IS 604: Contemporary Issues in IS Banking Enterprise...

Chair of Information Systems IV (ERIS)

Institute for Enterprise Systems (InES)

IS 604: Contemporary Issues in IS

Banking Enterprise Systems

Prof. Dr. Alexander Mädche

Chair of Information Systems IV

Institute for Enterprise Systems

Lecture

supported by:

Agenda – Session III

Agenda

1 B2tec Company Overview

2 Introduction to SAP Banking Services

3 SAP Business Partner

4 Contract Management

5 Product Configuration

6 Financial Conditions & Pricing

… …

IS 604 Banking Enterprise Systems

2

3 Financial Conditions and Pricing

Corr

espo

nd

en

ce

Pe

riod

ic

Pro

cessin

g

Double,

Triple,

Quadruple

Control

Archiving

Product Configuration

Accounting

Financial Conditions/Pricing

Contract Management

Financial

Customer

Information

Management

Reporting

Collateral

Insurance

Order Management/

Business Operation

Posting Control Processing/

Exception Handling

Open Item Management

Combined Settlement

Payment Distribution & Monitoring

Master Contract Management

Posting Lock

Management Settlement

Currency

Conversion

Cash Flow Item Management/

Payment Services

Billing and Invoicing Payment Distribution

Pooling

Credit Facilities


Financial Conditions and Pricing 4 F

ron

t-O

ffic

e

Mid

-Off

ice

Ba

ck-O

ffic

e

Contact Advisory Offer Deal Mainte

nance

Create BP

Create

Account

Maintain

BP

Maintain

Account

Settle

Account

Create

Product Maintain

Product

Maintain

Conditions

Create

Conditions Assign

Product

Define Ind.

Conditions

Manage

Payments

Maintain Product

Pricing List

Create Product

Pricing List

Account

Settlement

Posting

Control

Business

Processes

Business

Events

Business

Transactions

Book on internal

accounts Reporting

Account

Closure

Current account life-cycle

Order

Management

Payments


Financial Conditions and Pricing


5

Describe the function of conditions and cash flow

calculator

Understand the financial conditions model from SAP

Banking Services

Describe the differences between standard

conditions and individual conditions

Define replacement possibilities of Standard

Conditions by Individual Conditions

Explain time-dependency of conditions

Understand levels of Pricing

GOALS OF THIS UNIT

Agenda: Financial Conditions and Pricing 6


Agenda

1 Financial Conditions

1.1 Condition Model

1.2 Cash Flow Calculator

1.3 Creation of New Condition

1.4 Standard and Individual Conditions

1.5 Time Dependency of Conditions

2 Pricing

2.1 Pricing

2.2 Product Pricing List

Financial Conditions 7


Financial requirements (conditions) form the basis for the contract agreed upon

between the bank and its customers.

The Financial Condition component in banking services from SAP provides functions

that can be used to define the contracts between banks and its customers.

The Financial Conditions component gets and saves all data required for calculation

and evaluation of financial transactions or cash flows in a set of rules. Some of

this data is imported to the Cash Flow Calculator, so that calculations can be

made.

Condition Model I 8


SA

P

Pre

defined

Custo

miz

ing

Applic

ation

Condition Group Category Condition Category

Condition Group Type Condition Type

Condition Group Condition

Ex.: Settlement Ex.: Settlement interest

Ex.: Settlement current account 1 Ex.: Credit interest

Settlement current account 1 Credit interest 2,50 %

This level describes the basic functionality of the conditions, i.e. how conditions are calculated. Condition

categories and condition group categories are SAP predefined and cannot be modified or extended.

Any number of condition types and conditions group types can be flexibly configured on the Customizing

level. They can be defined new or based on SAP delivered templates.

Conditions and condition groups are created in the application. Conditions are created based on

condition type and assigned to condition group.

Structure of conditions in banking services from SAP

Condition Model II 9


SA

P

Pre

defined

Custo

miz

ing

Condition category

Upper level element central for financial conditions

Determine the basic functions of the conditions that are based upon them

Defines how a condition (for example, settlement interest) is calculated

Each condition category is assigned to a specific condition group category

Condition group categories and condition categories are fixed and predefined by SAP

Condition type

Middle level element, which can be seen as templates that need to be defined according to

the business needs

Used for creating specific conditions in the application

Condition types are grouped into condition group type according to the assigned

condition category

It is possible to customize any number of condition types and condition group types

Custo

miz

ing Condition

A financial transaction or a contract which usually has been agreed on upfront when signing

the contract

The concrete, temporal expression of a condition type

Conditions are created based on condition types as templates in the application

Conditions are grouped into the condition group

Condition Model III 10

Dependencies in the condition model:

In order to prevent random combinations of condition categories condition group categories are defined.

