Identifying the Banking Industry’s Differentiating Business Processes

In this final learning unit, we’ll be looking at what the market size and outlook is in Banking and Capital Markets from their purchasing point of view.

We’ll look more closely at the challenges these organizations face to better understand their decision making processes. We’ll also look at how these firms deal with competition, both new and old.

Despite all this competition and the challenges banking and capital markets firms face, there’s still significant opportunity for them with the right strategy.

Lastly, you’ll find out how you can gain access to more information to both learn about this fascinating industry and how SAP serves it.

Banks and capital markets firms are financial institutions that play distinct roles in the global financial system. While they share some common processes, each has its unique set of activities and operations.

Retail and Commercial Banking Services: provide a range of services to individuals and businesses, such as savings and checking accounts, loans, mortgages, and credit cards. The processes involved in managing these services, including customer onboarding, account management, and retail lending, are unique to banks.

Risk Management: Banks have complex risk management processes to assess and mitigate credit risk, market risk, operational risk, and liquidity risk. These processes are necessary to ensure the stability and safety of the bank's operations.

Deposit Mobilization: One of the core functions of banks is to mobilize deposits from customers and then use those funds to provide loans and other financial services. This process involves managing interest rates, liquidity, and regulatory requirements.

Payment Systems: Banks facilitate payment processing, including electronic fund transfers, clearing, and settlement, which are vital for conducting financial transactions.

Trading and Brokerage: This image shows five unique processes to Capital Markets. Capital markets firms engage in trading and brokerage activities, buying and selling financial securities on behalf of clients or for their own accounts. The processes involve real-time market analysis, order execution, and risk management.

Investment Banking: These firms assist corporations and governments in raising capital through issuing stocks and bonds or conducting mergers and acquisitions. The processes include underwriting, due diligence, and deal structuring.

Research and Analysis: Capital markets firms conduct in-depth research and analysis on various financial instruments, industries, and economic trends to provide insights to their clients for making investment decisions.

Asset Management: These firms manage investment portfolios on behalf of institutional clients and individuals, making strategic asset allocation decisions and executing trades based on their clients' objectives.

Structured Finance: Capital markets firms are involved in structuring complex financial products, such as collateralized debt obligations (CDOs) and asset-backed securities (ABS), to meet specific risk and return requirements.

It's important to note that there can be some overlap between the processes of banks and capital markets firms, especially for large financial institutions that have diverse business lines. Additionally, the specific processes of each institution can vary based on their size, location, and the regulatory environment they operate in.

Since the Pandemic, banks and capital markets firms have been actively exploring and experimenting with new business models to adapt to rapidly changing market dynamics and technological advancements. Some general trends and strategies these firms have pursued, or continue to explore include:

• Embracing technology and digitalization: Many banks and capital markets firms have been investing heavily in digital transformation to enhance their services and customer experience. This could include offering mobile banking applications, robo-advisory services, and automated trading platforms.

• Focusing on personalized services: With the availability of vast amounts of customer data, financial institutions have been tailoring their services to meet individual customer needs more effectively. Personalized investment advice and financial planning are examples of this approach.

• Partnerships and collaborations: Banks and capital markets firms have been partnering with fintech startups or other tech companies to access innovative solutions and expand their offerings. This can lead to faster product development and increased efficiency.

• Open banking: Embracing open banking principles allows banks to share customer data securely with third-party providers. By doing so, they can offer a more comprehensive suite of financial services while also benefiting from insights gained through collaboration.

• Sustainability and ESG investments: There has been a growing interest in Environmental, Social, and Governance (ESG) investments. Banks and capital markets firms are incorporating ESG considerations into their investment strategies and creating new financial products focused on sustainable investing.

• Diversification of revenue streams: Traditional banks and capital markets firms are exploring opportunities beyond their core business, such as offering insurance products or wealth management services, to reduce dependency on interest rate income.

• Regulatory technology (RegTech): To cope with increasing regulatory requirements, banks are leveraging RegTech solutions to streamline compliance processes, reducing costs, and enhancing risk management.

• Decentralized finance (DeFi) exploration: Some financial institutions are exploring the potential of DeFi, which relies on blockchain technology and smart contracts to provide decentralized financial services, potentially disrupting traditional intermediaries.

• Subscription-based models: Some institutions are considering subscription-based models, where customers pay a regular fee for access to a range of financial services and benefits.

Artificial intelligence and automation: Banks are implementing AI-driven solutions for tasks such as customer service, fraud detection, and portfolio management, enabling them to operate more efficiently and deliver a better customer experience.

Lesson Summary

• Typical Process Flow of a Bank: The typical process flow of a bank involves a series of activities to provide various financial services to its customers and manage its operations effectively. This includes customer onboarding, deposits and withdrawals, lending and credit services, and investments and wealth management.
• Processes Unique to Banking and Capital Markets: Banks and capital markets firms each have their unique set of activities and operations. Banks provide services including savings and checking accounts, loans, mortgages, and credit cards, risk management, deposit mobilization, and payment systems. They also undertake risk management, deposit mobilization, and they facilitate payment processing. Unique to Capital Markets is trading and brokerage, investment banking, research and analysis, asset management, and structured finance.
• Creating New Business Models for an integrated end-to-end experience: Banks and capital markets firms have been actively exploring and experimenting with new business models to adapt to rapidly changing market dynamics and technological advancements. Some of these general trends and strategies include embracing technology and digitalization, focusing on personalized services, partnerships and collaborations, open banking, sustainability and ESG investments, diversification of revenue streams, regulatory technology, decentralized finance exploration, subscription-based models, and artificial intelligence and automation.