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Banking
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SAP Business Suite powered by SAP HANA | Fact Book

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SAP Business Suite powered by SAP HANA | Fact Book

SAP Business Suite powered by SAP HANA

Banking
Banks must seek new competitive advantages in response to
changes in customer trust, demographics, and demands, as well
as to profit margins reduced by higher capital requirements,
compliance costs, and lower-fee income.

SAP solutions that leverage the power of the SAP HANA platform
lead the way to new real-time business practices in these key areas
of banking:
General Remark ......................................................................................... 4
Finance, Risk, and Compliance .............................................................. 5
Finance and Risk Data Platform: One-Step Data Management for
Downstream Applications .........................................................................5
Accounting for Financial Instruments on SAP HANA ...........................11
Governance, Compliance, and Surveillance ..................................... 16
Compliance and Fraud Prevention and Detection .............................. 16
Liquidity Risk Management...................................................................21
Manage Funding Liquidity Risk ............................................................... 21
SAP Business Suite powered by SAP HANA | Fact Book

General Remark

Use of Generic Line-of-Business


Scenarios for Banks

In addition to the banking-specific usage of the SAP HANA offering, which
is described in the subsequent chapters, banks also demand generic line-of-
business (LOB) scenarios finance; governance, risk, and compliance
(GRC); human capital management (HCM); and sales.

In this context, the following banking applications, scenarios, and process



steps based on the SAP Customer Relationship Management (SAP CRM)
and SAP ERP offerings were ported to the SAP HANA database starting
with release 7.0 of SAP CRM, EHP 3 and release 6.0 of SAP ERP, EHP 7:

SAP Deposits Management for Banking application, Suite edition


SAP Loans Management for Banking application, Suite edition
SAP Collateral Management for Banking application, Suite edition

SAP Reserve for Bad Debts for Banking application

SAP Financial Customer Information Management for Banking package

SAP Account Origination for Banking package

SAP Leasing for Banking package


General ledger connector for bank analyzer

Multicurrency accounting

Therefore, customers can use generic LOB scenarios supported by SAP


Business Suite applications together with the above-mentioned SAP CRM-
and ERP-based banking applications, scenarios, and process steps on one
SAP HANA database instance.

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Finance, Risk, and Compliance


Finance and Risk Data Platform:
One-Step Data Management for
Downstream Applications

Business Practices Today


The information management landscape of banks is typically very
Ad hoc heterogeneous. Siloed solutions for risk, accounting, and regulatory
reporting built and owned by independent departments make it difficult to get
interactive consistent information and to meet enterprise-wide reporting needs. Different
technologies and data aggregations lead to significant reconciliation efforts
analysis and inconsistencies.
from days to Adding to these challenges are the recent mortgage and European monetary
seconds* crisis, which have led to new regulatory requirements for example,
international finance reporting standards (IFRS) 9, Basel Accords II and III,
in particular Basel Committee on Banking Supervision (BCBS) 225, 238, and
239 that focus on finance and risk.

Todays banking institutions have many reasons to consolidate their


information management landscapes, ranging from cost reduction, to greater
business insight, to improved market agility. Business and regulators require
intraday and simulative analytics functions, very often across functional
domains.

Stress testing Ambition


and risk Banks have to redesign the data management landscape to gain the
following benefits:
aggregation Consistent data storage
on demand No reconciliation effort
Immediate reporting

Interactive analytics
Agile responsiveness

Simulation and prediction

All large banks are looking for a platform to act as central data storage
containing all contracts, customers, transactions, and events that allows
risk, accounting, management and compliance reporting, and calculations.
This is more than a reporting tool. It is a data management infrastructure.

Innovations such as in-memory computing technology now provide


opportunities for banks to optimize and simplify their information and
reporting architecture.

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SAP is able to provide a robust real-time data platform for finance and risk
through a suite of applications that either operate directly on the data
platform or that are integrated.

Instant Challenges

root- Banks are driven by various internal and external factors requiring better
visibility into and transparency of their businesses. For example, banks need

cause to project contractual cash flows for underlying transactions when institutions
manage millions of transactions. Significant regulatory changes require
analysis stringent compliance. Banks need to improve stress testing and accuracy of
analysis.
mobile enabled
When banks have the ambition to build a finance and risk data platform the
challenge begins with the typically very heterogeneous landscape of source
systems. Data from a variety of sources has to be integrated in real time or
periodically. Data modeling and flow management need to be organized
centrally and supported by appropriate tools.

