IS 604: Contemporary Issues in ES Banking Enterprise Systems

Transcription

1 Chair of Information Systems IV (ERIS) Institute for Enterprise Systems (InES) IS 604: Contemporary Issues in ES Banking Enterprise Systems Prof. Dr. Alexander Mädche Chair of Information Systems IV Institute for Enterprise Systems Lecture supported by:

2 Goals of this lecture 2 Provide some basic contextual background on Enterprise Systems Describe the motivational background for studying and teaching Banking Enterprise Systems Introduce fundamental concepts needed to understand retail banking business 2

3 Agenda Session I 3 Agenda 1 Enterprise System Fundamentals 2 Motivation: Enterprise Systems in the Financial Services Industry 3 The Financial Services Industry Banks in the Market Environment 4 Products and Services of Retail Banks 5 Reference Processes in Banking 6 The Bank as Enterprise System 7 Business Scenario: the Global Retail Bank - GRB 3

4 Comparison: Traditional IS vs. Enterprise System Strategy Traditional IS Lower organizational scope Flexibility High Low Scope Business Logic Development Integrates selected functions within or across business processes Developed to suit existing processes In-house or specialized vendors Complexity / Risk Low High Enterprise System Organization-wide resources required Integrates broad spectrum of business processes Best practices adopted or customized Vendors with industry best practices Industry Commonality Specialized Across industries Deployment Many different systems Small set of systems 4 Devadoss and Pan (2007)

5 Product Software vs. Tailor-Made Software Product (Packaged) Software Standard software Generally purchased from vendor Service contract Characteristics Shared development costs Best-practices established Dev and maintenance by supplier Preview possible Documentation and education material available Reference implementation available Tailor-Mode Software Custom software Made to order or in-house purchase of things Characteristics Tailored solution, focus on required functionalities only Competitive advantage Company-specific changes possible Independency of software supplier Terminology of company used, less education effort IS 540 Management of Enterprise Systems 5 5

6 Definition: Enterprise Systems (ES) Enterprise Systems (ES) represent a specific category of information systems. They build on pre-packaged industry best practices embedded in standardized product software and target large scale integration of data and business processes across all company s functional areas and beyond company borderlines. Enterprise Systems strongly interplay with work practices of individual employees as well as organizational structures shaping and being shaped by individuals' behavior. Web Page Chair of Information Systems IV IS ES 6

7 Key ES Constituents: A Simplified Semantic Model Functional Structure Organisation has Resources defines Organizational Structure contains Procedural Structure Orga. Context defines Represented by Policies Rules Process Task builds on Technology is-a Information Technology is-a Tech. Platform Application Application Layer has is-a is-a Other Technology Interface Product SW Module Tailor-made SW Module Action Individual performs builds Individual Context Mental Model 7

8 Information Technology Layered Concept: Interface Platform Application Software Module Example: SAP ERP with SAPGUI (Product) Custom Developed Add-On(Tailor-Made) Interface Application Software Module SAP ABAP Application Server Platform Application Layer Interface Application Software Module Platform Oracle Database Windows Operating System 8 Based on Ferstl and Sinz (2008)

9 3 Major Types of Product Software Process-Centric Software Products Information-Centric Software Products People-Centric Software Products Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Supply Chain Management (SCM) Product Lifecycle Management (PLM) Business Process Management (BPM) Master Data Management (MDM) Business Intelligence (BI) Enterprise Content Management (ECM) Information Access (IA) Enterprise Portals (EP) Collaboration Technology (CSCW) Social Web Sites (SWS)

10 Horizontal vs. Vertical Integration Product SW People-Centric Software Products Information-Centric Software Products BI ECM MDM BPM CSCW EP SCM Logistics ERP PLM Sales & Marketing CRM SWS Process-Centric Software Products

11 Industry-Specific Product Software Specifically in the context of process-centric software products only a small set of the implemented reference business processes is shared across all industries. Examples from Practice SAP: Oracle: Many business processes are industry specific. Thus, industry-specific software implements industry best practices.

