CREATING VALUE IN FINANCIAL SERVICES

CREATING VALUE IN

FINANCIAL SERVICES

by

Michael Pinedo

Sridhar Seshadri

The topics covered in this presentation are from this book. You can view it at

the following web page.

Overview of Talk

I. Emergence of Financial Supermarkets (Universal Banks)

II. Structure of Distribution Channels

III. Information Technology Requirements

I.

Emergence of Financial Supermarkets

(Universal Banks)

II. Structure of Distribution Channels

III. Information Technology Requirements IV. Software Systems Development

Emergence of Global Financial

Supermarkets (Universal Banks)

Examples:

• Citigroup

• HSBC

• Deutsche

• ABN-AMRO

• ING

Product Divisions

•Retail Banking (Checking Accounts,

Personal Loans, Mortgages)

•Credit Card Operations

•Commercial Banking (Loans, Letters of Credits) •Investment Banking (Investment Advice, Trading) •Brokerage (Stock Portfolio Accounts, Cash

Management Accounts)

•Mutual Funds (Managed Equity funds,

Index funds, Bond funds)

•How many clients prefer a one-stop supermarket?

•What is potential for Cross-Sales?

I. Emergence of Financial Supermarkets (Universal Banks)

II.

Structure of Distribution Channels

III. Information Technology Requirements IV. Software Systems Development

Distribution Channels

•Branches

•Mini-Branches, Kiosks

•ATM Networks

•Phone, Call Centers

•PC-Banking, Internet

•Sales Force, Agents

Figure 4: Segmentation Regions For Alternative Banking Mechanisms For A Customer Population Characterized By Wealth (W) And Aversion

To Technology (R) Wealth W Aversion to Technology R ATM Conventional Bank Phone Banking PC Banking Mini Branch Low Low _High High

Figure 12: New Value Chain Model

Front office Back office

Middle office

Front office Middle office Back office

Front office

Back office Middle office

Middle office Front office

Old Paradigm – Sequential

New Paradigm – Simultaneous

Face-to-face Remote Electronic

Distribution Channels for Insurance

States (Alphabetical Order)

P e rc e n ta ge N P W D ire c t W ri te rs AUTO HOME FIRE

I. Emergence of Financial Supermarkets (Universal Banks)

II. Structure of Distribution Channels

III. Information Technology Requirements

Exhibit 3: Information Technology Spending Levels First Chicago Banc One Credit Suisse Wells Fargo Societe Generale SBC ABN Amro Bankers Trust Nations Bank Credit Agricole UBS JP Morgan NatWest Bank of America Barclays Credit Lyonnais Deutsche Bank Chase Citicorp 0 0.5 1 1.5 2 $ billions

The emergence of the

eCustomer

The emergence of the

eCustomer

eCus tomers

N-Tier appeared to offer a good

combination of client/server and

centralized management

•Mid-Late 1990’s - Proprietary, n-Tier •Much more Scalable than Client/Server •Independence from the DMS

•Tougher Development, But component Based

DBMS _CLIENTPC

PROPRIETARY COMPONENT

N-Tier Advantages

•Easier For software Maintenance

& Upgrades

•Asynchronous Processing with TP

Monitor Functionality

•Upward Scalability with More or

Faster Servers

•Replication with Fail-over Reconstruction

•Less Software on the Client-Added Security

N-Tier Disadvantages

•The more Tiers, the more Complex the

Development, the Debugging and the

Maintenance

•Fewer Tools Available

•More Links in the Client/Server Chain

means More Possible Points of Failure

•Advantage of Software Maintenance on the

Server is Overstated, because you’ll

What’s an Application Server?

Start with internet computing model

•Open Clients •3-Tier

Add State, Memory, DBMS

What’s an Application Server?

Add Transaction Management

•Caching & Thread Management •DB Connectivity •Asynchronous Connections •Scalability •Load Balancing •Multiple Instances •Fail-over •Security

The app server appears to be

the way n-tier will roll out

•The APP Server Replaces the Need to Code in JAVA, PERL,

CGI, ODBC, etc.

•It Combines the Functions of a TPM with Software Component

Standards (EJB, COBRA, MTS & ?)

•Independence from the DBMS

•Ability to Build Extranet that Integrate with Supply Chain

Partners using same Standards

•….so, What’s an Application Server

DATA STORES PC OR THIN CLIENT APPLICATION SERVER _ASYNCHRONOUS

http://www.sun.com/software/solutions/third-party/ecommerce/pdf/etrade.pdf

I. Emergence of Financial Supermarkets (Universal Banks)

II. Structure of Distribution Channels

III. Information Technology Requirements

Figure 2: Overview of Yieldbook Architecture

Data Bases Compute Servers

Yield Book Servers

Examples of Software Systems

in Financial Services

•Churn Management Systems

•Mortgage Application Expert Systems

•Call Routing Software in Call Centers

•Data Mining for Trading Systems

Model Development Transaction Processing Neural Network Output Fraud scores and reason codes Property Data Area Data Create or update profile Past Data Results from model Feed input data

Build Model

Figure 1. Percentage of U.S. Households Using

Various Number of Delivery Channels

0 1 0 2 0 3 0 4 0 P c t. O f H o u s e h o ld s One c h anne l Tw o c han nels Th re e c ha nnels >= f ou r c h ann els