SUN in Financial Services BANKSETA Shaping up to

SUN in Financial Services BANKSETA Shaping up to Global Banking Nigel Woodward: Global Segment Manager MAY 20 2003

Agenda Automation in Banking in Developing Countries - Global market overview - Macro trends - Contemporary challenges - Segment value chains -Scenarios - “Northern hemisphere” context – South Africa – relevant lessons to be learnt - Retail - Wholesale - Technology implications - Dispelling myths - June 18, 2002 Managing the market Foundations to be laid 2

The South African challenge Not lessons, but useful watchwords Retail • Growing newly banked demographic profile • Developing infrastructure • Mix of needs – commodity retail – wealth management • Education opportunity Wholesale • Full functional scope • Corporate banking to securities • Need to take best practice models Electronic – automated backdrop June 18, 2002 3

E-Business is reshaping retail securities broking … and institutional E-Business is quickly emerging Margins down = cost down with IT and ops &/ or volume up to maintain profit with brand Accounts (millions) …but Internet commissions are plummeting Retail Internet Brokerage Forecast anticipates significant growth. . . Assets ($ billions) 60 Average commission charged by top 10 online brokers 45 Assets Accounts 30 15 0 ‘ 96 ‘ 97 ‘ 98 Dollars Source: Credit Suisse First Boston Forrester Research, Tower Group, Pw. C analysis Looking to the future you have to be a low(est) cost produce June 18, 2002 4

Where are we today - Retail ? - Dot. com is dead, long live dot. com - Ridiculous business propositions – but have taught us -“e” or is it “i” - Does the e customer exist – he is everywhere … and emerging in RSA new demographic behaviours - Existing business processes are challenged - The status quo is not sacrosanct - Barriers to entry are down, new entrants can appear …. June 18, 2002 5

Retail continued …. • Late 90’s new entrants have not survived – lacked full product scope, e not enough on its own - electronic delivery channels for established banks are now a • Specialist value propositions – technology enabled niche plays have appeared • Branch has survived the electronic onslaught – USA branch renewal focus, behaviour indicator • Personal finance links to trusted brands and establishment • High end being siphoned off from mass market – cost reduction economies of scale mergers • Challenge – If you’ve got process efficiency turn to service edge (at lower cost) - If you haven’t – catch up fast • How broad is my business … Group structures – product lines – production and distribution synergies Financial Services STOVEPIPES…. The e customer doesn’t want to see these June 18, 2002 6

Wholesale market Corporate banking, trade finance, securities and capital markets Cost – Efficiency • STP …. • Risk Management • Trading Infrastructure June 18, 2002 7

STP – a market ecosystem

While T+1 is on the shelf the industry will still spend $5. 9 billion on STP in next 3 years North American Securities Industry IT Spending on STP (US$ billions) $2. 1 $2. 0 $1. 8 $1. 5 June 18, 2002 Tower. Group estimate Source: 9

The Key STP Pieces ? The Transaction Pipeline ? Core Systems ? Risk Management ? Market Connectivity June 18, 2002 1

Customer Challenges Internal Front Office Multi-instrument Front Office Organic growth Middle office Middle Office Multi-divisional Evolutionary Back Office Back office Multi-location Deals, transactions, messages June 18, 2002 1

Cost reduction – process improvement • Standards based messaging – ubiquitous adoption - Market responsibility • FIX – 4. 4 equities – fixed income, SWIFT and ISO 15022 • Intermediary functions • Settlement - Omgeo • Execution - ECNs • Routing - Easyscreen • e de facto enabled – Technology cost of ownership • Next generation trading infrastructure – web MDDP – TIB, Triarch, RMDS • Corporate payments – MA-CUG – Portal delivery • Trustact security • MT 103 and 103+ November 2003 replacing 70/75 • SWIFT IP 2004 … new service and automation models • South African wholesale market displays all these characteristics June 18, 2002 1

Risk Management ? Market risk ? - Front Office ? - price feeds/trading platforms ? Credit/Counterparty Risk ? Institutions - global ? Sovereign ? AML – Know your Customer … ? ? ? Operational risk Fundamental business processes Basle 2 … 2006, Sarbane Oxley …… regulatory driver global consistency Systemic risk – the market itself – CLS, Real. Time Nostro ? June 18, 2002 1

Automating the trading cycle will enable firms to do more with less . . Taking out cost at all possible points June 18, 2002 1

Structural implications of Financial Service delivery … • Blurred lines of demarcation • Developing markets • Execution in an e environment June 18, 2002 1

What business are we in … Retail, Wholesale, both? complex overlaps and market practice Retail Buy side Asset Mgt Private Banking Execution Sell side investment Custody Corporate June 18, 2002 1

Are we working the linkages …aware of the sub drivers, synergies, economies of scale? Retail Buy side Asset Mgt Private Banking Execution Sell side investment Custody Corporate June 18, 2002 1

Dynamics – what the (e) customer wants? Retail Buy side Asset Mgt Sell side investment Execution Private Banking Custody Corporate June 18, 2002 1

