Adoption of cloud-based computing has been slower in the United States market compared with other markets, such as Latin America and the Asia-Pacific region, according to a survey by Tata Consultancy Services. A key reason for the delay of US companies in investing in cloud-based computing is their reluctance to potentially put sensitive data at risk. According to Joe McKendrick’s article in Forbes, the “slower adoption of cloud within the US and Europe reflects a greater hesitancy within the US and Europe [which] remain conservative about putting mission-critical and customer data on the cloud.”

However, several banks, including Bank of America, Citi, DeutscheBank, Nordea, Royal Bank of Scotland, and others are actively co-innovating with SAP on a cloud-based services platform. Sanjay Poonen, president and corporate officer, SAP, Technology and Innovation Products, refers to that effort in a press release as a “creative innovation in banking that can increase the velocity of information flow between banks and their corporate customers.”

To learn more about the platform, known as the SAP Financial Services Network, I interviewed Leonard Schwartz, director of solution management, SAP Financial Services Network, at SAP, about this cloud-based platform.

How does the SAP Financial Services Network cloud-based platform accelerate the transfer of information between banks and their corporate customers?

There are four key elements that are essential to the SAP Financial Services Network vision. First is the ability of the cloud to create the scalability really needed to serve a corporate base as vast of the top transaction banks in the world have. Second is the flexibility of the cloud in enabling a mix of standardization (which makes financial services less expensive and faster to deliver and receive), and value-added services developed by the financial services providers that are deployed on the SAP Financial Services Network. Third, the cloud allows integration with the corporates’ on-premise business processes. In other words, their SAP ERP. Fourth, the cloud allows us to connect players across the company’s financial supply chain in a dynamic environment that will ultimately allow greater analytics, greater risk management, and less physical connectivity support.

When is the platform expected to go live?

We have been co-innovating with several banks for some time and are now ready to start testing and working toward pilots. I see the fourth quarter of this year and the start of next year as demonstrating that SAP Financial Services Network works well. We are going to see a growth in the financial services providers and corporates in the network taking off after that start.

Is everything on schedule? Is the project being implemented in stages? If so, what stage is the project at now?

Yes. SAP Financial Services Network is in the co-innovation phase, with development underway toward the first limited release and some testing has already started.

I read an article that banks still rely on mainframes to store sensitive data. Will the cloud-based platform interact with mainframes at the banks, or will virtual servers be used?

We (SAP Financial Services Network) facilitate the flow of transactions and the ability to gain added information about these flows. The platform enables those partners to develop and deploy additional value services as well. Processing in the cloud will be done in a unique virtual server for each participant, but using payment transactions as the example, the transaction originates in the corporate’s SAP ERP (usually on premises) and are received by and actually processed in the bank’s internal technology landscape — usually mainframe based.

If someone asked you about the benefits of the cloud-based services platform, what would your answer be?

Speed, cost, integration.

If someone expressed concern about security issues pertaining to cloud-based banking, what would you say to allay that person’s fears?

We are building several layers of security into SAP Financial Services Network. Of course, the flow of transactions from SAP ERP to the network and from the network to the financial services provider can be protected through digital signatures and encryption. But, in addition to this, processing for each participant is isolated by his or her unique virtual machine and unique encryption of his or her data from other participants’ data. Needless to say, the SAP NetWeaver Cloud is managed by SAP ourselves and has several physical security elements supporting it.

Will integrating the cloud-based platform with Citi’s, Royal Bank of Scotland’s, or the other banks’ architecture pose any challenges?

Of course. Each financial provider has an existing technology landscape and easier or harder options within it to pick from. So, connecting the dots has meant navigating this to pick the best options to tactically support connectivity between the banks’ existing systems and the cloud-based system.  However, once the tactics are navigated, the flow of information can happen easily. More importantly, the integration into the financials providers’ client’s business processes occurs with the providers’ need to install and maintain special programs — reducing the expense and complexity of what they must maintain. From corporate management’s point of view, we make connecting their SAP ERP environment to SAP Financial Services Network exceptionally easy with simple, downloadable software from SAP Service Marketplace.

Do the banks have change management plans in place to help their employees with the transition to the cloud-based service?

SAP Financial Services Network integrates with the banks’ existing technology landscapes. So, the evolution to connecting to an SAP cloud-based service doesn’t require significant change so much as it offers each bank significant benefits, such as those we have already talked about. Of course, we plan to work with each bank on how to integrate implementation efforts and connect operational support teams.

What advice would you give to a team at a bank that is staying with a wait-and-see approach instead of investing immediately in a cloud-based banking platform?

Each bank is going to move somewhat at a pace that makes sense for its technology organization. Of course, as that is happening, the external environment is evolving at an increasing rate and cloud services are becoming increasingly used or evaluated by corporates. As the article you mentioned, Joe McKendrick’s article in Forbes, points out, there is a potential surge in demand coming amongst the middle market, a sweet spot for many transaction services providers. So, the landscape will change, and the cloud is a significant new player on that landscape. However, not all clouds are the same, and the biggest advice I would give is to understand the type of cloud (public, private, or hybrid) and how services will be deployed across it. SAP Financial Services Network, of course, operates on the SAP NetWeaver Cloud, which is fully owned and managed by SAP. So, it is a different environment than the public cloud environment.

Gary Byrne

Gary is the managing editor of Financials Expert and SCM Expert. Before joining WIS in March 2011, Gary was an editor at Elsevier. In this role he managed the development of manuscripts for Elsevier’s imprint responsible for books on computer security. Gary also has held positions as a copy editor at Aberdeen Group, a Boston-based IT market research company, and as an editor at Internet.com, a publisher of content for the IT community. He also gleaned experience working as a copy editor for International Data Corp., a Framingham, MA-based IT market research company. He earned a bachelor of science degree in journalism from Suffolk University in Boston. He enjoys traveling, sailing as a passenger onboard schooners, and helping his wife, Valerie, with gardening during summer weekends. He’s a fan of all the Boston sports teams and once stood behind Robert Parish in a line at BayBank. He felt small and didn’t ask for an autograph. You can follow him on Twitter at @FI_SCM_Expert. His online footsteps can also be found in the SAP Experts group on LinkedIn.

You may contact the author at gary.byrne@wispubs.com.

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