How Banks Profit From SAP for Banking Bogdan Mihailescu Banking Sector Manager SAP ROMANIA GROW YOUR BUSINESS WITH SAP for BANKING

Trends in the banking industry

Clear Trends Have Been Identified That Will Shape the European Banking Industry Source: Roland Berger Banking trends 1 Size remains a critical factor in the banking industry Scale effects are the main success factor, especially in the production/processing facilities Consolidation 2 Decoupling of production/processing facilities from distribution units will increase in the banking industry Emergence of specialist companies will enforce due to enhanced outsourcing efforts Breaking up the value chain 3 Pan-European harmonization is becoming the major trend in the banking industry Changes in the regulatory environment determine the speed at which business models and activities in the banking industry must adjust A changing regulatory environment 4 Customers need to be served and retained as efficiently and effectively as possible Shift from product-oriented offerings to demand-oriented offerings including intensification of customized products and services Customer focused services

Consolidation

The Consolidation Process Is Driven by Merging Banks or Business Lines Consolidation Horizontal consolidation Merging banks or business lines covering identical value chains Vertical consolidation Objective: Improve critical size/market share to improve economies of scale e.g.  Merging two saving banks  Cortal taking over Consors (2002)  Deutsche Bank, Dresdner Bank, and Commerzbank merging mortgage subsidiaries into Eurohypo Retail Merging banks or business lines with different value chains Objective: Develop a new value proposition/business model for improved/new market differentiation, e.g.  Integrating Bank 24 into Deutsche Bank 24 (1999)  Takeover of Dresdner Bank by Allianz (2002) – bank assurance BrokerageRetailMulti- channel retail bank Source: Roland Berger 1

Focus on Core Competencies by Outsourcing Business Elements or Increase Economies of Scale Through Insourcing Consolidation 1 Outsourcing Outsource non-core value chain elements to service-providing specialists Objective: Reduce costs if outsourcer can offer lower costs due to increased economies of scale Improve quality through specialization Insourcing Insourcing business, especially transaction processing, from other banks Objective: Increase economies of scale Cut costs Enhance revenues Examples Deutsche Bank outsourcing IT systems to IBM/EDS (2002) Bank of New York insourcing global stock clearing services from IHG (2002) European Transaction Bank ETP insourcing payment transactions from Sal. Oppenheim, Sparda Bank, Netbank UBS insourcing Forex services from third parties through UBS Warburg Source: Roland Berger

Breaking up the value chain

Redefining the Value Chain Generates New Business Models for Traditional Banks – Core Competencies Are Key Traditional value chain – possible future business split Source: Roland Berger Sales channel specialist Product specialist Platform specialist Technical platform Branding Product development Technical platform Sales Customer support Transaction Adminis- tration Treasury/ risk management Marketing Critical success factor: Ease of use of interfaces (business and IT processes) 2

The Three Basic Options Have Specific Value Propositions – Options Are Not Exclusive Traditional bank – strategic options Sales channel specialist Focus on customer demands, understanding the customer Focus not on product sales, but on customers’ needs Expanding access channels in a multi-channel approach Exploiting additional services that are linked with the banking product Product specialist Focus on the creation of product innovation and value-added services Profound know-how, access to customer data Partnerships along the entire value chain of the banking industry Platform specialist Marketplace oriented business model Solution-oriented approach with customer needs at the center Providing the necessary infrastructure, as well as maintenance and business- related services Realization of economies of scale is key Source: Roland Berger 2 A shift in IT companies' client focus is needed – from focusing only on traditional banking customers to focusing on outsourcing companies, as well

A changing regulatory environment

The Regulatory Environment Has a Significant Impact on the European Banking Industry Aspects of the regulatory environment Impact on business Basel II The euro National regulation Tax reforms EU financial services action plan Pension reforms "European harmonization" regulatory environment Changes in the regulatory environment determine the speed with which banks need to adapt their business models and activities Flexible and completely transparent organizational structures are crucial for quickly adjusting activities in line with regulatory changes All transactions have to be documented and comprehensible for internal and external audit Source: Roland Berger Critical success factor: flexible, auditable, and transparent systems and processes 3