The finance and risk data platform has to serve different business needs and
requires a multipurpose data model. The platform needs to be able to
support standard reporting requirements as well as ad hoc analysis.
Furthermore, it has to serve the information needs of calculation processes
and applications that might be implemented based on SAP and/or third-party
applications. More and more results need to be produced in real time.

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Business Innovation with SAP HANA


The implementation of the finance and risk data platform based on the SAP
HANA platform addresses the above-mentioned challenges. SAP HANA is
the technological basis to consolidate data across the enterprise from SAP
and non-SAP sources. SAP Business Warehouse (SAP BW) powered by
SAP HANA complements the solution with data-warehousing capabilities.

Full drill- Whereas SAP HANA is the core, other components of the SAP Data

down to Management portfolio complement the solution. SAP has a collection of


tools for data integration and data quality management that support real-
single time, batch, and stream-based data integration into SAP HANA. Other
solutions support the data modeling and governance process.
cash flows
in seconds

Innovation in Detail
Less materialization: Given the processing power of SAP HANA, many
aggregations, transformations, and calculations can happen on the fly. This
leads to less materialization and more virtualization of classical data
warehouse layers. Redundant data structures, such as cubes, can be
replaced by views.

Flexibility: New reporting requirements can be addressed more easily and


flexibly by creating appropriate SAP HANA views.

Simplification of system landscape: Finance and risk applications can be


deployed jointly with SAP BW on a single SAP HANA database. This allows
a more direct access to the data in the finance and risk data platform and
reduces redundancies.

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SAP Business Suite powered by SAP HANA | Fact Book

Data aging: Whenever banks have to handle volumes of Big Data and not
all of this data is required on a daily basis, the near-line storage option for

SAP NetWeaver running on SAP HANA allows data storage on a cheaper,
yet still fast, database (with SAP IQ database software).

Reduction of data latency: Given the fact that SAP HANA allows you to
work with fewer redundancies, the overall data latency is reduced
significantly.

Openness: With SAP HANA, business intelligence (BI) tools and


applications acquire a new set of interfaces to use for operating on data.
Structured query language (SQL) and open data protocol (OData), for
instance, are well-known and accepted standards.

Reference Data Model: The SAP HANA Finance and Risk Analytics for
Banking rapid-deployment solution provides an infrastructure for generating
a physical and virtual reference data model for finance and risk in SAP
HANA. This foundation is used to run SAPs finance and risk applications
and is open to integrate third-party systems via open technology standards.

Mobile: The complete information basis can be analyzed and explored using
mobile devices. This gives a bank always-on visibility into critical events and
situations.

Speed: SAP HANA provides tremendous performance improvements. New


kind of applications (for example, on demand, intraday simulation, and stress
testing) are possible.

Benefits
We achieved significant business benefits by using SAP HANA to optimize
management of business critical data for banks. This includes:

Simplify IT Better performance: SAP HANA fully leverages in-memory computing


technology innovations to dramatically improve the performance of the
landscape solution.
with reduction of data Single source of truth: Finance and risk data management based on SAP
layers and needed IT jobs HANA provides the single source of truth for finance and risk down to the
lowest level of granularity.

Ready for use: Predefined industry best practices provide comprehensive


scenarios covering data sourcing, integration, harmonization, calculation,
and reporting. In addition, the solution supports standardized reporting
processes and self-service analytics.

Integration: The value of the finance and risk data management solution is
increased through the comprehensive integration of analytics solutions, such
as BI and finance and risk applications.

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SAP Business Suite powered by SAP HANA | Fact Book

Analytics in real time: Thanks to real-time data analysis and accelerated


processes, business users get closer to the data to better interact and
improve decision making in a timely manner.

Fast implementation: Solutions can be implemented faster due to a simpler


architecture and configuration. This enables business users to get involved
in the project earlier, resulting in better-quality deliverables.

Easy access to data: Business users get closer to the data, resulting in
improved decision making with more accurate and detailed finance and risk
positions.

