Factors Responsible for Strong Growth in Financial Service Software Sales for SAP

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SAP SE (NYSE:SAP) is a global, multi-billion dollar software development company, headquartered in Walldorf, Germany. The company is most well-known for its flagship Enterprise Resource Planning (ERP) software offerings, which generate over a fourth of total annual revenues. Apart from ERP suites, SAP also also develops software for  Supply Chain Management (SCM), Business Intelligence & Data Warehousing (BI/DW) and Customer Relationship Management (CRM) markets.

These application software offerings from SAP cater to companies across various industries such as Energy & Natural Resources, Discrete Manufacturing, Financial Services, Consumer Goods etc. Last fiscal year, software sales catering to the Energy & Natural Resources industry accounted for approximately 24% of total revenues, reaching €4 billion at a modest 4% growth rate. However, software sales catering to the Financial Services industry posted the highest growth rate of 13% in FY13, reaching €1.6 billion, indicating an 80% increase in revenues over the past five years. Below, we assess various factors that have contributed to the strong growth in the Financial Services industry.

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Increased Regulatory Measures, Demand For Cashless Transactions Drive Sales Higher

Since the financial crisis in 2008-09, regulatory authorities in most economies across the world began implementing a stronger compliance framework to curb future crises and ensure financial stability. The most notable reform passed within the U.S. was the Dodd-Frank Act in 2010. A similar voluntary regulatory standard called the Basel-III was introduced by the Basel Committee on Banking Supervision (BCBS) in 2011.

The primary purpose of both these compliance frameworks was to allow central banks and regulatory authorities to improve accountability and transparency in the financial system. These new regulatory frameworks required banks to upgrade their existing IT infrastructure to become more transparent and achieve compliance. A recent survey by SAP showed that 77% of participants believed the new IT infrastructure will have a greater impact on regulatory compliance and customer satisfaction. [1]

The other reason for the rapid increase in sales in financial service software was the focus on customer satisfaction, particularly in developing economies. Last fiscal year, SAP reported more than double sales of banking and insurance software in the Asia-Pacific and Japan markets. [2] Much of this growth is a result of growth in customer centric areas such as mobile banking, online banking and cashless transaction services like credit cards. In the next five years, credit card driven transaction volume in Asia-Pacific is expected to increase from $5.3 billion in 2012 to $13 billion by 2018. [3]

Going forward, IT investments into the Financial Services industry is expected to remain robust, and SAP should be able to capitalize on the increasing demand for customized banking solutions. Within the retail and commercial banking division, SAP has solutions for omni-channel banking, sales and service, banking operations, risk and compliance, human resources, procurement and information technology. Likewise, SAP has a deep portfolio of end-to-end software products catering to institutions in the capital markets, insurance and asset management domains. The depth of solutions within each focus area makes SAP’s offerings in the financial services industry unique.

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Notes:
  1. Banks Embrace Technology But Not Fast Enough for Some Regulators, SAP Study Shows, July 10, 2014, SAP News Center []
  2. SAP More Than Doubles Sales in Asia Pacific Japan in Banking and Insurance Industries, Expanding Market Presence, SAP Newsroom, March 2014 []
  3. Banks need to improve IT to meet demands of booming Asia Pacific, The Jakarta Post, February 2014 []
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