Furthermore condition group categories are assigned to condition group types in the customizing,

which are templates for condition groups in the application.

Example of usage of condition model in the system:

For the account XY bank sends quarterly bank statement with all turnovers that took place during the period.

Each dispatch is viewed as an event by the system and triggers check of the Event Condition Group

Category. Thus, if the account has a condition:


Condition Types Condition

Categories

Conditions Condition Types

are specific forms of

are specific forms of

then, it can be charged according to

condition ‘Bank Statement Charge’,

every quarter for sending bank

statement.

Condition ‘Bank

Correspondence

Charge – EUR 5’

Condition Group

‘Correspondence

Current Acct’

Condition Group

Type ‘Event

Current Acct’

Condition Group

Category ‘Events’

Is contained in

Has assigned

Has assigned

Condition Model IV 11

Condition Group Categories

Settlement Contains condition categories that are used for interest and charge

calculation

Transaction Contains condition categories that are used as a direct result of

executing a particular payment and are used to define the value date of

a payment item

Event Contains condition categories that are applied based on a certain event,

for instance creating of a standing order or account closure

Card Contains condition categories that are used in connection with a card,

but that are not posted (for information only)

Bundle Pricing Calc. Contains condition categories that are used in combined settlement for

Master Contracts

Payment Contains condition categories that are only used by loan accounts to

simulate expected payments

Automatic Waiver Contains condition categories for automatic waiver conditions, for

example, fee waiver in a settlement per

Not Contract based Contains condition categories that are independent of a contract, such

as a consulting fee

Interest Reimbursement Contains condition categories for refund interest in cross currency

notional pooling scenarios


Condition Model V 12

Condition Model Summary:

Classification and grouping options for conditions

Condition model can be used for SAP Deposit Management, Loans Management,

and Bank Analyzer

Great degree of flexibility

Standard conditions are maintained and managed separately from the contract

Individual conditions are possible for each contract and overwrite standard

conditions

Conditions are time-dependent

Standard conditions of some condition group types (settlement, bundle pricing,

calculation, payment and interest reimbursement) can be charged retroactively

Link between standard conditions and contract can be defined through:

Product

Product Pricing List (standard conditions will be derived via several rules)

Business Partner (definition of a business partner standard price)


Cash Flow Calculator 13

Condition processing

Conditions check

Administration of conditions

Processing, administration, and

merging of standard conditions

Display of merged condition

Release of conditions

Financial Conditions

Controls calculation of:

Interest

Effective Interest

Settlement Charges

Installments

Cash Flow

Transaction charges and event

charges

Cash Flow Calculator

Deposit

Management

Loans

Management Bank Analyzer


The Financial Conditions component supplies the conditions and the Cash Flow Calculator

determines the results. Cash flow calculator is a foundation for interest and charge calculation in

banking services from SAP.

Create New Condition 14

• New condition is defined in the application level. It must be assigned to one condition group,

which is also created in the application. However, conditions and condition groups are

created based on templates. For this reason condition type and condition group type have

to be configured beforehand.

• Condition group types with relevant condition types are configured on the customizing level.

SAP delivers some predefined condition types and condition group types, which can be

changed and extended or they can be used as a basis while creating new ones.

Example:

The bank defines own condition group type for the settlement conditions and assigns relevant condition types

necessary for the new product. Only the assigned condition types are allowed for accounts using this product.


Settlement

_Current Account

Young

Professional

Debit Interest

Overdraft Interest

…

Step 1 Step 3 Step 2 Step 1. Define condition group

type

Step 2. Define condition types (or

use SAP predefined condition

types)

Step 3. Assign the necessary

condition types to condition group

type

Given three steps are done on

the customizing level

Create New Conditions 15

The new product needs except settlement conditions also specific conditions for transactions and specific

conditions for events. These two condition group types belong to the categories ‘transaction’ and ‘event’.

Thus, two more condition group types have to be defined with relevant condition types.

Step 4. Define condition group types

Step 5. Define condition types

Step 6. Assign condition types to one condition group type

Step 7. Assign condition group types with condition types to the product

Given steps are done on the customizing level


Product: Current

Account Young

Professional

Settlement _Curr.

Acct. Young

Professional

Transaction_Curr.

Acct. Young

Professional

Event_Curr. Acct.

Young Professional

Debit interest

Overdraft interest

Acct. Maintenance charge

Direct charge

Bank Statement charge

Closure charge

Transaction charge

Value date

Step 4 Step 5 Step 6

Step 7

Create New Conditions 16

In the Application, the bank has to define specific condition groups it needs and the particular conditions with

exact values. In a condition group, only one condition of a same condition type is allowed at the same time.