Lower total cost of ownership (TCO): Less redundant data structures (for
example, cubes, aggregates, and indexes) lower the overall TCO of a data
warehouse significantly.

Customer Proof Points


Lets assume youre planning an implementation project and have

>1000x approximately 500 million records in your risk data mart. Based on our
experience with similar customer requirements, we have observed:
faster risk data
analysis* > 1000 times faster analysis of risk data

No aggregates needed thanks to on-the-fly aggregation of risk data


Time reduction from four hours to 15 seconds to analyze key risk
indicators; mobile enabled
From overnight to on-demand intraday stress testing of exposure at
default; expected losses and risk-weighted asset risk key figures along all
reporting dimensions
New capabilities thanks to ad hoc exploration with functionality for
drilling down to individual transaction details

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SAP Business Suite powered by SAP HANA | Fact Book

Available Solutions and Outlook


SAP plans to integrate the existing finance and risk applications on a single
finance and risk data platform running on SAP HANA. Offerings, such as the
SAP Bank Analyzer set of applications, are planned to be made available in
subsequent steps on SAP HANA and integrated with the finance and risk
data platform. New finance and risk applications are planned to be built on
SAP HANA. Further improvements in the finance and risk technology
platform will focus, for example, on data integration, scalability, and
extensions of the finance and risk reference data model. Partners and
customers can then develop and deploy their own solutions on the finance
and risk data platform.

Remark: The outlook provided in the illustration might be subject to changes.

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Accounting for Financial Instruments


on SAP HANA

Business Practices Today


Typically, banks run different core banking applications for different types of
financial instruments. While the purpose of those applications is to manage
interactions with business partners, they often also include subledger
accounting functions. However, because contractual agreements with
business partners dont differ according to each specific accounting
standard, these GAAP-specific accounting requirements may conflict with
contract management. This mixture of tasks and responsibilities can slow
down product innovation and result in redundant work (for example,
regulatory requirements needing to be applied in each contract-managing
application).

Because transactional systems typically cannot fulfill all accounting


requirements especially complex requirements such as reclassifications,
deferrals using the effective interest rate, multiple ledgers, or status changes
(for example, from impaired to not impaired) manual efforts are often
necessary to correctly reflect those requirements in the books. This is time-
consuming and slows down period closing.

Ambition
With the SAP Accounting for Financial Instruments application running on
the SAP HANA platform, banks can decide for a centralized subledger that is
fast enough to act as single source of truth at the individual contract level.
Centralize This central instance covers all accounting requirements and enables
organizations to implement regulatory changes only once. Also, SAP
subledger provides preconfiguration that reflects industry best practices. This

accounting decreases the cost of implementation as well as cost of operation


significantly.
with the power of
With SAP Accounting for Financial Instruments on SAP HANA, business
in-memory technology users become empowered because they can better maintain business rules.
SAP HANA enables ad hoc, real-time reporting without predefined
navigation paths. Business users can define any reporting view without help
from their IT departments. Faster processing and reporting accelerates cycle
times (for example, at period close) and enables faster innovation.

Challenges
Banks have been running finance applications for more than 40 years now.
Often, the applications are quite dated and, because of mergers and
acquisition, the IT landscape has become very fragmented, requiring
numerous interfaces and increasing operational costs tremendously. Data
silos and data duplication result in increased effort for reconciliation.

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Banks also face increasing external pressure. Legal requirements change


frequently, and stakeholders require information earlier and on a more
detailed level.

Business Innovation with SAP HANA


With SAP Accounting for Financial Instruments on SAP HANA, the
subledger for financial instruments uses the power of in-memory computing
for accelerating daily and period close and for ad hoc data analysis with
unrestricted navigation.

Running SAP Accounting for Financial Instruments on SAP HANA enables


banks to avoid data replication to SAP Business Warehouse (SAP BW) or
any other data warehouse. Reporting accesses the original data directly
from SAP Accounting for Financial Instruments using the finance and risk
data platform supported by SAP.

The SAP HANA platform enables SAP to follow a new paradigm: Methods
Methods go go to data rather than data goes to methods. That means the finance and

to data rather risk data platform acts as single source of truth and will hold all original data
residing in finance and risk applications from SAP as well as from partners.

than data An application will use SAP HANA views to easily consume results from
another application without replicating the data.
goes to SAP alone owns the complete stack of database, data model, applications,

methods and reporting and is therefore better able than others to design an integrated
solution without redundancy. Eventually, all respective applications will share
the data model of the finance and risk data platform, eliminating the need for
data transformation and data mapping.

