“Finance should never be a back-office function. It is the Analytical Hub of organizations.”

Finance Transformation in Banking: Moving to Dynamic Enterprise Finance

Reading Time: 5:05 minutes

By Bambang Moerwanto — Regional Vice President, Head of Financial Services & Professional Services at APJ, SAP

Are you still running Finance from core banking?

Many banks in Asia Pacific and Japan still run their accounting and finance processes through the General Ledger (GL) embedded in their respective transactional or core banking system.

Traditionally, this may have worked. But such practices are being challenged today in the face of significant changes. These include the banking industry transformation – appreciably faster than most other industries. There are also palpable changes in regulatory compliance requirements – with the new International Financial Reporting Standards unquestionably relaying a much needed a wake-up call.

CFOs across banks are called to relook the organizations’ accounting processes – from product servicing, transactional processing to recording/book closing. But rather than just seeing this undertaking as a need to fulfill regulatory compliance requirements, CFOs should also harness it as an opportunity to address rapid changes in business models, make Finance the analytical hub of the bank – and stay ahead of competition.

3 reasons why Finance must move from core banking – to the next level

Let me share three reasons why banks that want a competitive edge must transform its financial platform – and move the Finance function from the core transactional system to a centralized smart Finance platform.

  1. Interdependency between core banking and GL: Needless complexity, higher costs

Banking business and GL develop at different speed. In today’s world, it is a norm for new banking products to be sold and old products to be retired at lightning speed. The accounting treatment of these, however, generally lag behind.

Incorporating these two into the same system creates interdependency. Because of that, the accounting system may need to be redesigned as a result of new products even when there are no changes in accounting regulation. And vice versa. This is the same during system upgrades.  The GL needs upgrading when the core banking system is upgraded, even when there is no real requirement for it.

The result is complexity and cost: Unnecessary workload; interruption to the Finance function; expenditures when it isn’t required.

By adopting an enterprise GL that is independent of the core banking system, the Finance organization wields authority autonomously in deciding when and how the GL is to be upgraded when changes arise in accounting regulations.

  1. Incompleteness of core banking GL: Lack of accurate insights for decision-making

Traditionally, core banking GL only handles the accounting of core banking transactions. However, a bank’s financial results handled by the accounting system is more than core banking transactions. A lot of non-core banking transactions must be included for a total and complete view of the bank’s financial status.

Relying on core banking GL means additional effort to consolidate the core banking and non-core banking financials for a complete view of the bank’s financials. An extra layer of work creates inefficiency. And the lack of timely access to information for accurate, informed decision-making keeps the bank one step behind its competitors.

With a centralized smart Finance platform, accounting results from the core banking transaction can be interfaced directly with the enterprise GL. Finance users will be relieved from the extra layer of work. And a complete view of the bank’s financial results is possible in real-time for accurate decision-making.

  1. Outdated chart of account design: Inefficiency, sluggishness

Core banking GL still relies on the traditional method of generating a string of GL code based on all the reporting segments required. As the business changes or grows, for example a new profit center or a new product is added, a new value is created. This accumulates, putting unnecessary load on the system.

Also, the permutation of reporting segments that form the GL account code will result in a massive number of GL accounts. Some banks have GL accounts that run up to 50,000s because of the permutation! This is an excessive load in GL processing – both for the system and Finance users.

Such inefficiency and sluggishness can be eradicated with a centralized smart Finance platform. With its flexible chart of account design, each reporting segment can be independent – without the generation of a string of GL code. This allows rapid deployment of new profit centers or products; the existing GL accounts can be used immediately upon the creation of the new segments. With no need to generate permutations, it also means a much shorter list of GL account codes. That’s cleaner and simpler finance.

Finance should never be a back-office function

I’ve highlighted only 3 key reasons why Finance needs to move away from core banking. There is a lot more logic behind why this should happen.

But the most core is because Finance should never be a back-office function. It is the Analytical Hub of organizations. And it must lead in offering intelligence to make your bank an intelligent enterprise. That’s the key that will differentiate the successful from the less successful financial services providers.

Feel free to reach out to me if you want to understand more on how SAP is working with FSI clients across the globe in their finance transformation journey. Connect with me on LinkedIn or email me at bambang.moerwanto@sap.com.


About the Author

Bambang Moerwanto is the Regional Vice President and Head of Financial Services and Professional Services Industries at SAP Asia Pacific & Japan. He has over 23 years of experience in business and IT strategy, as well as business transformation advisory, along with proven track records in pioneering breakthroughs with entrepreneurship family background.

In his role in SAP, Mr. Moerwanto helps complex customer environments in highly competitive industries excel in the digital era. That includes banking, insurance, retail, professional services, retail – among others – with demonstrated credentials to show for it. His deep expertise across multiple facets – customer side, advisory side and technology vendor side – allows him to analyze situations from different perspectives, and recommend ideal solutions to business and IT problems.

His previous roles include positions in PwC, Citibank, JP Morgan and The Boston Consulting Group. Mr. Moerwanto possesses an excellent network through his various engagements with large multinational and local firms in Asia Pacific and Japan. It’s also boosted by his strong educational background from reputable universities.

Find out more about moving Finance from core banking to dynamic enterprise Finance in my Point of View – A Journey to Smart Finance.

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