Customer-focused services

Banks Need to Serve and Retain Their Customers As Effectively and Efficiently As Possible – Launching Customer-focused Services Aspects of customer-focused services Requires a multi-channel-compliant marketing strategy based on sophisticated channel management Customers become financially more literate and demand sophisticated products in private, corporate, and investment banking on an individual basis Segmenting customers leads to standard products being individually bundled for each customer – importance in retail banking Financial institutions will offer customer oriented services by integrating third- party products as a part of their open architecture policy Needs-based services Mass customization Tailor-made solutions One-to-one marketing Customer- focused services Source: Roland Berger Critical success factors:Trade-off between standardization and customization Simple configuration of new products 4

Customers Increasingly Demand a Multitude of Financial Products – Focus on Needs-based Services Leverages Cross-selling Activities Products demanded by customersLevel of cross-selling activities Current accounts and payments OverdraftsSaving products Credit and debit cards Consumer loans Mortgages Building society products Real estate brokerage Equities and bonds Mutual funds Pension products Life insurance and other insurance products High margin products 11,0 5,2 2,0 3, Unused potential No. of products per client Maximum cross- selling activities 1) Best practice Current average Avg. in unprofit- able branches Flexible integration of third-party products helps to fully exploit the complete range of financial services Needs-based services Source: Roland Berger analysis 1) Rather theoretical figure 4

SAP for Banking

SAP for Banking: The Solution Applications Technology People Processes SAP for Banking

SAP for Banking: The Solution Applications Technology People Processes SAP for Banking

SAP for Banking: Role Based Access For People SAP´s Access For People SAP understands the different roles people play in the banking environment. Benefits: Personalize your unified point of access to relevant information and services Eliminate traditional barriers to productivity Create interactive gateways to accelerate business throughput Management Staff Partners and Suppliers Corporates as Customers Individuals as Customers Markets

Applications Technology People Processes SAP for Banking: The Solution SAP for Banking

SAP for Banking: Value Chain Based Processes (Reference Model) Business Resources Customers Channels Human Resources mgt. Inventory mgt. Knowledge mgt. Equity mgt. Sales & Customer Service Production & Services Business Management Profitability reporting Accounting Regulations Risk- calculations Contract lifecycle Transactions & Payments Events & Services Monitoring Financial Advices New SalesServices Information Providing

SAP for Banking: Process Territories in Detail (1) Sales & Customer Service Financial Advices New Sales Services Information Providing Sub processes of Sales & Customer Services Generate Financial Advices Originate new Contracts and Accounts Capture Investment Orders Define and Select Customer Specific Products and Prices Valuate Customer with Rating and Scoring Deliver Customer Specific Information & Statements Customer Specific Overview of Relationship, Business (Contracts, Services, …) and Contacts Process Services (Q&A, Complaints) Execute Campaigns

SAP for Banking: Process Territories in Detail (2) Sub processes of Production & Services Define Products to Execute Across Product Lines Administrate Customer Contracts and Accounts Authorise and Process Transactions and Payments Monitor Payments, Accounts, Contracts Initiate Processes like Roll Over Process Legal Actions Align cash flows of different products Process corporate actions Calculate fees, provision, interest Check customer beneficiary Production & Services Transactions & Payments Contract lifecycle Monitoring Events & Services

SAP for Banking: Process Territories in Detail (3) Sub processes of Business Reporting Segmentation of Customers Accounting and Consolidation Risk Analytics & Calculations and Simulations Measuring Profitability Report for different purpose and on different aggregation (Customer level upto Enterprise level) Analyse Sales Activities Historical Analytics and Trend Calculations Business Management Profitability reporting Accounting Performance measures Risk- calculations

New Process Models Determine The Application Boundaries Marketing Analytical & Reporting Services Application Boundaries Tomorrow Application Boundaries Today Add ons Analytics, Accounting and Reporting for the Enterprise The Banking Specific Value Chain Territories Operational Product-Based Applications Customer-Oriented Services Contract & Transaction Services Sales & Customer Services Production & Services Business Management

SAP for Banking: The Solution SAP for Banking Applications Technology People Processes

Customer Information Management The SAP Reference Application Landscape Point of Sales and Services (Channels) Contract &Transaction Services Business Management Treasury & Trading Business Support Contract & Transaction Services Analytical & Reporting Service Customer oriented Services Sales & Customer Services CENTRAL SERVICES