Innovation in Detail
SAP BW is no longer mandatory. Reporting can be built directly on SAP
Accounting for Financial Instruments data that is stored in the source data
layer (SDL) and the results data layer (RDL). Respective SAP HANA
database views can be built using the SAP HANA studio or other modeling

tools such as SAP PowerDesigner . The SAP HANA views are also
provided by the SAP HANA Finance and Risk Analytics for Banking rapid-
deployment solution. With these views of the SDL and RDL, data can be
consumed without using bank analyzer-specific access methods such as
primary and secondary data sources.

Customers can also continue to use SAP BW, if they prefer. Three different
scenarios are possible:
1) SAP BW runs on the same SAP HANA database instance. In SAP BW,
only virtual info-provider objects are used. No data is duplicated.
2) SAP BW runs on another SAP HANA database instance. For smaller
amounts of data, a federation approach might be used (data is read from
the other instance at runtime). No data is duplicated.
3) SAP BW runs on another database instance (SAP HANA database or a
classic relational database). As mentioned previously, data can be

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replicated from SAP Accounting for Financial Instruments to SAP BW.


This might make sense, especially when SAP BW is used as the central
enterprise data warehouse.

Benefits
With SAP Accounting for Financial Instruments on SAP HANA, reporting and
business analysis can start sooner because no data needs to be replicated
to a data warehouse. SAP HANA enables flexible real-time, ad hoc analysis
with unrestricted navigation, and database indexes predefined by IT are no
longer necessary for optimal performance. In-memory technology provides
unmatched response times. Business insights are now available on demand
on any device, any time. Users can easily consume data directly from the
database with well-established access methods such as native SQL or
Microsoft Excel (MDX). Running SAP Accounting for Financial Instruments
on SAP HANA helps fulfill increasing demand for up-to-date information from
internal management as well as from central banks, regulatory authorities,
auditors, and analysts.

Pilot customers achieved 5x-faster processing with SAP Accounting for


Financial Instruments running on SAP HANA. This enables business user to
devote more time to other activities at daily and period close. Also, the
database size of SAP Accounting for Financial Instruments decreased by
50% (as compared with a highly compressed conventional database).

The power of in-memory computing can be used to speed up reconciliation


and to avoid data duplication, thereby preventing the need for reconciliation.

Faster cycles times (for example, at period close) provide room for business
process optimization and innovation.

The possible merging of OLTP and OLAP also reduces processing cost
because SAP BW is no longer mandatory.

7hr reduced Proof Points

to 1hr and A pilot customer reduced the runtime of a month-end process chain in SAP
Accounting for Financial Instruments from 7 hours to 1 hour and 25 minutes.
25 min The application turned out to be extremely scalable; more than 400
processes were running in parallel. The capacity of the application server
for a period-end process was doubled to make full use of the power of the in-memory database. At
chain in SAP Accounting the same time, the size of the SAP HANA database decreased by 50% ( as
for Financial Instruments* compared with a highly aggregated conventional database).

Road Map and Outlook


SAP Accounting for Financial Instruments and the open Financial Database
scenarios are the first scenarios that were optimized for SAP HANA. The
open Financial Database scenario enables customers to create their own
processes using a framework (calculation and value process manager) that
provides access to all data in the SDL and RDL via configuration rather than
programming. Also, data can be exported to applications outside of SAP

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Bank Analyzer applications. All other scenarios of SAP Bank Analyzer, such
as profitability analysis, will follow. In the future, the finance and risk data
platform will also integrate balances of the general ledger as well as views of
financial consolidation and financial planning. This will provide a single
source of truth for the office of the CFO in banks.

At the same time. optimization of SAP Accounting for Financial Instruments


for SAP HANA will continue. SAP strives to transform current batch
processes into real-time processes. Simplification of data model and process
steps will pave the way. In order to turn SAP Accounting for Financial
Instruments into a public cloud application, configuration options will also be
drastically simplified.

