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By Tom Groenfeldt
What do an international bank and an online music store have in common?
A very high volume of complicated transactions conducted around the world in multiple currencies, creating an accounting nightmare and making top-to-bottom views extremely difficult. Derivatives increase the complexity, whether they result from a banking operation or a singer covering a popular tune.
Microgen, an English company, has its roots in financial services, especially in global capital markets where firms running large portfolios of derivatives have to account for their value across several centers -- New York, London, Tokyo, and often a few others around Asia and Europe.
A global bank turned to Microgen for its accounting hub, which could sit between front-office transactions and the general ledger in the back office and impose business and accounting rules to provide consistent valuations across the multiple money centers it operated in. To Microgen, it might have been an accounting tool; to Gartner it was a business process management engine that found a spot in the consultancy’s treasured upper-right quadrant.
“What differentiates us is that we are data driven and handle high volumes, like 100 million transaction per hour,” explained Elizabeth Sipiere, managing director of the banking division at Microgen. The volumes are so high that the company was running out of headroom on Oracle.
At just about that time, a global bank that used both Microgen and Teradata, a data warehousing technology specialist, suggested the two companies work together, which they are now doing with several clients while they develop a fully integrated approach. The joint solution is particularly valuable where a transaction takes a couple of hops between origination and final booking and accounting.
Take a mortgage, says Jeff Lovett, director of finance and performance management at Miamisburg, Ohio-based Teradata. A single payment has to be broken into principal, interest and escrow. A bank will want to keep track of the original payment plus the aggregation of each payment stream, and do it for millions of mortgages. Using Microgen and Teradata, a bank can break apart each payment, store the data on principal payments, interest earnings and escrow funds in a data warehouse, and have the aggregated values to work with in sub-ledgers while feeding the totals into its general ledger. If an analyst notices a change in payment patterns, he can drill into the data back to the individual transaction level.
Or look at an online music store. It will probably generate several million transactions a day in multiple currencies around the world. With Microgen’s accounting hub, a uniform set of business rules is maintained and the results can be reported in any GAAP or IFRS (International Finance Reporting Standards) formats.
Music payments are complicated on the vendor side too -- the flow of payments will go to a publisher, an agent, and might be divided between an artist and the writer of the song covered. It is not unheard of for an artist to dispute royalty payments and demand several years’ worth of documentation, said Sipiere. To further complicate accounting, mobile phone companies often provide a number of free downloads as part of their marketing. If Nokia offers 10 free songs and a customer has downloaded just 3, it has to show the number used and the number left, potentially multiplied by millions of promotions.
Before Teradata began talks with Microgen, an insurance company customer hand-coded an accounting engine for the data warehouse. The CEO was concerned that if a regulator asked to see a comparison of unpaid claims on the balance sheet against data in the claims administration system, the company wouldn’t be able to produce a clear answer.
The insurer could calculate positions on a macro level, but not in more detail, said Lovett. With the combination of Microgen and Teradata, a company will have transactions, business rules, data and accounting all in one place and can then roll the information into an ERP system’s general ledger while maintaining the full transaction details.