Providing financial services firms with the systems maintenance support to cope with the demands of regulation is one of the many areas in which Oracle has proved itself a global leader. Alan Duerden reports.

Oracle has made a name for itself as being a global technology company that has its fingers in many pies.

Celebrating its 30th anniversary earlier this year, the company – set up in 1977 by Larry Ellison and his co-founders, Bob Miner and Ed Oates – is now represented in 145 countries and its technology can be found in nearly every industry.

In the financial space, Oracle’s bread-and-butter service lies in the streamlining of business processes by integrating banking applications in the front, middle and back office. A number of Oracle’s acquisitions and products, including i-flex, Oracle E-Business Suite, Siebel and PeopleSoft, allow banks to consolidate their systems and gain the appropriate levels of risk management that they desire.

I-flex, a majority-owned subsidiary of Oracle, is an example of how the company has embraced acquisition as a strategy. Oracle acquired its stake in i-flex in the summer of 2005 and since then the two companies have developed and updated i-flex’s modular core banking system Flexicube, which has been chosen by more than 315 financial institutions in over 105 countries.

“We tend to keep the brands of all the products we acquire because of customer recognition and it gives them the comfort of something they know. For example, i-flex is very strong in financial services and we want to take advantage of that because it communicates something of real value,” Charles Phillips, president of Oracle Corporation, explained to The Banker.

Global expansion

So far this year, Oracle has acquired eight companies and as it looks to continually expand its global footprint. Mr Phillips believes that the company’s reputation as an acquirer has helped it stay ahead of the curve while also delivering value to customers. When companies are looking to develop a product or business line they will call Oracle first which, as Mr Philips explains, allows Oracle to see innovation before its competitors.

The main thrust behind Oracle’s financial services business is to provide open software integration platforms for clients, such as its application integration architecture product, which Oracle also uses for its own business. The platform essentially allows for a common exchange between applications with open standard middleware – computer software that connects software components or applications, of which web servers and application servers are examples.

The platform, built on Oracle’s Fusion Middleware platform, is a non-proprietary system which means companies can map their legacy systems using the same platform. Mr Phillips sees this as a good selling point, explaining that the platform can be used out-of-the-box with Oracle applications and extended to third-party applications.

“Openness is a huge advantage,” says Mr Phillips. “Everyone is converging on service-oriented architecture [SOA]-based middleware and they want their integration platform built that way.”

SOA allows large, sometimes disparate, chunks of functionality to be strung together to form ad hoc applications which are built almost entirely from existing software services, and is a concept that has captured the imagination of Oracle as it develops products around business application integration.

“It’s a real change to think about integration becoming open with services that are protected and built upon SOA concepts,” explains Mr Phillips. “We are the only company that can give you an integration platform that supports Oracle applications, ISV applications and legacy applications in one same integration platform.”

Mr Phillips sees this as something that holds particular appeal for large companies, and especially financial services companies, because they have so many applications, most of which are hardwired together with non-standard technologies. He explains that companies need a standard way of enabling change and an integration platform allows this.

While Oracle is looking to constantly evolve, its customer base is looking to do the same as pressures from regulation, globalisation, consolidation and risk management are forcing them to modernise their applications. Many do not want to get further into software development business or have the problems associated with integrating several applications from different suppliers, so it makes sense for them to work with a multi-dimensional, Oracle-type business that has their experience in many areas to do that for them.

“The biggest trend that we see is more of these institutions deciding to buy off-the-shelf software,” says Mr Phillips. “As long as they can make that decision then this is going to be a very exciting and big market for us. We have a very big lead over anyone else in terms of building out a footprint of modern applications for the financial services market.”

Mr Phillips goes on to explain that this is also an increasing trend in retail space where less than 10% of banks operate on a global operating model but need to access new markets. As has been seen historically in the wholesale and investment banking space, retail banks are now exploring the opportunity of having one IT organisation that can help them realise their dream of having a global strategy. Again, Oracle’s global footprint and tradition of working with front-to-back office systems is its strength in this space.

Business driver

The weight of regulation in financial services is accelerating and is another catalyst helping to drive the Oracle business. As financial institutions are increasingly exposed to regulation, they need to outsource the provision of compliance issues, regulatory change, reporting, risk management and all the system maintenance support associated with that.

While regulation undoubtedly raises the cost of doing business for Oracle as it has to upgrade its products to make them compliant, Mr Phillips believes that with regulation comes opportunity.

“We have to ensure we accommodate compliance and risk changes because financial services companies are more risk averse and there is more at stake with them,” says Mr Phillips. “We are unique because we have a footprint that allows us to provide a complete operational platform to service the complete risk profile of the bank.”

As banks look to streamline and consolidate their business processes, the role of the chief information officer (CIO) is evolving and they are increasingly becoming the key controlling point for business process orchestration. As Mr Phillips believes, many of the new breed of CIOs have experience on the business side, understand the benefits of getting products out quickly and want to speed up the life-cycle of the decisions they make. There is a renewed willingness to accept that IT is no longer a barrier to new product ideas or driving the business forward.

“Many younger CIOs don’t have the same allegiance to the legacy system – they didn’t build it, they are not responsible for it, they see the flaws in it easily and they want to be the catalyst for change,” says Mr Phillips. “They know it is going to be more difficult to find people to work on the legacy applications so they come in with the mentality which is changing this space.”

With regulatory change and technological innovation that allows financial institutions to free themselves from the shackles of legacy systems, the security and quality of financial data is also improving. While regulation caused data silos to be set up between different applications within financial institutions, a lot of those regulations no longer exist. The systems, however, remain.

Financial services companies want to understand their customers better and want better insight into which customers are profitable, what they do and how they interact with the bank, but they all have siloed and fragmented customer data. “We are helping them with synthesising that data across different channels and with the re-engineering of some of those applications so the data isn’t as fragmented,” says Mr Phillips.

“We have a lot of analytical programmes that look for different patterns and we are now helping people understand who their customers are and who they want to give more services to and take services away from.”

Mr Phillips sees the advantages that Oracle can have in developing markets such as India, China and Russia which, in the retail space, are experiencing high growths in consumer finance. Not only are they colossal markets but they are under-financed for the consumer and are looking to embrace technology to capitalise on the opportunities available in the retail banking space.

New banking models

In these markets, as Mr Phillips explains, the banking model is shifting from retail banking to bank retailing, with financial institutions looking at how they can bypass setting up local branches and open a bank within a car showroom or consumer shop. “These people are looking to turn that desire into a financial opportunity as quickly as possible,” says Mr Phillips. “We have the capability to drive that, we have partnerships in these areas and we have the software at our fingertips.”

Through acquisition, evolution and vision, the company has manoeuvred itself to be a global player with a diverse set of products that span numerous industries. Soaking up clients around the world like a sponge, Oracle’s global footprint and 30 years of experience make it a force to be reckoned with in the financial service space.

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