforcing wider changes to be made in the
the globe require banks to banking industry to prevent another financial crisis. Such changes will have
create single analytical a significant impact on banking processes and operating costs. In the UK, for
views of their clients. 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



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

7 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
Evolving market expectations:
Customers and clients driven mainly by the IT community, the increased need for convenience and
increasingly require real-time security among customers; with not only IT companies but also financial
quotation. 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.



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

8 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
In their race to offer the
“best service”, banks ought and mobile payments, and tend to come from the telecoms or Internet
to be cautious not to be industries. Companies such as PayPal, TNS, Google, or Buyster (JV
squeezed out of the between three major operators in France) see significant revenue-generating
lucrative internet-based
opportunities in the banking sector through offering services like credit
credit transfer market.
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



their product portfolio, reducing the number of products delivered per branch,
which can go up to hundreds in some extreme cases.

9 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.



4. INNOVATION IN BANKS: EXAMPLES OF PROJECTS
UNDERTAKEN

10
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

A “new architecture is To be able to offer online services and retain or attract customers, banks
being shaped” in which need to have the right applications in place in their back-offices to support
smart tools connecting the
bundling of services, personalised offers and relationship based pricing. “A
overall delivery chain and
the great amount of data new ʻdelivery architectureʼ is being shaped in retail banking: we expect a
available play a key role. change in traditional go-to-market approaches in the coming years”, notes



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

11 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
Banks are working on
improving the usage of the segmentation is required. In order to identify high-value clients and tailor
large amount of customer offers to their needs, banks are investing in tools and facilities that can help
information available. 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



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
12 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,
Electronic platforms including
best of breed analytical and and it can be challenging to reach the required level of profitability, partly
invoicing tools enabled because of the higher administration and invoicing costs incurred.
improvement of both top and
The financial institution interviewed created an electronic process platform to
bottom lines of the new
offering. 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.



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.

13 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.

Innovative cross-channel The innovative “cross-channel” approaches, such as the one deployed by
approaches: all business BNP Paribas, can be defined as the next step where all channels
lines communicate
communicate collaboratively between each other, supported by the same
collaboratively, supported by
the same level of customer level of customer information, and enabling clients to move from one channel
information. 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-



office to enhance performance and drive out operational costs, enterprise
wide.

The opportunities to improve processes, and therefore cost management,
14 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.



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

15 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.



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

16
Opportunities for new banking players due to decreasing customer
loyalty

In mature markets such as the UK and the US, financial institutions have
“New banks” are entering the made some major investments in order to improve credit risk. However,
market as regulatory
despite this, banks were unable to shield themselves from the credit crisis
changes and reduced
customer loyalty lower that led to an all-time low in customer loyalty. Poor customer service levels
barriers to entry… 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
Metro Bank has around
35,000 customers in the UK, to the UK retail market, Tesco Bank and Virgin Money have been investing
15,000 ahead of target (Q4 significantly in expanding their retail banking business. Metro Bank aims to
2011), since its UK launch in open 200 branches by 2020, while Tesco bank seeks to open in-store
2010.
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
Revenue leakage:
Banks are losing revenue To build competitive advantage in the market, these new banks are focusing
through transactions and ad- on building trust and differentiating themselves by providing high levels of
hoc services that are not customer service. New banks in the UK are placing significant efforts in
being billed.
building customer relationships through investing in branches and coffee
lounges to encourage more face-to-face interaction. The UK, for example,



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
17 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.



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

18 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.



6. CONCLUSION: KEY AREAS WHERE IT
TECHNOLOGIES WILL HELP BANKS TO BETTER
19 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;



• To improve data management, data capture, and data mining. The
purpose is to leverage data to analyse customer segments and
propose tailored service bundles;

20 • 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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21
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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 Description
Applications

Real-time price Benefit from sophisticated pricing simulation and
quotations personalized offer management to generate targeted
quotations in real-time for business and individual
customers.

Relationship Differentiate your services and apply insights into
based pricing your customer segmentation to charge customers
based on their relationship with you and essential
value/ profitability to your bank.

Consolidated Use a modular and easy to integrate solution to
billing produce a single consolidated bill for business and
individual customers and ensure that all fee revenue
is collected.



Factoring Leverage flexible revenue calculation and collection
capabilities to manage accounts receivables for
business customers on their behalf. Support

22 international transactions in multi-currencies. Scale to
handle the volume of transactions with confidence.

Clearing Houses Post trade compensation. Apply sophisticated
and Exchanges 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 Simplify, streamline, manage your complex charging
bureaus/agencies and billing models for your corporate and retail
customers alike.

High Volume For card issuing banks: process high volumes of
Credit Card credit card transactions. For credit card companies:
Transactions 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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