Product Landscape Requirements


SAP Accounting for Financial Instruments on SAP HANA is available for
release 8 of SAP Bank Analyzer. However, it requires an upgrade of the
underlying SAP NetWeaver technology platform from release 7.11 to release
7.40 or higher. Also SAP Accounting for Financial Instruments needs to be
upgraded from FSAPPL400 to FSAPPL450, which also includes upgrades of
software components FINBASIS and SEM-BW. Please note that only SAP
Accounting for Financial Instruments and the so-called open Financial
Database scenario are released for FSAPLL450. All other applications of
Banking Services from SAP include add-ons and localizations that cannot
run on the same instance.

SAP now also supports SAP HANA for production use on vSphere 5.5, a
component of vCloud Suite, for scaling up to a 1 TB virtual SAP HANA
appliance.

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How to Get Started


Because of all the previously mentioned advantages, from now on, SAP
recommends always implementing SAP Accounting for Financial
Instruments on the SAP HANA database. The first step is sizing for defining
the optimal hardware configuration. For this, experts from the SAP Active
Global Support organization (SAP AGS) should be involved.
SAP HANA Of course, it is also possible to move a productive instance of SAP

is the Accounting for Financial Instruments to the SAP HANA database. There is
no need to adjust business configuration when switching from a conventional
standard database to SAP HANA. Only a very few technical settings regarding data
access might vary. The following steps have to be taken:
DB for 1) Upgrade the existing SAP Accounting for Financial Instruments system
SAP Accounting for from SAP NetWeaver 7.11 to 7.40
2) Upgrade the existing SAP Accounting for Financial Instruments system
Financial Instruments from SAP Banking Services FSAPPL400 to FSAPPL450 (also requires
upgrade of FINBASIS and SEM-BW)
3) Copy the upgraded system from the classic database to an SAP HANA
database instance

The SAP Consulting organization and SAP AGS provides standard services
for each migration step. In addition, specialized consulting partners for SAP
Accounting for Financial Instruments offer respective services.

Migration to SAP Accounting for Financial Instruments on SAP HANA is only


possible as of AFI release 8. If SAP Accounting for Financial Instruments
runs on a lower release, it has to be upgraded to release 8 first. A one-step
upgrade procedure is available for that.

As can all SAP HANA-enabled applications, SAP Accounting for Financial


Instruments can be run on the SAP HANA Enterprise Cloud. This provides
additional benefits such as shifting capital expenditure to operational
expenses by subscription models, reducing the cost of operation and
operational risk, and getting permanent access to technological innovations.

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Governance, Compliance,
and Surveillance
Compliance and Fraud Prevention
and Detection

Business Practices Today


In the past five years, there has been a renewed interest in fraud
management solutions in banking accompanied by a fresh wave of
Point implementations. This has happened for two primary reasons:

solutions Stricter regulation and supervision A general push is under way to

for fraud tighten supervision of the financial system, and a U.S.-led crackdown on
money laundering and terrorist finance has led to renewed interest in

management prevention
Technology drivers The rise of Internet and mobile banking has
are no longer increased the speed and volume of transactions. These technologies

sufficient have made financial crime easier to commit and made the job of
compliance and fraud teams harder to accomplish.

As a result, banks need to improve and consolidate their existing fraud


programs and systems. Point solutions for the various fraud scenarios are
no longer sufficient. Banks require a holistic approach to detect and prevent
financial crime. Therefore, they allocate resources, processes, and
technology to effectively monitor compliance and detect, prevent, and
investigate financial crime holistically.

Ambition
100x Banks must keep up with quickly changing fraud patterns, reduce damage
caused by fraud and irregularities, and comply with stricter regulations and
improved and faster laws in all countries where they do business.
fraud detection
With the power of SAP HANA, fraud can be detected faster, rules can be
process* calibrated interactively, and new rules can be created more easily. SAP
HANA enables banks to address the various fraud and financial crime
scenarios holistically, based on one integrated platform, as illustrated in the
following:

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Holistic
approach
based on a single
and integrated
platform

The SAP Fraud Management for Banking application powered by SAP


HANA provides the right controls and enables efficient processes to cope
with requirements across the various financial crime scenarios and meeting
the regulatory requirements based on one integrated platform.