Dynamics – what the (e) customer wants? Retail Day to day service Where & when wanted Channels No frills No cost Cross product Buy side Asset Mgt Institutional Long term performance Sell side investment Information/risk strategies Market access Retail Best price Short term return Soft services Low fees Risk protection Private Banking Execution Price transparency Premium service All these at Custody reasonable cost. How Efficient processing shop many hidden in Retail Market advice $ 300 Bn-25 Tn 2001 - 2005 Outsource buy side Technology soak - SWIFT Corporate Global trade, e. Payments+ Trust. Act, Bolero Order to pay Debt markets Complexity translated Market price June 18, 2002 1

e doesn’t recognise organisational stovepipes? Retail Day to day service Where & when wanted No frills No cost Cross product Buy side Asset Mgt Institutional Long term performance Sell side investment Information/risk strategies Market access Retail Best price Short term return Soft services Low fees Risk protection Execution Private Banking Premium service All these at reasonable cost How many hidden in retail Custody Efficient processing shop Market advice Outsource buy side Technology soak - SWIFT Corporate Global trade, e. Payments+ Order to pay Debt markets Complexity translated Market price June 18, 2002 -Organisational linkage - Shared technology -Cost efficiency - SERVICE ENHANCEMENT 2

herefore the issue is how to reach the customer and with what products • Multi channel delivery • Product transparency • Retail - Demographic integration • Wholesale - Operations integration June 18, 2002 2

…. Through the looking glass …. architecture Service delivery – meeting the challenge Legacy Core Systems June 18, 2002 From manufacturing plants To customer behaviour 2

…. Through the looking glass …. architecture Legacy Recognizing end topology e. Channel e. Infrastructure e. Processes Management Channels Core Systems June 18, 2002 2

…. Through the looking glass …. architecture Legacy Core Systems SUNOne - Architecture +Functions working organism e. Channel e. Infrastructure e. Processes. Management XML-JMS/JCA SInt. Server Integration/Information Bus/Messaging LDAP RDbms SUNOne Architecture Phase n Core Processing • Core replace • Consolidate June 18, 2002 • Extend Components J 2 EE Collab/ Community/ portal/LDAP Claims Loans Credit Security Cross sell CRM Aggregationl Java J 2 SE Apps Server Channels Internet Call centre J 2 ME Mobile Digital TV Web Server Phase 3 Phase 2 E-Infrastructure E-Function • Middleware • Incremental • Legacy connect • new business • Infrastructure functions Retail outlets Branches F/Wall. DMZ Phase 1 E-Presence • Web server • firewall 2

Model FI Proving the concept - securities Market Sell Side Buy Side Internet Trade 5 Execute 6 Exchange ECN Settle technologies 8 Proving June 18, 2002 Random Walk Sales 1 Reuters F-fusion Manage Risk • ASP 7 • Netting 4 Fund 3 Manager Private Intermediar y Client B 2 BITS 2 Web server • Affirmation • Exception Oracle reporting • Matching Monitor Pacemetrics STP 9 -Heterogeneous technologies influence Big ISV … New York, innovators the -conceptbrands and small California, London, Johannesburg -J 2 EE architecture binds – JMS, XML FIX communicates -J 2 EE - JCA op …. . Leverage - so what can we do/facilitate for you …? 2 ?

… some technology commentary …. June 18, 2002 2

Organic growth – vision impediment June 18, 2002 2

Business Core business Consulting services Business Operations Audit/Compliance Business processes Services Operations audit Technology infrastructure Risk application analysis Selection/installation/ Functional integration Technology Functional support Applications J 2 EE architecture Middleware Rules/exception Messaging Infrastructure audit Partner community i. Force SUNONE + Partner community i. Force SUNone Architecture JCA/JMS Storedge Platform foundation O/S Solaris/Linux Chipset June 18, 2002 Architectural compliancy/strategy services Peripherals Platform optimisation services, “ilities” Operating system – fit for purpose Sparc/Intel 2

… What do we want from technology – the myths? - Beware Solutions – second most abused term after “partners” - Optimised cost (not necessarily lowest) - Flexible – to business change and open supply market - Market is shifting – evolution into revolution perhaps - SUN Microsystems Java – 1995 response to proprietary lock in (Unix in 1980 s, Java in 1990 s) -Java language and J 2 EE architecture – Retail J-XFS, Capital Mkts – Jo. W established -SUNONE Webservices (standards and interoperability) June 18, 2002 2

…. Continued -Legacy systems – High organic investment cannot replace – need to evolve - re architect …. But need ROI, sounds expensive – seek interim deliverables approach - start topological environment approach - make v buy, now make and buy, know what and why you are doing it - OO …. Java opens the way forward – makes sense - Small is probably beautiful, big may not be – new selection and project management s - Manage innovation -Work the commitments to partnership, - Play to core competencies – take advice from where it should come from Get navigation round the buzz and fashion! June 18, 2002 3

Technology is the easy part …. Good luck …… Give us a call, we have a lot of friends ! Thankyou June 18, 2002 3

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