SUN in Financial Services

BANKSETAShaping up to Global Banking

Nigel Woodward: Global Segment Manager

MAY 20 2003

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

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

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

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 ….

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

7June 18, 2002

Wholesale market

Corporate banking, trade finance, securities and capital markets

Cost Cost Cost – Efficiency Efficiency Efficiency

• STP ….

• Risk Management

•Trading Infrastructure

STP – a market ecosystem

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

10

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

14

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

19

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

20

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

21

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

22

June 18, 2002

…. Through the looking glass ….architecture

Legacy

Core

Systems

Service delivery – meeting the challenge

From manufacturing plantsTo customer behaviour

23

June 18, 2002

…. Through the looking glass ….architecture

Legacy

Core

Systems

Recognizing end to end topology

Channels

eChannel

ManagementeProcesseseInfrastructure

24

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

26

June 18, 2002

… some technology commentary ….

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June 18, 2002

Organic growth – vision impediment

28

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

29

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)

30

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!

31

June 18, 2002

Technology is the easy part ….

Good luck ……

Give us a call, we have a lot of friends !

Thankyou

32

June 18, 2002