Challenges
Banks have to tackle a growing number of fraud-related challenges:

Increasing complexity resulting from a siloed approach to financial crime


that increases the effort required to coordinate point solutions
Stricter and faster-changing regulatory environment
Stricter supervisions with intention of imposing heavy fines
Increasing risk to reputation resulting from the negative impact on
customer demand and share price

Exponential increase in the frequency and sophistication of fraud, waste,


and abuse
Diverse, complex, and constantly changing fraud schemes and strategies
Large number of false alarms (false positives)

Huge volumes of data from multiple sources


Operational and organizational silos

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Business Innovation with SAP HANA


Using the power of SAP HANA, banks can combine data from multiple
sources and run detection rules in ultrahigh-volume data environments with
unmatched speed. Calibration and simulation of rules can be done
interactively on the full data set. SAP HANA search enables approximate
string match searches in structured and unstructured data. With the
embedded predictive analytic library, banks can detect fraud patterns and
optimize detection rules.

Global fraud management dashboard showing the number of open alerts, efficiency, average
processing time, and top-10 countries by risk value across various regions

Innovation in Detail
The SAP Fraud Management for Banking application enables banks to
analyze, detect, investigate, and prevent fraud and irregularities in
ultrahigh-volume data environments. It targets both fraud and
compliance scenarios that can be based on SAP and non-SAP data
sources. The fraud management application makes the following
innovations possible:

A holistic approach: Because point solutions are costly and do not provide
deep insight across various topics, banks are currently looking for a platform
that can address all use cases related to financial crime. Because SAP
HANA can handle massive data volumes at low latency, it can help banks
meet this challenge.

Faster detection: Currently banks have extreme difficulty in detecting fraud


promptly, making it nearly impossible to prevent it.
As shown in the proof of concept (POC) described later in this document,
banks can significantly reduce evaluation run times. This is the prerequisite
to detecting fraud earlier and for implementing better detection methods.

Greater accuracy: As proven by false positive rates that are far too high,
the current rules and methods that can be used for fraud detection are
neither effective nor efficient. With the online calibration tool provided by
SAP Fraud Management for Banking, banks can calibrate and back test their
implemented fraud detection methods to improve their efficiency.

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Fraud management dashboard showing the most important information at a glance: alerts, top-
10 countries by risk value, fraud detection efficiency, average processing time, total risk value,
and more

Benefits
Paradigm shift: Thanks to its real-time processing functionalities and better
and faster fraud detection functionalities, SAP Fraud Management for
Banking can help banks shift their paradigms from fraud detection to
prevention.

Simplified IT landscape: Significant reduction in cost results from


leveraging one platform to combat financial crime and simplify the IT
landscape.

Effective integration: SAP Fraud Management for Banking readily


integrates with SAP core banking solutions.

Significant reduction in cost: Fewer fraud irregularities resulting from


better fraud detection methods and lower false positive rates (thanks to
online calibration of detection methods) result in more efficient and effective
overall fraud management.

Compliance: Predefined content helps support compliance (for example,


with the Foreign Corrupt Practices Act, or FCPA).

Reduction of false positives: Interactive calibration and simulation


functionalities reduce the rate of false positives.

Efficient investigation: Simplified data exploration, use case-specific user


interfaces, and collaboration and documentation capabilities enable efficient
investigation.

Proof Points
A proof of concept (POC) for fraud management for a tier-one bank was
done based on an anti-money laundering (AML) scenario. The current
banking solution requires between 40 and 60 hours for an entire evaluation
run. This is far too long and consequently prevents the bank from detecting

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fraud early and implementing better fraud detection methods (that would
also increase the evaluation time).

The data volume used for the POC was 10 million customers, 20 million
accounts, and one billion of transactions. The data was uploaded to SAP
1200x Fraud Management for Banking and between 7 and 10 of the most important
fraud detection rules for AML were implemented. The results of the POC
faster evaluation* showed that the evaluation process could be reduced from 40 hours to two
minutes, or in other words, the evaluation process could be made 1200
times faster than before. The results also showed that the bank could take a
holistic approach to fraud, improve fraud detection by accelerating the
detection process significantly, implement better fraud detection methods,
and calibrate the currently implemented rules on the fly.

Road Map and Outlook


SAP Fraud Management for Banking provides functional and content
extensions on a quarterly basis.

