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SAP forms financial services partnership with Dediq

SAP and financial industry investment firm Dediq are forming a new business unit to develop applications that help banks and insurance firms with changing processes.

SAP and German investment firm Dediq have joined forces to form a new financial services business unit.

The goal of the financial services industry (FSI) joint venture is to develop applications and services specifically for banking and insurance firms.

The FSI industry is changing rapidly and need cloud-based, agile and flexible applications that can help with evolving processes, said Luka Mucic, CFO at SAP, in a press event Monday announcing the new unit.

SAP and Dediq will jointly invest in the new venture, with Dediq, which is based in Munich, putting in more than 500 million euros. The still-to-be-named unit will develop FSI applications based on SAP technologies, including SAP HANA, SAP S/4HANA and SAP Business Technology Platform, a development and application integration environment.

The transaction is expected to close in Q3 2021, after it has passed European and U.S. antitrust regulations.

SAP will maintain a 20% holding in the joint venture, Mucic said. The management team will come from SAP and Dediq and will have full autonomy to set its own strategic direction for the FSI unit, which will be under the SAP brand.

Luka Mucic, CFO, SAP Luka Mucic

"The unit will be a strong member of the SAP family, and SAP will continue to sell our generic financial solutions, while the FSI unit will sell the FSI-specific core banking and insurance solutions," he said. "Our goal with this move is to better help our FSI customers to transform their business, and at the same time improve our position in this market."

SAP's footprint in the FSI market is long-established, Mucic said, as the company has more than 1,000 core banking customers, and more than 500 customers each in core insurance, core financial asset management and core capital markets.

Filling a need for comprehensive cloud apps

Dediq is an investment firm that focuses on financial services technology companies. FSI companies are looking to move to cloud applications, but there's currently a lack of comprehensive applications, according to Matthias Tomann, managing partner of Dediq.

Partnering with SAP to build FSI applications made sense for Dediq, given SAP's history in the field.

"We strongly believe that if we put in the necessary focus and additional funding, then we are going to be able to extend the current portfolio significantly into these end-to-end processes," Tomann said. "We understand that this is a long-term journey, so achieving this kind of coverage won't be achieved in a couple of quarters; it's going to take some time."

Dediq is providing much of the investment capital, but Dirk Kruse, SAP senior vice president of service industries, said SAP customers will reap the benefits of the new venture, because applications will be built on SAP technology.

"Our customers can expect a clear technology roadmap from SAP for the new FSI unit," Kruse said. "Customers can continue using all the SAP components they are using already today -- SAP HANA, S/4HANA and [line of business] solutions -- but at the same time get all the benefits of an FSI speedboat -- the innovation, the agility and flexibility of modern applications."

Customers want industry partners, not just cloud apps

The FSI announcement is promising but lacked details on how the FSI unit will work for customers, said Jon Reed, an analyst and co-founder of Diginomica, an enterprise computing news and analysis site.

The industry-specific focus looks good on paper, Reed said, but the Dediq-SAP financial services business unit will have to show that it can deliver the applications and the expertise that customers need, not just cloud applications.

Jon Reed, co-founder, Diginomica.comJon Reed

"This isn't specific to SAP, but a lot of vendors over promise when we talk about industry clouds versus what they're actually offering," he said. "The problem with that is that a lot of times the functionality isn't as deep, but also customers don't want just the cloud, they want an industry partner, they want expertise, they want advisory from someone who knows their industry."

Customers have to look closely when vendors promise that they cover these specific industries, Reed said.

"You have to really look at their partner community in that industry and ideally find out if they can configure this solution for their industry without having to do much custom stuff," he said. "But these kinds of announcements are promising for customers on the surface because it means that they're looking at the future of ERP as more of a vertical industry backbone, which is what customers really want, versus ERP just as back office, which is a really limited value proposition going forward."

Jim O'Donnell covers ERP and other enterprise applications for SearchSAP and SearchERP.

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