The SAP Reference Application Landscape SAP´s Application Landscape SAP understands the application territories needed to adapt to future banking business models Benefits: Flexibly adapt to future growth and business changes Investments in future proof IT Reduce system complexity and redundancy Use applications stand alone or integrated seamlessly into existing landscapes Mitigate migration risk Point of Sales and Services (Channels) Contract &Transaction Services Business Management Sales & Customer Services Treasury & Trading Central Services Business Support Customer Information Management

Reference Application Architecture in Detail Business Management Customer Behavior and Lifecycle Analytics Customer Information Management Sales & Customer Services Financial Advice Weath Management Contact Center & Activity Mgmt. Products & Pricing Products & PricingCampaigns Business Events & Service Treasury & Trading Transaction Banking (Contract & Transaction Services) Collateral Management Payments Custody Treasury, OTC & Securities Touchpoints Customer BranchesInternetATM Call Center Mobile D. Central Services Market Data Authori- sation & Access Printing& Output Mgt. Archiving Employee Portal/UI Customer Profiles Contract Origination & Offering Contract Origination & OfferingPersonalization Customer Overview Orders Business Support Human Resources Procure ment & Inventory Travel Management Fixed Assets & Real Estate Touchpoints Capital Market Training Portfolio& Program Management Knowledge Management Trading Systems Settlement Syndica- tion, Facilities & ABS Loans & Leasing Cash Accounts, Savings, Deposits,Cards Product Configurator Enterprise Management CustomerInvestmentPerformance Risk Measurement ProfitabilityAccountingALMRegulation Product Data & Management

SAP’s Coverage of the Reference Application Architecture Partial/ Planned/ Partner offer No SAP offering Current SAP offering Business Management Customer Behavior and Lifecycle Analytics Customer Information Management Sales & Customer Services Financial Advice Weath Management Contact Center & Activity Mgmt. Products & Pricing Campaigns Business Events & Service Treasury & Trading Transaction Banking (Contract & Transaction Services) Collateral Management Payments Custody Treasury, OTC & Securities Touchpoints Customer BranchesInternetATMCall Center Mobile D. Central Services Market Data Authori- sation & Access Printing& Output Mgt. Archiving Employee Portal/UI Customer Profiles Contract Origination & Offering PersonalizationCustomer Overview Orders Business Support Human Resources Procure ment & Inventory Travel Management Fixed Assets & Real Estate Touchpoints Capital Market Training Portfolio& Program Management Knowledge Management Trading Systems Settlement Syndica- tion, Facilities & ABS Loans & Leasing Cash Accounts, Savings, Deposits, Cards Product Configurator Enterprise Management CustomerInvestmentPerformance Risk Measurement ProfitabilityAccountingALMRegulation Product Data & Management Custody MySAP ERP Enterprise Management MySAP CRM SAP Net- weaver MySAP CRM SAP Core Banking

SAP for Banking: Application Service Architecture Applications Technology People Processes SAP for Banking

SAP NetWeaver – The total integration and application platform SAP Application and Integration Platform SAP understands the need to integrate across technologies and organizational boundaries Benefits: Unify and align people, information and business processes Interoperate with.NET and J2EE Reduce custom integration through business-ready solutions Combine technology platform and application landscape to achieve optimal Enterprise Services Architecture DB and OS Abstraction.NET People Integration Composite Application Framework Process Integration Integration Broker Business Process Management Information Integration Business Intelligence Knowledge Management Life Cycle Management PortalCollaboration J2EEABAP Application Platform Multi-Channel Access SAP NetWeaver™ DB and OS Abstraction Master Data Management … … Websphere Technology

Solution Overview SAP for Financial Services SAP for Financial Services consists of the following solutions and applications: SAP Core Banking  Loans Management  Account Management  Collateral Management  Payment Engine SAP Enterprise Management  Profitability Analysis  Credit Risk Management  Market Risk Management  Asset Liability Management  Financials SAP Customer Information Management mySAP CRM mySAP ERP  Corporate Services  Operations mySAP HR mySAP SRM SAP xApps SAPNetWeaver Solution View SAP for Financial Services supports financial institutions in all major Markets: America Europe Asia Pacific … and processes Relationships Loans and Leasing Payments and Deposits Financial and Management Accounting Risk Management / reg. Reporting Human Capital Management Infrastructure Management Corporate Services Business View

Selection of SAP for Banking Customers Strong worldwide customer base with more than 70 banks and more than 50 insurance companies