Veejay Jadhaw, Financial Services Business and Technology Market Analysis

2015 Regional Analysis – North America
Veejay Jadhaw
Global Head, Core Solutions & Platforms in Cloud
Global Financial Services, SAP
May 2015

© 2015 SAP SE or an SAP affiliate company. All rights reserved. 2Internal
Index
 North America Market Segment Definition
 North America Traditional Banking Landscape
 North America Top Down Market Analysis - Banking Outlook
 North America Top Down Market Analysis - Areas of Focus for Banks
 Cloud Banking In North America
 Top Technology Priorities for North American Banks
 Technology Vendor Competitive Landscape – Old and Emerging
 Bottom Up Market Analysis - North American CRM Pipeline Review
 North America Market Segments and Distribution Channels Matrix
 Products and Market Segments Matrix
 Out of the Box Functional Capabilities by Market Segment and SAP Coverage
 References & Bibliography

NORTH AMERICA Market Segment Definition
Segments Definition
Tiers 1 & 2
Tier 1 defined as banks with AUM over $50B. Tier 2 defined as banks with AUM
between $10B and $50B
Tiers 3 Tier 3 defined as banks with AUM below $10B
Techology Companies
Primarily tech giants like Apple, PayPal & Google. There is constant entrants in
this segment
Non Traditional Banking
Captive finance, leasing and investment companies
Pawn & Payday Lender
Segment of financial inclusion for North America. Small non banks that offers
small personal loans at high rates of interest

North America Traditional Banking Landscape
Assets Under Management # of Banks
Less than $25 Million 185
$25 Million to $50 Million 568
$50 Million to $100
Million
1,223
$100 Million to $300
Million
2,504
$300 Million to $500
Million
827
$500 Million to $1 Billion 676
$1 Billion to $3 Billion 414
$3 Billion to $10 Billion 158
Greater than $10 Billion 110
TOTALS 6,665
Traditional Banks (approx. 6,665)
 Banks/Holding Company:
 Credit Union:
 Thrifts
Following non traditional to be considered given the shift in
banking landscape
 Captive Finance, Leasing, Investment Companies
 Technology Companies
 Pawn / Payday

North America Top Down Market Analysis
Banking Outlook
The U.S. banking industry is entering a new phase in its post-crisis journey, with a much sharper focus on boosting
profitability. Although profits have surpassed historic records, return on equity (ROE) is still below pre-crisis levels and has yet
to reach double digits. This level of consistent growth is likely to be a multiyear process, but 2015 could be a turning point in
achieving this goal, in spite of the new challenges banks will face.
As the U.S. economy gets stronger, with real GDP growth expected to increase from 1.9 percent in 2014 to 2.3 percent in
2015, this will likely drive greater overall loan originations, particularly in Commercial and Industrial lending.
Expanding contextual digital capabilities solutions to customers will help banks differentiate their offerings. Competition
from nontraditional players will increase as they seek growth of their own. Fee-based businesses, such as wealth
management, will be used to support revenue growth. However, lending growth alone won’t boost profitability. Improved
balance sheet management will be necessary, and yet become more complex in 2015. New liquidity requirements may force
banks to hold additional low-yielding assets. To minimize margin pressure, banks will seek low-cost funding at a time when
rising interest rates may draw deposits out of the bank or into higher interest accounts.
Further, new leverage standards may create additional capital burdens for some assets. These forces, together with
increased lending competition, could put additional pressure on margins in 2015, despite rising interest rates. Efforts to
improve profitability will increase M&A activity in 2015. Both deal volume and deal size may increase as regional banks
become more active. Large banks will continue to divest noncore businesses, while banks near the regulatory thresholds ($10
billion and $50 billion) could look for bigger deals to justify the higher compliance costs.

Banking Outlook
Going into 2015, we are likely to see one of the most transformative periods for the payments industry. Improvements
in the security and user experience could drive growth in contactless payments, marking the beginning of a shared
ownership of the payments sector between banks and technology firms. This may lead to a reduction in revenue to banks, as
they prepare for EMV (Europay, Mastercard, and Visa) migration.
The pursuit of growth and profitability will have to be carried out against the backdrop of regulators’ heightened expectations
regarding risk management. Integrating risk and compliance into the ethical fabric of the organization will take on increased
importance. Further, the Comprehensive Capital Analysis and Review (CCAR) process will require additional attention
as the scope of this compliance exercise expands beyond capital adequacy.
Banks may not improve on any of the above initiatives without proactively advancing their data and analytics capabilities
in 2015. There is a strong need for new approaches in this area. Institutions are attempting to integrate data across functions,
such as finance, compliance and risk, and business lines, with better data governance. Chief data officers (CDOs) will play a
crucial role in this transformation. Lastly, bolstering cybersecurity will remain a top concern, with the more sophisticated
institutions expanding their toolkits to include new ideas and skillsets from the defense and counter-intelligence communities.
Given the considerable risks in this area, boards will take on a more proactive role in cybersecurity strategy.
All together, these trends will keep profitability front and center for 2015. Banks will leverage their new strategic positions and
stronger economic growth, yet new pressures and increased competition may restrain profitability growth over the coming
year.