Step 8. Define condition group

Step 9. Define conditions

Step 10. Assign conditions to one condition group

Given three steps are done in the application


Settlement Current Account

‘Young Professional’

Settlement Current Account

‘Corporate Clients’

Debit Interest 12%

Overdraft Interest 15%

Acct. Maintenance

Charge €4

Debit Interest 10%

Overdraft Interest 13%

Acct. Maintenance

Charge €4

Step 8

Step 9

Step 10

Standard and Individual Conditions 17

Difference between Standard Conditions and Individual Conditions

Condition Criteria

Standard Condition

Individual Condition

Is valid for all contract with the same condition

group

Is managed centrally

Conditions of one condition group are valid for the

contract as long as the condition group is assigned

for this contract

The condition is valid for precisely one contract

The condition is created or changed in the

contract

The validity of the condition for a contract is

defined in the individual condition

Permitted Replacement Categories Set of Rules:

Replace Completely Absolute Markup Relative Markup Selective Replacement




Example of Replacement Category: Replace Completely

An individual condition replaces or overwrites the standard condition in a defined area and is created for a

specific contract.

Only the standard condition is valid in the first period, only the individual condition is valid in the second

period. After the individual condition expires (third period), the standard condition is valid again



Example of Replacement Category: Absolute or Relative Markup/Markdown

An individual condition can be defined as a markup or markdown of the standard condition (markup

condition)

Calculation for absolute markup conditions: amount of the individual condition is added to the amount of

the standard condition (for a markdown condition, also set a minus in the field)

Calculation for relative markup

conditions: the amount of the

individual condition is multiplied

with the value of the standard

condition: An individual

condition with 80% means:

standard condition (for example

10%) * 0.8 = 8%. The Individual

condition is calculated as being

80% of the standard condition.

Time Dependency of Conditions 20


The valid-from date of the next period condition restricts the previous period condition. The validity end of the

previous period is then the valid-from date of the next period minus one calendar day.

Time Dependency of Conditions 21


Individual conditions usually have a valid-to date, since they are often temporary. In the example below an

account has assigned standard credit interest condition of 5%. However, to the same account was assigned

temporary individual credit interest condition of 6% with validity period from July 1st - to August 31st, which

overwrites standard condition. After validity end of the individual condition the standard condition will be valid

again.

Agenda: Financial Conditions and Pricing 22

Agenda

1 Financial Conditions

1.1 Condition Model

1.2 Cash Flow Calculator

1.3 Creation of New Condition

1.4 Standard and Individual Conditions

1.5 Time Dependency of Conditions

2 Pricing

2.1 Pricing

2.2 Product Pricing List


Pricing 23

Pricing defines product related and business partner related prices that can

be standard prices or customer negotiated prices for business partners

and contracts, as well as the rules of how these prices are combined and

inherited.

Pricing is relevant for all Financial Service price bases, for example settlement,

transactions, and events.

Pricing offers the bank a central point for price definition and maintenance for any product.

Pricing is used for bank services, deposits, loans, product bundles, and so on.

There four levels of pricing:

The result of one level can be

overwritten by the next level (first

level has the lowest priority and

fourth level has the highest

priority)

BP Default Price

Product Pricing List

BP Standard Price

Pricing Agreement

Individual Conditions

First level (a)

First level (b)

Second level

Third level

Fourth level


Product Pricing List 24

Product Pricing List - is a list of possible prices for a single product or a product

group. Depending on different criteria, the conditions for a contract are

determined dynamically.

Enables a bank to consider different prices for identical products

The conditions are no longer assigned directly by a product, they are derived by using rules

The requirements for deriving conditions must exist in the contract and may be derived

along the hierarchical list

Ex.: Product Pricing List based on the Geographical Regions

Product Curr Account

Worldwide

Region EMEA

Region AMERICA

Country = Germany

Country = Austria


Financial Conditions and Pricing 25

Financial conditions are the basis for a contract agreement

between the customer and bank. The Financial conditions

component in SAP BaS gets and saves all data required for

calculation and evaluation of financial transactions or cash flows in

a set of rules.

A Condition model provides an overview on the structure and

layering of the conditions in SAP BaS. The first layer is SAP

standard, where condition categories and condition group

categories cannot be changed or extended. On the middle

customizing layer condition types and condition group types can

be configured based on the condition categories and condition

group categories. On the upper level in application end-user can

flexibly define any number of conditions based on the configured

templates from the middle layer.

The difference of individual conditions from standard conditions is

that individual conditions are defined only for one contract,

managed individually and can overwrite standard conditions.

Pricing in SAP banking services defines product related, business

partner related or contract related prices and rules of how these

prices inherited and combined.


IS 604: Contemporary Issues in IS Banking Enterprise...

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