Financial services and financial software have always evolved together – today’s innovations shape tomorrow’s expectations. But when it comes to collateral management, economic changes and regulatory demands add another layer of complexity. This dynamic has led to fundamental changes over time in the tools and processes banks and insurers use to manage risk, compliance and service.
What began as a straightforward process – where one loan equaled one collateral item, neatly documented and securely stored – has grown into something far more intricate. As banks and insurers have become more structurally integrated into the wider economy, the demands of managing collateral have outgrown manual methods, demanding smarter, more agile solutions.
Origins of software-driven collateral management
The first generation of collateral management solutions reflected the simplicity of traditional loan structures that had been in use for centuries. Banks and insurers usually relied on custom-built solutions or basic software to track and manage collateral – systems that were fragmented, manual and inefficient. Loan agreements tended to operate in silos, with a single collateral asset typically tied to an individual loan agreement, reinforcing a one-to-one relationship between asset and obligation.
SAP’s launch of the R/3 system – the world’s first enterprise resource planning (ERP) system – in 1992 marked a major milestone in enterprise technology. This included support for core financial and accounting capabilities, integrated with other business processes.
This was the industry’s first step away from slow, cumbersome mainframe computing solutions. For the first time, banks could manage lending operations within a connected system – offering new standards of automation, data-driven decision making and process standardization – laying the groundwork for modern, data-driven banking.
Part of the R/3 architecture was SAP Consumer and Mortgage Loans (CML). Originally created to support the lending elements of Corporate Treasury, and later adopted by banks in 1995. It enabled these institutions to support the increasingly diverse range of loan structures with end-to-end functionality, from initial data entry and contract creation to disbursement and financial accounting integration.
But as the assets, agreements and scope behind lending and policies continued to expand, the limitations of this model became clear.
Basel II and the expanding world of assets
In response to these regulatory shifts, SAP introduced the Collateral Management Solution (CMS) into its Banking Suite in 2005, as an optional element in R/3.
For the first time, banks and insurers had a solution specifically designed for collateral management, going beyond the loan-focused functionalities of CML.
Given the diverse ways banks and insurers manage their systems, the software was originally programmed so that collaterals could exist in either CMS or remain in CML – giving institutions flexibility based on their needs. Typically, simple collateral scenarios remained managed by CML, while institutions needing sophisticated oversight used the more granular CMS. While this dual-structure approach provided adaptability, it was inherently transitional.
This meant that banks now had a clearer, real-time view of collateral. They could connect one piece of collateral to multiple loans or link multiple types of collateral – from digital assets to intellectual property – to a single loan. This enabled greater efficiency, lowered compliance costs, and improved risk oversight. The flexible software also allowed banks to offer more flexible loan products based on a wider variety of collateral types.
How banks and insurers can succeed in a data-first financial ecosystem
As risk environments, asset types, and customer demands became more complex, financial institutions needed technology that could future-proof their operations. This shift called for a new approach to borrowing and risk management – one rooted in data, agility and integration.
ith the first release of SAP S/4HANA in 2015, SAP introduced a new financial software foundation for major institutions. This marked a new era for collateral management. The integration of CMS with CML as part of SAP S/4HANA centralized all collateral assets and agreements into one connected system, putting structured, analyzable data at the heart of risk management. With CML in SAP S/4HANA the management of collaterals within CML is no longer supported.
By unifying SAP CMS in SAP S/4HANA, institutions could strategically manage collateral across multiple loans and easily connect assets across diverse receivable systems. Lenders and underwriters gained deeper insights into collateral health, with clearer visibility into real-time risks and asset value fluctuations, allowing them to make smarter, more informed decisions.
Driving value in the migration journey
As collateral needs continue to evolve, banks and insurers will need to work with the right partners to ensure ongoing compliance and competitiveness. Migrating to a new software core is a major undertaking – especially without disrupting ongoing services.
One example: SAP Fioneer recently partnered with ERGO, one of the largest insurance groups in Germany and Europe, to successfully migrate over 180,000 data elements from CML to CMS in just 16 months.
Throughout the journey, SAP Fioneer supported ERGO with fit-gap workshops, collaborative solution designs, and extensive data cleansing, helping them manage transfer risk and reduce disruption. Now, the team has access to more comprehensive and standardized data than ever, as well as the ability to manage both simple and complex collateral constellations more effectively.
The future of collateral management
With support as-standard for SAP’s original CML collateral system ending in 2027, as part of the move from the SAP ERP Central Component (ECC), now is the time to consider what your institution needs to succeed in the modern financial ecosystem. While bespoke maintenance for your existing ECC structure is still an option, the move to the integrated CMS system opens the door for a more granular, agile approach.
Collateral management software isn’t a set-and-forget consideration. Modern institutions need a dynamic tool that can evolve to meet changing needs.
SAP Fioneer is building software with an eye to ongoing innovation, to ensure banks and insurers always have the tools necessary to navigate shifting markets with confidence.