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SUN in Financial Services
BANKSETAShaping up to Global Banking
Nigel Woodward: Global Segment Manager
MAY 20 2003
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2June 18, 2002
AgendaAutomation in Banking in Developing Countries
- Global market overview
- Macro trends
- Contemporary challenges
- Segment value chains
-Scenarios
- “Northern hemisphere” context – South Africa – relevant lessons to be learnt
- Retail
- Wholesale
- Technology implications
- Managing the market
- Dispelling myths
- Foundations to be laid
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3June 18, 2002
The South African challengeNot lessons, but useful watchwords
Retail• Growing newly banked demographic profile• Developing infrastructure• Mix of needs – commodity retail – wealth management• Education opportunity
Wholesale• Full functional scope• Corporate banking to securities• Need to take best practice models
Electronic – automated backdrop
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4June 18, 2002
E-Business is reshaping retail securities broking… and institutional E-Business is quickly emergingMargins down = cost down with IT and ops &/ or volume up to maintain profit with brand
…but Internet commissions are plummeting
‘96 ‘97 ‘98
Dollars
Average commission charged by top 10 online brokers
0
15
30
45
60
Source: Credit Suisse First Boston
0
5
10
15
20
25
1999 2000 2001 2002 2003
$0.0
$0.7
$1.4
$2.1
$2.8
$3.5
Accounts (millions)
Assets($ billions)
Accounts
Assets
Retail Internet Brokerage Forecast anticipates significant growth...
Source: Forrester Research, Tower Group, PwC analysis
Looking to the future you have to be a low(est) cost producer
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5June 18, 2002
Where are we today - Retail ?
- Dot.com is dead, long live dot.com
- Ridiculous business propositions – but have taught us
-“e” or is it “i”
- Does the e customer exist – he is everywhere … and emerging in RSA new demographic behaviours
- Existing business processes are challenged
- The status quo is not sacrosanct
- Barriers to entry are down, new entrants can appear ….
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6June 18, 2002
Retail continued ….• Late 90’s new entrants have not survived – lacked full product scope, e not enough on its own - electronic delivery channels for established banks are now a given
• Specialist value propositions – technology enabled niche plays have appeared
• Branch has survived the electronic onslaught – USA branch renewal focus, behaviour indicator
• Personal finance links to trusted brands and establishment
• High end being siphoned off from mass market – cost reduction economies of scale mergers
• Challenge – If you’ve got process efficiency turn to service edge (at lower cost)
- If you haven’t – catch up fast
• How broad is my business … Group structures – product lines – production and distribution synergies
Financial Services STOVEPIPES….The e customer doesn’t want to see these
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7June 18, 2002
Wholesale market
Corporate banking, trade finance, securities and capital markets
Cost Cost Cost – Efficiency Efficiency Efficiency
• STP ….
• Risk Management
•Trading Infrastructure
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STP – a market ecosystem
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9June 18, 2002
While T+1 is on the shelf the industry will still spend $5.9 billion on STP in next 3 years
2002 2003 2004 2005
Asset Managers Broker/dealers Custodians Exchanges/Utilities
North American Securities Industry IT Spending on STP (US$ billions)
Source: TowerGroup estimate
$1.5
$1.8
$2.1$2.0
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June 18, 2002
The Key STP Pieces
? The Transaction Pipeline
? Core Systems
? Risk Management
? Market Connectivity
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June 18, 2002
Customer Challenges
Internal
Front Office
Back Office
Middle Office
Front Office
Multi-instrument
Organic growth
Middle office
Multi-divisional
Evolutionary
Back office
Multi-location
Deals, transactions, messages
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June 18, 2002
Cost reduction – process improvement •Standards based messaging – ubiquitous adoption - Market responsibility
• FIX – 4.4 equities – fixed income, SWIFT and ISO 15022
• Intermediary functions• Settlement - Omgeo• Execution - ECNs• Routing - Easyscreen• e de facto enabled – Technology cost of ownership
• Next generation trading infrastructure – web MDDP – TIB, Triarch, RMDS
• Corporate payments – MA-CUG – Portal delivery• Trustact security• MT103 and 103+ November 2003 replacing 70/75• SWIFT IP 2004 … new service and automation models
•South African wholesale market displays all these characteristics
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June 18, 2002
? Market risk? - Front Office
? - price feeds/trading platforms
? Credit/Counterparty Risk? Institutions - global
? Sovereign
? AML – Know your Customer …
? Operational risk? Fundamental business processes
? Basle 2 … 2006, Sarbane Oxley …… regulatory driver global consistency
? Systemic risk – the market itself – CLS, RealTime Nostro
Risk Management
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June 18, 2002
Automating the trading cycle will enable firms to do more with less
.. Taking out cost at all possible points
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June 18, 2002
Structural implications of Financial Service delivery …
• Blurred lines of demarcation
• Developing markets
• Execution in an e environment
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June 18, 2002
What business are we in … Retail, Wholesale, both? complex overlaps and market practice
Sell sideinvestment
Corporate
Custody
PrivateBanking
Retail
Buy sideAsset Mgt ExecutionExecution
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June 18, 2002
Are we working the linkages …aware of the sub drivers, synergies, economies of scale?
Sell sideinvestment
Corporate
Custody
PrivateBanking
Retail
Buy sideAsset Mgt Execution
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June 18, 2002
Dynamics – what the (e) customer wants?
