Oracle Corp. is rolling out a data warehouse for banks that tests both exposure to risk and compliance across business lines.
Banks have long aspired to — but rarely achieved — a transparent, comprehensive view across silos. Most of their success in leveraging this type of software has been in customer-facing products, but the increasingly complex regulatory environment has made companywide analysis of information paramount.
Bank of New York Mellon Corp. has used Oracle as a strategic partner for over a decade for a number of database applications. It recently used software from the company's Siebel Systems to consolidate customer information from multiple business units that needed integration after the merger that created BNY Mellon. These included the securities servicing, asset management and treasury services divisions.
Now the bank is examining Oracle's new data warehouse to improve risk management.
"We are in the process of constructing a risk data warehouse that will give us a comprehensive perspective on all lines of business and the exposure we face and our customers face relative to what is happening in the capital markets," said Pete Johnson, chief technology officer and head of enterprise architect solutions for BNY Mellon. The bank focused more on this area after the financial crisis, he said.
Currently, half of Oracle's research and development spending across all business lines, including financial services, is on integration, Frank Brienzi, senior vice president and general manager for Oracle's Financial Services Global business, said Wednesday at a conference in New York.
"Within the banking industry, the biggest challenge will be running the banks and being able to comply with regulations," Brienzi said. "The challenge will be responding to compliance with 15 disparate systems and getting accurate, scrubbed data."
Industry experts said Oracle is unusual among bank vendors after its many acquisitions over the past decade and earlier. Oracle began in the mid-1990s by acquiring i-flex solutions Ltd., which gave it an open architecture core banking system. It later bought PeopleSoft Inc. and Siebel Systems Inc., from which it got branch and teller technologies, and in 2009 it acquired the hardware and Java-platform giant Sun Microsystems Inc.
"Oracle is one of the major market leaders in the financial services [information technology] industry, and somewhat unique in its ability to combine data modeling, analytic capabilities and integrated hardware," said Michael Versace, research director at IDC Financial Insights.
At its Financial Services Summit this week, Oracle representatives said that easier and faster integration was crucial to Oracle's growth in the financial services industry.
"We have banks with over 10,000 applications and redundant data," Oracle President Mark Hurd said at the gathering. "They need to get out of these siloed, highly scaled, and inefficient systems."
"Modernization will need to happen at light speed to deal with the demands and expectations coming at us," added Hurd, who used to head Hewlett-Packard.
A number of new releases from Oracle support its strategy. In late January it released Oracle Financial Services Data Warehouse, designed to run on its Exadata machines. The warehouse enables banks to analyze, across business lines, data key for compliance, risk- and finance-related decisions. BNY Mellon said it is considering this product.
And on Wednesday, Oracle announced it had completed testing its Reveleus Liquidity Risk Management software, also on its Exadata boxes, which would help banks quickly determine liquidity gaps and devise alternate funding strategies under stress conditions.
"Risk and regulations are taking a front seat to technology adoption and spending, and what Oracle is doing is playing into this area," said Fritz McCormick, a senior analyst for Aite Group LLC in Boston. McCormick said it would be critical for banks to be able to determine how modular the Oracle offerings are.
"It is attractive to say, 'OK, we have the whole stack here,' but they would also need to be more a la carte," McCormick said.
Oracle is not alone in tackling the risk and compliance space, as well as seeking technology that helps banks break down silos.
Fiserv Inc., for example, has a product called KRM that helps banks analyze for risk across lines and helps them with Basel II compliance. And Johnson said BNY Mellon is also examining different warehousing products from SAS Institute Inc. and International Business Machines Corp.
"As Oracle gets more consolidation of market share, it is no different from [Fidelity National Information Services Inc.], Fiserv, IBM and Microsoft," said James Van Dyke, principal and founder of Javelin Strategy and Research. "What they are all trying to do is help the diversified financial institutions more easily retrieve the data to make decisions."
Financial Services IT spending on hardware, software and services in the U.S. is set to increase to $228.6 billion in 2011 from $218 billion in 2010, according to IDC Financial Insights.
But it is not clear how much banks will actually spend on risk and compliance technology.
"IT execs in the financial services industry must strike a balance between investment in current needs, like risk management, and innovation for the creation of new competitive products and services," Versace said. He added selling current systems that deal with risk and compliance was complicated by a lack of clarity about the kind of data that regulators will be looking for.
Van Dyke said there were also considerable differences between the way large banks and smaller banks would handle their cross-silo and regulatory needs, with the former developing homegrown technology in consultation with the likes of Oracle and the latter depending on third-party vendors for integrated systems.
"Oracle is ideal for money-center banks where people design the system," he said.
Johnson agreed. He said BNY Mellon was not looking to purchase a total package for risk compliance, but one that would function as a starting point.
"It gives you the building blocks to do what you want," Johnson said. "It gets you started quicker, and this is fairly appealing."
