SAP made the markets happy with a strong start to 2021 as it released preliminary Q1 numbers showing “stellar” cloud growth, while also launching a new dedicated financial services partnership backed by a $500 million+ investment from the German investor Dediq GmbH.
For Q1 2022, total revenue was up two percent in constant currency to €6.35 billion, while new cloud business rose 19% to €7.63 billion, the fastest growth rate in five years. Adjusted operating profit rose by 24% to €1.74 billion. SAP now expects to report full year cloud and software revenue of €23.4-23.8 billion in constant currency, up €100 million on earlier guidance.
As for the financial services push, it’s all subject to regulatory approval and for legal reasons much of the detail remains under wraps, but essentially SAP intends to put all its interests here into one dedicated organization.
SAP and Dediq will form a jointly-owned Financial Services Industry (FSI) Unit, with each party contributing funding, technology, and development expertise. Dediq’s investment in the unit will be more than €500 million. SAP will transfer a “high triple digit” number of staff to work in the new unit, but the management team is, for now, one of the undisclosed aspects of the new arrangement.
According to SAP, north of 80% of the world’s top 1,000 banks and insurers are already SAP customers and the firm was quick to emphasise that this development does not indicate a withdrawal from the sector, with CEO Christian Klein stating:
Financial Services is a key industry for SAP and today we not only reiterate, but also reinforce, our commitment to this market.
So, SAP customers will remain SAP customers, but the new unit will focus on core FSI areas such as commercial lending, retail banking, core insurance as well as insurance finance and bank management.
SAP CFO Luca Mucic likened the effort to creating a “speedboat” for the financial services sector, predicting that the JV could generate revenue in the high triple-digit-millions euros within five years:
Jointly, we will extend our existing FSI portfolio to cover banking and insurance processes end to end. Helping our customers to become more agile through digital business innovation and cloud technology will be front and center for our new FSI Unit. The new unit will be very flexible and customer-centric with full autonomy to set its strategic direction. At the same time, it will be a strong member of the SAP family. Customers will benefit from SAP’s leading technology and the FSI Unit’s agility and focus on their specific needs.
According to its own descriptor on its website, Dediq sees itself as a proactive investor:
We bring capital and especially entrepreneurial expertise. We think in terms of operational initiatives and company goals instead of return and KPI reportings. In doing so, we pursue ambitious goals and assume full responsibility to reach these together with our partners.
The SAP gambit comes a week after IBM launched its own dedicated cloud services offering for the financial services sector. IBM Cloud for Financial Services is the result of two years of design partnership with Bank of America and is pitched at meeting the the financial services industry’s need for robust workload, data protection, security and risk reduction.
The platform is supported by IBM Cloud Framework for Financial Services, which provides a set of security and compliance controls to allow bank-sensitive data to be run safely in the public cloud. The framework was developed with Bank of America and Promontory, a financial services regulatory compliance consulting specialist, and will continue to be maintained by IBM's Financial Services Cloud Council, under the leadership of IBM Hybrid Cloud Platform head Howard Boville, who said:
Together with some of the world’s largest banks and leaders in regulatory compliance, we are driving a change in cloud adoption for highly regulated industries, aiming to improve the security and compliance posture for the industry. With a focus on data security delivered with IBM’s confidential computing and sophisticated encryption capabilities, we aim to reduce risk in the supply chain for banks, insurers and other financial services industry players, and at the same time accelerating the time by which they can drive and consume innovation.
Specifically the IBM offering is aimed at enabling financial institutions to move and run workloads in the public cloud and comes with a set of banking-centric middleware and applications. The initiative carries with it an ecosystem of more than 90 ISVs and Fintech specialist partners, including Luminor Bank, MUFG, Tata Consultancy Services, EY and, er, SAP. Of that last recruit, IBM’s official announcement says:
With the addition of SAP, clients can now quickly engage with the largest enterprise app company across their workloads.
A strong kick-off to the fiscal year for SAP. When the numbers are officially released later this month, we'd expect to hear a lot more about the contribution of the RISE initiative. As for the financial services push, the devil's in the detail - there's a lot still to be learned here about this will work on practice. We shall return to this topic. But for now, CEO Klein can be pleased at the way 2021 has started.