Sell side investment
Corporate
Custody
Private Banking
RetailBuy side Asset Mgt
Execution
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June 18, 2002
Dynamics – what the (e) customer wants?
Sell side investment
Corporate
Custody
Private Banking
RetailBuy side Asset Mgt
Market accessBest priceSoft servicesRisk protection
InstitutionalLong term performanceInformation/risk strategiesRetailShort term returnLow fees
Efficient processing shopMarket adviceOutsource buy sideTechnology soak - SWIFT
Global trade, ePayments+ TrustAct, BoleroOrder to payDebt markets Complexity translated Market price
Day to day serviceWhere & when wantedChannelsNo frillsNo costCross product
Premium service All these at reasonable costHow many hidden in Retail $ 300Bn-25Tn 2001- 2005
ExecutionPrice transparency
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June 18, 2002
e doesn’t recognise organisational stovepipes?
Sell side investment
Corporate
Custody
Private Banking
RetailBuy side Asset Mgt
Market accessBest priceSoft servicesRisk protection
InstitutionalLong term performanceInformation/risk strategiesRetailShort term returnLow fees
Efficient processing shopMarket adviceOutsource buy sideTechnology soak - SWIFT
Global trade, ePayments+Order to payDebt marketsComplexity translatedMarket price
Day to day serviceWhere & when wantedNo frillsNo costCross product
Premium serviceAll these at reasonable costHow many hidden in retail
-Organisational linkage- Shared technology-Cost efficiency- SERVICE ENHANCEMENT
Execution
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June 18, 2002
Therefore the issue is how to reach the customer and with what products
•Multi channel delivery
•Product transparency
•Retail - Demographic integration
•Wholesale - Operations integration
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June 18, 2002
…. Through the looking glass ….architecture
Legacy
Core
Systems
Service delivery – meeting the challenge
From manufacturing plantsTo customer behaviour
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June 18, 2002
…. Through the looking glass ….architecture
Legacy
Core
Systems
Recognizing end to end topology
Channels
eChannel
ManagementeProcesseseInfrastructure
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June 18, 2002
…. Through the looking glass ….architecture
Integration/InformationBus/Messaging
ComponentsJ2EE
ClaimsLoansCredit
Cross sellCRM
Aggregationl
Collab/Community/portal/LDAP
Security
JavaJ2SE
Internet
Phase 1E-Presence•Web server•firewall
Phase 2 E-Function• Incremental• new business functions
Phase 3E-Infrastructure•Middleware•Legacy connect•Infrastructure
Phase nCore Processing•Core replace•Consolidate•Extend
Call centre
J2ME Mobile
Digital TV
Branches
ChannelseChannel
ManagementeProcesseseInfrastructureLegacy
Core
Systems
SUNOne Architecture
XML-JMS/JCA SIntServer
LDAP
Apps Server Web Server F/Wall- DMZ
SUNOne - Architecture +Functions working organism
RDbmsLDAP
Retail outlets
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June 18, 2002
Exchange
ECN
Internet
Web server
•ASP•Netting
•Affirmation•Exception reporting•Matching
technologies
Intermediary
Private Client
2
Fund 3 Manager
1
Market Sell Side Buy Side - securities
Trade5
Sales
Execute6
ManageRisk
7
Settle8
MonitorSTP
9
4
Model FI Proving the concept - securities
Random Walk
F-fusion
-Heterogeneous technologies influence-Big ISV brands and small innovators-J2EE architecture binds – JMS, XML FIX communicates-J2EE - JCA op ….. Leverage- so what can we do/facilitate for you …?
B2BITS
Proving the concept … New York, California, London, Johannesburg ?
Pacemetrics
Oracle
Reuters
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… some technology commentary ….
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June 18, 2002
Organic growth – vision impediment
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June 18, 2002
Chipset
O/S Solaris/Linux
Platform foundation
Storedge
JCA/JMS
Architecture
Messaging
Rules/exceptionMiddleware
Platform optimisation services, “ilities”
PeripheralsArchitectural compliancy/strategy services
J2EE architecture
Functional support
SUNone
Risk application analysis
Partner community iForce
Applications
Operations audit
Technology infrastructure Infrastructure audit
Partner community iForce
Services
Business processes
Audit/Compliance
Operating system – fit for purpose
Sparc/Intel
Core business
Consulting services
Selection/installation/Functional integration
Business Technology
SUNONE + Partner community iForce
Business Operations
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June 18, 2002
… What do we want from technology – the myths?
- Beware Solutions – second most abused term after “partners”
- Optimised cost (not necessarily lowest)
- Flexible – to business change and open supply market
- Market is shifting – evolution into revolution perhaps
- SUN Microsystems Java – 1995 response to proprietary lock in(Unix in 1980s, Java in 1990s)
-Java language and J2EE architecture – Retail J-XFS, Capital Mkts – JoW established
-SUNONE Webservices (standards and interoperability)
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June 18, 2002
…. Continued
-Legacy systems – High organic investment cannot replace – need to evolve
- re architect …. But need ROI, sounds expensive – seek interim deliverables approach
- start topological environment approach
- make v buy, now make and buy, know what and why you are doing it
- OO …. Java opens the way forward – makes sense
- Small is probably beautiful, big may not be – new selection and project management skills
- Manage innovation
-Work the commitments to partnership,
- Play to core competencies – take advice from where it should come from Get navigation round the buzz and fashion!
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June 18, 2002
Technology is the easy part ….
Good luck ……
Give us a call, we have a lot of friends !
Thankyou
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