In a nutshell, the joint venture between SAP and DEDIQ (now SAP Fioneer) is excellent news for the Financial Services Industry (FSI) because it focuses the energy of SAP to accelerate the evolution of solutions for the insurance and banking sector.
A little history of SAP Banking
The history of SAP Banking begins with SAP-based solutions for the operative mortgage banking business. In the mid-1990s, DePfa Wiesbaden and Frankfurter Hypothekenbank Centralboden introduced SAP applications based on the SAP DARWIN (loan-securities-real estate) project solution. These resulted in the SAP add-on Mortgage Banking Solution as a license solution and SAP MARK as a client solution. Subsequently, SAP developed the product CML with the product types.
The SAP Banking core has evolved over time with new versions of both the application and the core, but from the beginning it was developed thinking of a comprehensive solution for managing loans and deposits portfolios.
SAP was creating an application “landscape” where, within the ERP, now known as SAP ERP Central Component (ECC), innovative solutions were integrated to manage all the processes of the FSI, such as Business Partner (BP), Collateral Management System (CMS), Account Management (AM), Bank Customer Accounts (BCA), Payment Engine (PE), among others.
The original idea of SAP, as I understand it, was to have, as it does in other industries, a comprehensive solution that would allow managing all loans and deposit operations within the same ecosystem (ERP). SAP called this group of solutions (CML and BCA) the SAP Banking Suite.
Over time, around 2005, SAP realized that migrating large banks to a 100% integrated landscape was going to be difficult. Although it was the best architectural solution, it was difficult to convince them and migrate tens of systems currently used by legacy banks. To solve this, SAP developed a solution they named SAP Banking Services, where SAP evolved the solution and “disintegrated” the banking applications outside the ERP. They called it SAP Loans Management and SAP Deposits Management. SAP kept both options in their portfolio, Banking Services and Banking Suite, and used the name “Transactional Banking” to refer to both of them.
By pulling them apart, SAP added more complexity to the implementations. Although some banks implemented them that way, the ecosystem became too complex to implement and to maintain. For example, for Loans Management, you had to add an additional instance called FI-CAX to connect it to the ERP, and Deposits Management had to run in a separate instance with its own closing processes. Then you had the Payment Engine, which ran separately, and all that generated a series of instances, an overly complex ecosystem of instances, immensely powerful but complex to manage.
The challenge
From 2010 to 2015, those of us who focus on the Financial Services Industry saw that SAP did not attach much importance to these solutions. Only some partners in the world focused on implementing them and were pushing, and sometimes helping, SAP to evolve them.
Around 5 years ago, in 2016, SAP started to bring these solutions back to life. They began to evolve them, and to develop a new solution in the cloud called SAP C4B (Cloud for Banking) based on SAP S/4HANA. This solution has been evolving, and in 2020, they managed to integrate in a single instance the solutions of Banking Services (Loans Management and Deposits Management) and Payment Engine, together with the ERP in S/4HANA. This gives companies all the power of SAP Banking Services, but it takes away the complexity of the many instances that it had.
For years, SAP was slow to monetize the banking solutions it built, mainly because it faced two internal problems:
1) SAP Account Executives (AEs) had a portfolio of products from SAP that they could sell. And although they were oriented to sell only to the Financial Services Industry, they ended up selling solutions such as Ariba, Success Factors, Concur or just the accounting ERP because they were easier and faster to sell and implement.
2) Not selling enough core banking software caused that, when it came to budgeting, these areas obtained a small piece of the SAP pie, which caused the evolution of these solutions to be slower.
By doing a spin-off of the Financial Services vertical and making a joint venture with the unit, it allows the collaborators of the new unit to focus on selling exclusively the core solutions, because that is how they will be measured, and for the innovation teams to focus on their evolution. The result of this is an accelerated version of both sales and evolution of the solutions.
The opportunity
Earlier this year, the joint venture between SAP FSI and DEDIQ was announced. For those of us who dedicate our lives to this industry, it became remarkably interesting that an entity such as DEDIQ is investing $500 million euros in the SAP FSI solutions and is going to place large amounts of energy, and money, in their evolution. This means that in the next few years there will be a lot of innovation and new developments for the Financial Services Industry, and we must be well positioned.
For banks and financial institutions that already have SAP Banking, this joint venture also becomes important because the solutions that they have already acquired and installed in their institutions will evolve and have greater innovation, therefore, they will be able to access better solutions.
For the Financial Services Industry is also good news, because SAP is an enormously powerful system with solutions that can help companies sell more and have higher ROI. For example, SAP Profitability & Performance Management (P&PM) empowers business users to make better decisions using advanced business modeling, granular profit and cost analysis, and simulation capabilities, or SAP S/4HANA Financial Products Sub-Ledger (FPSL), formerly known as SAP Analyzer, which allows companies to produce multiple, reconciled valuations for financial products; just to name a few.
By integrating all these solutions that are part of the core, companies can truly achieve what for us was just the dream for many years; this is, to integrate all the core functionalities in a centralized instance. To have this integrated in SAP, which normally in a bank is achieved by integrating tens of solutions, means that the Financial Services Industry gets the full power of the core banking with a range of solutions that are part of the ERP, which can also be run in the cloud.
This is great news! If we add to this that you can connect these solutions to the SAP Business Technology Platform (BTP) that allows you to integrate, extend and connect to third-party applications, it means that any company can have the full power of the core, with the fast innovation pace that the current business environment demands, ensuring your long-term success through agility, value-creation, and continual innovation. It encompasses database and data management, analytics, application development and integration, as well as intelligent technologies.
Now we have an enormously powerful ecosystem that allows SAP to provide world-class solutions to the Financial Services Industry. More news will come after the joint venture is finalized in September 2021. In short, this is great for SAP and for the Financial Services Industry.
The opinions expressed here are the responsibility of the author and do not necessarily reflect the official position of SAP.
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