12 Banking Enterprise Systems 12 Technological Components of an Banking Enterprise System People-Centric Information-Centric Analytical Banking Groupware Portals CRM and Multi-Channel- Integration at POS Front Office Transactional Banking Mid Office Front-to-Back Integration (STP) Back Office Process-Centric 12

13 Agenda Session I 13 Agenda 1 Enterprise System Fundamentals 2 Motivation: Enterprise Systems in the Financial Services Industry 3 The Financial Services Industry Banks in the Market Environment 4 Products and Services of Retail Banks 5 Reference Processes in Banking 6 The Bank as Enterprise System 7 Business Scenario: the Global Retail Bank - GRB 13

14 Motivation - Challenges in the Banking Industry 14 Change of Economic Conditions Glocalization (markets without time and space restrictions, but importance of local actions) Mature markets Low market entry-barriers for non-banks, new competition High price pressure, low revenues Change of the Society Ageing Society vs. young and well informed customers Importance of customer centricity and customer trust Decreasing customer loyalty. Banking 14 Change of Technological Conditions Omnipresence of technology within people s lives and increased technological interconnectedness High cost pressure and need for standardization Change of Regulatory Conditions Financial crisis enforces stronger regulation New regulatory requirements like Basel II & III, SEPA, Dodd Frank, MiFID I&II Regulatory Projects cut budgets for innovation

15 Motivation 1 Billion in SAP! 15 15

16 Enterprise Systems Industry Example I IS 540 Management of Enterprise Systems Deutsche Bank (2012) 16

17 Enterprise Systems Industry Example I (contd.) IS 540 Management of Enterprise Systems Deutsche Bank (2012) 17

18 Agenda Session I 18 Agenda 1 Enterprise System Fundamentals 2 Motivation: Enterprise Systems in the Financial Services Industry 3 The Financial Services Industry Banks in the Market Environment 4 Products and Services of Retail Banks 5 Reference Processes in Banking 6 The Bank as Enterprise System 7 Business Scenario: the Global Retail Bank - GRB 18

19 Financial Intermediation 19 DIRECT FINANCE Savers/ Depositors Financial Markets Borrowers INTERMEDIATION Savers/ Depositors Financial Intermediaries Borrowers A bank is a financial intermediary whose core activity is to provice loans to borrowers and collect deposits from savers. In other words they act as intermediaries between borrowers and savers. (Casu et al. (2006), p.4) Casu et al. (2006)

20 Banks Role in Modern Financial Intermediation 20 Private Persons or Business Institutions Financial Markets Private Persons or Business Institutions Savers/ Depositors Asset Securitization Borrowers Financial Intermediaries Banking System (Central Bank and Regulation) 20 Analysts and Observers Based on Casu et al. (2006)

21 The European Banking System 21 Is responsible for the Ensurance of the price stability Support of the general economic policies (as far as possible) Is managed by the decision-making bodies of the ECB European Central Bank (ECB) National Central Bank (NCB) of the 17 euro area countries Decision-making bodies: Governing Council Determine consistent financial policies Executive Board General Council Responsible for the operative implementation of monetary policies Grill and Perczynski (2004) 21

22 The European Banking System (cont d) 22 Monetary Policy Instruments of the Eurosystem are used to achieve the goals of the Eurosystem Instruments: Influence the money supply (open market operations) Change interest rates (prime rate) Reserve requirements Approved business partners Need to fulfill operational and regulatory requirements Requirements: minimum reserve system involvement, supervision by national authorities of a standard comparable to harmonized EU/EEA, and financial solidity 22 Grill and Perczynski (2004)

23 The German Banking System 23 Central Banking German Central Bank (Bundesbank) German Banking System Commercial Banking Credit Institutions (German Banking Act = KWG 1,1) German Central Bank as NCB of Germany Independent of instructions from the German Federal Government Is allowed to conduct certain business transactions with credit institutions and further market participants Universal banks conduct all banking services defined by the German Banking Act, whereas special banks focus on limited banking services 23 Universal Banks Special Banks e.g. Building Association, Investment Bank Grill and Perczynski (2004)

24 National Regulation in Europe 24 National Institutes ensure the proper functioning, stability and integrity of the national financial system. Ensure solvency of financial institutions and protect funds of clients and investors e.g. BaFin in Germany (Bundesanstalt für Finanzdienstleistungsaufsicht) Banking Supervision Insurance Supervision Securities Supervision e.g. Actions against illegal businesses e.g. Check and approval of business plans of private insurance companies e.g. Insider monitoring and report to responsible prosecution authority 24 Grill and Perczynski (2004)

