I have recently been talking with a number of banks in EMEA and America. One thing that has been common to all discussions is that there obviously is a huge trend towards Finance Transformation projects. But why just now?
In my opinion this is due to a combination of commercial, regulatory and technological pressures.
Commercial pressure comes from a bank’s stakeholders – who are increasingly demanding ready access to data that is correct and consistent and provided fast on a detailed (single contract) level. In addition these stakeholders also want financial processes run at reasonable or even at reduced cost.
The mergers and acquisitions that followed the industry’s crisis of 2008/2009 often have resulted in complex and heterogeneous system landscapes. For example some banks are now running several general ledgers from several different vendors. To ensure consistent reporting banks need to streamline both, their financial processes and the corresponding data structures.
In addition, banks face multiple regulatory changes. A current example is IFRS 9. First IFRS 9 entails changing the model for choosing transactions measured at fair value versus at amortized cost.
Second impairment accounting is being significantly modified regarding the good book. And third hedge accounting will be different in IFRS 9 compared to the existing standard IAS 39.
Technological pressure exists because banks often have not made significant investments in their IT infrastructure in the recent past. This has led to system landscapes that no longer efficiently support their processes.Sometimes banks also have the issue that experts in a technology, which is outdated in the meantime, are no longer available.
Furthermore banks are increasingly talking with us about about our new in-memory offering which provides real time data based on high data volumes. In-memory is a breakthrough technology for banks because of their huge transaction volumes and their need for instantaneous information.
A Tier 1 bank in Europe I have spoken with recently took over a smaller bank and then completely reassessed its financial processes to ensure data consistency, prepare for upcoming regulatory changes and to enable fast close at month-end.
By using SAP Accounting for Financial Instruments together with the SAP General Ledger the bank decided to change from a decentralized approach to a centralized one. This means that the bank can now support financial accounting processes, which were once spread over several front-office systems, on a single, centralized platform.
The financial processes such as valuation and classification are now fully consistent because they run on one system.
Any future regulatory changes relate to only one single system and are no longer the issue of several front office systems. The bank has ensured that its accounting processes run on one system and it is SAP that provides the tools and methods that support compliance for the bank.
Last but not least streamlined processes on one central platform based on state-of-the-art technology ensure fast close month-end processing.
Another Tier 1 bank in the US which recently installed SAP General Ledger, Profitability Management and Business Planning and Consolidation software has significantly accelerated its closing processes. For this bank it is key that SAP can handle their huge data volumes.
In addition it is of major importance for the bank that SAP provides an integrated accounting platform that ensures consistent data in the bank between Financial Accounting and Management Accounting.
Proven Best Practices, Full Integration and State-of-the-art Technology
If banks decide for SAP for Banking software they can benefit from best practice because the solution has been proven many times at customers.
Preconfigured data models foster integration between risk and finance as well as between financial and management accounting. Banks can run for example scenarios such as Basel II and IFRS on the same system with the same set of source data and with consistent methods.
Integration can also be based on integrated results. What I mean by this is for example that a book value which was calculated by an accounting service can be used for the Basel II calculation as a basis for the Exposure at Default. The necessity to integrate Finance and Risk will be obligatory by the impairment requirements of IFRS 9.
From a technology perspective, in-memory computing is the innovation by which SAP can provide real-time data based on high data volumes. In-memory is one of the key innovations at SAP globally. Particularly for banks because of their huge transaction volumes and the necessity of getting rapid information, in-memory is a breakthrough innovation.