Areas of Focus for Banks
Balance sheet Efficiency
Amidst a deluge of regulatory and market forces, achieving balance sheet efficiencies in 2015 will be both critical and challenging for
banks. To retain deposits, banks may want to consider:
 Ramping up their customer relationship programs
 Increasing cross-selling efforts
 Investing in product lines that attract stable deposits
 Banks may need to assess the portfolio with a critical eye.
Merger & Acquisition
Although strategic options will vary considerably by size and balance sheet position of each bank, the M&A market will continue to
improve in 2015. Banks should consider:
 Viewing M&A targets with a focus on factors like efficiencies, growth prospects, funding profile, technology, and compliance
Engaging with regulators
 Ensuring appropriate risk controls, systems, and processes in the $10-$50B range are in place

Growth
Growth will be a universal priority in 2015, yet strategies will vary by bank size and business line.
Banks may want to think about:
 Investing in contextual customer analytics
 Leveraging digital technologies to elevate the customer experience in both business and retail banking
 Determining whether or not prudent underwriting standards are overlooked
 Learning from nonbank technology firms and establish an exclusive partnership to create innovation and a competitive edge
Payments Transformation
This year will be an evolutionary year as growth in contactless payments contributes to banks' role in the payments network while cutting
further into interchange revenue and brand recognition. Banks may want to:
 Seek innovative ways to leverage customer spending data for specialized promotions and services
 Look for new ways to be top of wallet and differentiate the customer experience

Compliance & Risk Management
Meeting regulatory expectations will require management to extend its focus from improving specific processes to fully integrating risk
management, compliance, and ethics into banks’ culture. To do so banks may want to:
 Reinforce a strong “tone at the top”
 Encourage boards to challenge senior management’s activities
 Empower chief risk officers to pursue collaboration with business lines
 Incorporate risk management and compliance responsibilities into performance management programs and employee training
Data Management & Embedded Analytics
As the data and analytics function within banks evolves, institutions should be shifting toward a proactive stance to ward off further
regulatory pressure. Banks should consider:
 Creating a central regulatory management office to help drive greater efficiencies
 Relying on chief data officers to establish tighter connections with front-office functions and derive greater value from data assets

Cyber Security
To improve cybersecurity in 2015, banks will be forced to devote greater resources to enhancing the security, vigilance, and resilience of
their cybersecurity model and should consider:
 Adopting new methods, such as war gaming, attracting specialized talent, and increasing collaboration with other members of the
ecosystem
 Beefing up their intelligence apparatus to detect new threats in a timely manner
 Expanding the role of the CISO to include clear and prompt communications with the board

Cloud Banking In North America
An Incremental Journey
The use of SaaS has been relatively high in horizontal and collaborative-focused systems over the last three years with many survey
respondents reporting a significant proportion of email backup/archive and business continuity solutions currently being supported by
cloud technology. Going forward cloud is far from being restricted to horizontal activities, with SaaS increasingly used in
support of what has traditionally been seen as vertical and core business activities, nor will this adoption be limited to a narrow
range of specific core activities.
A growing proportion of retail banks are exploring using cloud services across a broad range of back, middle and front office
functions. Key areas include customer-focused activities, such as product origination and customer servicing, as well as back-
office functions such as payment processing. Indeed, in the case of product origination for lending, deposits and checking accounts,
SaaS is considered being used to support all or the majority of activities for banks. Considering that this covers a wide range of activities
including both self-service and agent assisted applications, decisioning, processing, and compliance across the full channel estate, this is
a particularly significant. In addition, a high proportion of banks are also deploying SaaS in support of business growth and revenue
generation activities. Banks are using SaaS in some capacity in areas including product development, marketing, and digital channels.
While there remain a large number of retail banks who do not use SaaS to support these activities, the direction of travel within the
industry is clear. Despite the current concerns that some have, there is almost universal agreement that SaaS will transform the retail
banking industry, with the only area of disagreement being over the timescale in which this will occur. The impact of SaaS is expected
to continue to build within the 12-24 month view, with banks anticipating significant or transformative change.
In particular, it will allows smaller players to access capabilities and functionality that have previously remained the preserve of the larger,
well–resourced players. Flexible, bank-in-a-box type offerings from vendors reduce the considerable barriers to entry facing
small banks, allowing innovative, new entrants to quickly establish a foothold.

Top Technology Priorities for North American Banks
Top Technology Priorities for Banks
BI / Analytics
Infrastructure and Data Center
Mobile (contextual customer capabilities)
Cloud (including Security)
CRM
Bank Digitization & Digital Marketing (not just mobile, end to end digitization)
BPM
Legacy Modernization
Industry Specific Application with embedded analytics
Compliance

NORTH AMERICA Market Segments – Distribution Channels
Channels
Segments
Branch Internet ATMs
IVRs
Mobile
Tiers 1 & 2 ++ +++ ++ +++
Tiers 3 + +++ ++ +++
Techology Companies +++ +++
Non Traditionals (leasing,
captive finance &
investment companies)
+ ++ ++
Pawn & Payday Lender ++ + +

Products by Market Segments
Segments
Products
Tier 1 & 2 Tier 3 Technology Non Traditional Pawns /
Payday Lender
Digital
Currency
++ + +++ +
Savings +++ ++
Loans /
Lease
+++ +++ ++ +++ +++
Insurance + + +

References
 Deloitte
 Industry Research

Veejay Jadhaw, Financial Services Business and Technology Market Analysis

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (8)

Ähnlich wie Veejay Jadhaw, Financial Services Business and Technology Market Analysis

Ähnlich wie Veejay Jadhaw, Financial Services Business and Technology Market Analysis (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Veejay Jadhaw, Financial Services Business and Technology Market Analysis