25 Agenda Session I 25 Agenda 1 Enterprise System Fundamentals 2 Motivation: Enterprise Systems in the Financial Services Industry 3 The Financial Services Industry Banks in the Market Environment 4 Products and Services of Retail Banks 5 Reference Processes in Banking 6 The Bank as Enterprise System 7 Business Scenario: the Global Retail Bank - GRB 25

26 Banks as Service Companies 26 Services of Banks Payment Services e.g. execution of money transfers Deposit Services Offering of investment vehicles (savings products) Size Transformation 26 Lending Services Financial Intermediation e. g. Handing out of loans Maturity Transformation Risk Transformation Information Transformation Other Services e. g. intermediation for third party products Grill and Perczynski (2004)

27 The Business of Banks 27 Credit institutions (Kreditinstitute) are companies that conduct professional banking business Types of banking businesses Lending Guarantee Loan Deposit E-Money Bill-Broking Giro Financial Commission Investment Issuing Financial service providers are non-banks, conducting professional financial business Types of financial businesses Money Transmission Investment Intermediation Foreign Currency Acquisition Brokerage Finance Portfolio Management Credit Card Proprietary Trading 27 Grill and Perczynski (2004)

28 What do Banks do? 28 A banks main funding comes from customer deposits (reported on the liabilities side of the balance sheet) This funding is then invested in loans, other investments and fixed assets Including retained profits LIABILITIES Customer Deposits Equity TOTAL ASSETS Cash Liquid Assets Loans Other Investments Fixed Assets TOTAL Based on Casu et al. (2006)

29 How do Retail Banks earn Money? 29 Lending and Deposit Business Lending / Loans e.g. consumer loan, mortgage loan, current account Deposit / Savings e.g. savings account, onvernight money, time deposit Service Business Payment Transactions e.g. bank transfer, standing orders, direct debit Securities e.g. purchase and sale of securities Other Banking Services e.g. account management, advisory, foreign trade, Operations +Interest income +Fee and commission receivable -Interest expense -Fee and commission payable +Net interest income (spread) +Net fee and commission income -Operating expenses Operating profit 29

30 Production Factors 30 In contrast to industrial companies, banks rely on two major production factors Technical-Organizational Liquidity-Financial Object-oriented Work Executive work - instructed by supervisors Dispositive Work Managerial work - decision about other production factors and their combination Operating Resources e.g. Facilities, Equipment, IT Systems, Monetary Factors Cash and cash equivalents & financial guarantees 30 Grill and Perczynski (2004)

31 Distribution of Banking Services 31 A bank needs a consequent market-oriented business strategy in order to protect or enhance its market share Marketing Management Marketing Instruments Protect or enhance the segment- and product-related market shares by focusing on customers needs Usage of aligned, sales-political instruments ( Marketing Mix ) to protect and enhance the demand 31 Grill and Perczynski (2004)

32 Distribution of Banking Services (cont d) 32 Target is to achieve the best fit and focus based on market research Product & Range Design of banking services, management of the product range and development of products i.e. product policy, product mix policy and product innovation. Marketing Mix Distribution Design of the distribution channels and marketing approach. Price & Condition Arrangement of prices & conditions for banking services e.g. interests & commissions. Communication Measures to positively influence the marketing situation e.g. advertising, promotion, PR. 32 Grill and Perczynski (2004)

33 How Banks reach their Customers 33 A distribution channel is used to reach customers and match their needs by offering appropriate banking services Customer Stationary (Branch) Medial (Internet, Telephone, Mobile Banking) Mobile (Sales Force) Banks that use all of these channels pursue a multichannel marketing strategy Grill and Perczynski (2004) 33

34 Types of Distribution Channels 34 Stationary channels: Traditional sale of banking services at permanent locations Direct banks Competence centers Standard branches No personnel-intensive sale via branches Offer tailored services to specific customer segments at selected locations e.g. investment-, real estate-, and business-center offer basic services to standard private customer segments with middle and low income Self-service branches offering technology to pursue routine businesses 34 Grill and Perczynski (2004)