The plan is to offer a fraud management platform for controlling financial


crime in 2014. The solution is intended to target both fraud (for example,
payment fraud, application fraud, and deposits fraud) and compliance
One platform scenarios (for example, AML and the countering of terrorist financing) that
can be based on SAP and non-SAP data sources. SAP HANA enables
for all fraud use cases! these scenarios to run on one integrated platform, supporting a holistic
approach and providing better insight into financial crime.

SAP plans to develop this solution together with customers through a co-
innovation partnership. The customers developing the solution together with
SAP would have the following advantages:

Banks supporting the co-innovation approach would be able to influence


the prioritization and the content of the development directly.
Time to market would be very low because new functionality and content
is expected to be shipped every three months.

Product Details and Prerequisites


See installation guide for release 1.1 of SAP Fraud Management on SAP
Help Portal at http://help.sap.com/fra.

How to Get Started


Implementation of SAP Fraud Management for Banking can start small, with
just a few data tables and rules. This helps to ensure faster time to value in
weeks than rather months. From there, the data sources and rules can be
extended continually, based on priorities provided by customers.

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Liquidity Risk Management


Manage Funding Liquidity Risk

Business Practices Today


To minimize the risk of missing capital for fulfilling payment obligations,
various activities relevant to funding liquidity risk have to be executed:
Collect cash flow information from various front-office or risk systems.
Calculate contractual and economic forward liquidity exposure as well as
the counterbalancing capacity on a regular basis.
Calculate key regulatory figures on a regular basis.

Report internal and external key figures and support their detailed
analysis.

Seamless Execute stress testing of the calculated figures.

drill-down Ambition
from key As a result of the credit crunch, in nearly all financial institutions, liquidity risk

figure to has become the most important risk category. The widening of credit
spreads means higher liquidity costs requiring a highly efficient and effective
granular management of liquidity risk. Therefore, interactive liquidity risk management
enabling the analysis of instantaneously generated forward liquidity
data exposures is a key capability.

providing intuitive As a result of the financial crisis, banks need the ability to perform ad hoc
understanding of definition and analysis of stress scenarios.
results In addition, a long list of new regulatory requirements needs to be covered.
In the first place, Basel III requires key indices, such as the liquidity
coverage ratio, to ensure the short-term resilience of a banks liquidity risk
profile. Also required is the net stable funding ratio a medium- to long-term
cash-flow key performance indicator for available-to-required funding.

Timeliness is more crucial than ever, requiring high-speed calculation


processes. Banks need to forecast future developments to better manage
risk potentials. Technology with mobile capability is needed to enhance
collaboration throughout the organization.

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Challenges
Liquidity risk management should be possible in an interactive way but
many financial institutions struggle with inconsistent cash-flow data, getting
correct cash-flow data to the right place, calculation performance, and
timelines. Finally and quite importantly, banks are not able to execute quick
analysis to support decision making. The following reasons are responsible
for a poor liquidity risk management:

Conventional systems need hours to generate forward liquidity exposure,


especially when huge amounts come into play.

Analyzing the provided results is often time consuming due to long


answer times.

Free up Market changes require new stress-test definitions, but their introduction

Capital usually takes weeks, which is no longer acceptable in todays volatile


environment.
for higher return What-if analysis in terms of new business means unacceptably long
investments execution cycles.
through liquidity Forward-looking simulations in terms of internal and external key figures
cost reduction are usually not supported or their execution is restricted to specific
parameters.
The impact of acquisitions and internal reorganizations often cant be
estimated.
Collaboration between risk, treasury, and finance departments is not
supported, delaying decision making.
Many highly skilled people have to execute the reconciliation tasks as
processes that are partly manual, slow, and error-prone.
Inefficient liquidity risk management requires relatively high liquidity
cushions resulting in extra liquidity costs.