35 Types of Distribution Channels (cont d) 35 Medial channels: Sale of banking services using electronic media. Also called home banking as customer can use services at home Online banking (PIN/TAN or HBCI approach for security purposes) Telephone banking (in combination with call centers) Internet Banking Mobile Banking Mobile channels: Sales representative, independent brokers, and mobile branches 35 Grill and Perczynski (2004)

36 Retail Banking Customers 36 Banking Customers can be categorized into two main business areas: Retail Business Standard private customers e.g. salary earner, pensioner Focus on deposits Private and Commercial Business Wealthy (private) customers e.g. entrepreneur, freelancer, manager Focus on deposit/investment Business/Corporate customers e.g. (small) companies, municipalities, associations Focus on lending/financing Practically not manageable customer base Need for an easy to understand and standardized offerings Individually addressable customer base Need for tailored offerings 36 Grill and Perczynski (2004)

37 The Account in a Business Relation 37 Deals between banks and customers are usually processed using bank accounts Bank accounts are used to record claims and liabilities Account Book as archive for deals Consistent and economic processing Deals are based on contracts (e.g. giro, lending) Customer Protection against theft by reduced cash holdings (cashless payments) Usage of further banking services possible (e.g. credit card) Interest earnings or expenses depending on the type of contract Benefits of using Bank Accounts 37 Bank Settlement of customer claims and liabilities Procurement of deposits and processing of loans Cross selling strategy Interest and commission earnings Grill and Perczynski (2004)

38 Account Types 38 Accounts can be categorized by the purpose and the customer relation Account Purpose Payment Transactions Current Account Deposit Business Savings/Deposit Account Time Deposit Account Securities and Safekeeping Depot Account Lending Business Current Account Loan Account Non-Banks as customers Giro account for private customers Accounts for commercial customers Customer Relation 38 Banks as customers Bank Current Account (Loro/Nostro) Grill and Perczynski (2004)

39 Debit vs. Credit Account 39 Current accounts (C/A) are used to settle and book mutual transactions between the creditor and the debtor C/A are managed as Credit and Debit Account i. e. with calculation of credit- and debit-interest Account statements report movements (transactions) and account balances Debit Credit Account Assets Debit Debit Account Assets Liabilities Credits Credits Liabilities Credit Balance Debit Balance 39 Grill and Perczynski (2004)

40 Exemplary Comparison of Account Types 40 Type Purpose Account Mgmt Earnings for the bank Current account Giro account Deposit account Booking of transactions and current loans Processing of payment transactions and further bank businesses Specific current account Booking of transactions and current loans Salary account Processing of payment transactions and further bank businesses Booking of savings deposits Accumulation of capital gains and investments Debit or credit 40 Direct Debit interest Commission Fees Indirect Interest margin Earnings from follow-up businesses Rather credit Direct Commission Fees Indirect Interest margin Earnings from follow-up businesses Credit Indirect Interest margin Earnings from follow-up businesses Grill and Perczynski (2004)

41 Exemplary Comparison of Account Types (cont d) 41 Type Purpose Account Mgmt Time deposit account Securities account Lending account Booking of time deposits Interest-bearing investment Processing of securities inventory Safekeepting and management of securities Booking of loan claims Processing, payout, refund, and interest payment Earnings for the Bank Credit Indirect Interest margin Earnings from follow-up businesses - Direct Deposit fee Indirect Commission from securities businesses Debit Direct Loan interests Commission Fees 41 Grill and Perczynski (2004)

42 The Account Opening 42 An account opening is based on a contract between the bank and the customer Customer First declaration of intent: Application for acocunt opening Second declaration of intent: Acceptance of the application Bank The banks business operations needs to follow several internal steps -> Reference Processes, in several areas of the bank -> Functional Areas that are supported by information technology -> Banking Enterprise Systems in order to create and manage the contract/account relationship with the customer. 42

43 Questions, Comments, Observations 43

44 Suggested Literature Essvale (2011); Business Knowledge for IT in Global Retail Banking; Available in the Uni Mannheim e-library: ocid= Casu B., Giardone C., Molyneux P. (2006); Introduction to Banking, Prentice Hall Grill and Perczynski (2004), Wirtschaftslehre des Kreditwesens, 38. Edition (only German) 44 44

45 References 45 Grill and Perczynski (2004), Wirtschaftslehre des Kreditwesens, 38. Edition 45