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Business Innovation with SAP HANA


The SAP Liquidity Risk Management application powered by SAP HANA
helps banks meet key challenges in managing liquidity risk by enabling
business process innovations:

Real-time calculation of forward liquidity exposures and counterbalancing


capacity
Professional visualization of the results with state-of-the-art user
interfaces
Seamless drill-down from group-level results to individual cash flows
Ad hoc, interactive stress testing

Basel III compliance and simulation of key figures, such as the liquidity
coverage ratio, through time
Minimization of liquidity costs through efficient management of collateral
made possible by instantaneous calculation of selling strategies
supporting their optimization
Revolutionized decision making thanks to interactive stress testing and
new business simulation and to collaboration between relevant
departments

Interactive,
dynamic
stress
testing
enabling
multidimensional
insights into risk
potential Visualization of forward liquidity exposures and counterbalancing capacities under normal and
stressed conditions, showing where detailed analysis could be started interactively into various
dimensions

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Innovation in Detail with SAP HANA


Real-time calculation: Aggregations can be executed on-the-fly and
forward liquidity exposures and counterbalancing capacity can be calculated
quickly (often within seconds), even if hundreds of millions of cash flows
come into play.

Seamless drill down: Elimination of aggregate tables puts a whole new


spectrum of information within reach. This way, results are analyzed from
the group level down to the individual cash-flow level. The steps of slicing
and dicing are defined by the user, and intermediate results are shown
through professional user interfaces.

Iterative stress testing: Due to very short answer times, business-relevant


parameters can be changed for arbitrary portfolios, and the impact on
liquidity profiles and collateral can be analyzed directly.

Simulation: Possible future developments can be analyzed through ad hoc


cash flow simulations. The outcome of different selling strategies for
available collateral can be analyzed interactively. Different market liquidity
scenarios are taken into account through haircut management. Simulation
over time is enabled through parameterization of renewal, roll-over, and run-

End-to-end off rates, which can be linked to arbitrary portfolios down to the single trade
level.

process can New business: To support decision-making processes across departments,

be reduced new business portfolios (for example, bond issues, hedge instruments) can
be introduced interactively on the cash-flow level, and the analysis of the
dramatically outcome can be performed in collaboration with different departments, such
as risk, treasury, and finance.
from hours to seconds,
simplifying architectures Mobile version: An integrated mobile version enables collaboration
between departments anytime and anywhere. Real-time calculations help to
guarantee quick communication.

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Benefits
We have achieved significant business benefits by using SAP HANA to
optimize and rethink business processes:

Analytics in real-time: Calculate and analyze data in real-time through


dynamically defined levels of detail.

Consistent data: Help ensure consistent static data and cash flow data
across all operative systems.

Interactive what-if analysis: Through interactive stress testing various


potential changes from the perspectives of customer behavior, market
development, and bank strategy can be analyzed interactively.

Reduction of liquidity costs: With cash flow simulation, various customer


behaviors, market developments, and bank strategies can be compared,
enabling the bank to reduce liquidity costs.

Enhanced decision making: The ability to take into account new business
portfolios and the support for collaboration among different departments
enables organizations to make decisions about liquidity usage.

Regulatory compliance: Basel III requirements are implemented, and the


current configuration from the regulator can be analyzed in a stress test to
determine the impact of upcoming regulatory changes.

Forecasting regulatory key figures: Calculating forward liquidity


coverage ratios is enabled via simulation through time, taking into account
user-defined dynamics in the portfolio development.

Proof Points
Lets assume youre planning an implementation project and have millions of
cash flows. Based on our experience with similar customer environments,
we have observed the following improvements:

Faster calculation of forward liquidity exposures and the


counterbalancing capacity, as shown in state-of-the-art user interfaces
Transparency resulting in better visibility into cash flow at the item level
to support root-cause analysis
From hours to seconds: dramatic reduction in end-to-end process
throughput time resulting from interactive analysis of the provided liquidity
risk profiles
Iterative stress testing supporting what-if analysis to enable
collateral optimization
Freeing up of capital for higher return investments through liquidity cost
reduction
Regulatory compliance supported by additional simulation through
time, allowing forecasting of key regulatory figures on simulated portfolios

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Road Map and Outlook


Please see the chapter Available Solutions and Outlook in the section
Finance, Risk, and Compliance earlier in this document.

Product Landscape Requirements


Please see the installation guide for release 1.1 of SAP Liquidity Risk
Management.

* Source: SAP internal lab tests as of Sept. 2013. All performance KPIs are preliminary. SAP internal lab measurements and productive customer
performance can deviate.

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Studio SAP | 28554 (14/09)


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