Commonwealth Bank chief information officer Michael Harte this afternoon shrugged off rival NAB’s core banking overhaul as the “Jetstar” of overhaul projects, in a briefing in which the executive and other CBA leaders repeatedly emphasised that CBA’s own $1.1 billion revamp put it technologically between two and five years ahead of its rivals.
The CBA’s project was initially kicked off in 2008, with a projected value of $580 million, but has since almost doubled in size, with Harte this afternoon confirming its ongoing value was about $1.1. billion. Among Australia’s major banks, the only other bank to have initiated a similar core overhaul project is the National Australia Bank, which is taking a toe in the water approach, rolling out new systems at its fledgling UBank business first before extending them to other areas of its operations.
This afternoon, Harte (pictured) said no other bank in the region had a strategy similar to the CBA, other than the NAB, which had “a completely different strategy, akin to Jetstar”, which the CIO said would see the group create an alternative bank within its own operations – similar to how Qantas’ Jetstar subsidiary is functionally separated from its parent.
Harte and other senior CBA staff such as the bank’s chief executive Ralph Norris and the head of its core banking overhaul project, Dave Curran, went to lengths this afternoon in the briefing with media and analysts in an attempt to demonstrate how the bank’s billion dollar overhaul – one of the largest IT projects currently under way in Australia – gave it an edge over its rivals.
In a live demonstration, Curran showed the audience how the system’s new real-time banking functionality allowed customers to create new accounts, gain greater visibility over their transactions and transfer funds quicker (even with cheque deposits) than had previously been possible. He also demonstrated how the new system allowed campaigns to be run by the bank in a much simpler way.
“We are real-time, we are seven days [a week], the other banks aren’t,” said Curran later in the briefing, in answer to a question about whether the other banks’ slower systems were slowing down the processing of cheques between banks. “We would naturally like to see that change over time … we are held back by the other banks in this regard.”
The bank’s chief financial officer David Craig said he was often asked by investors what sort of head start the bank’s core overhaul had given it with respect to competing banks.
Craig said three years ago, the bank believed it was two years ahead of its competitors – as it had done several years of planning in preparation for the overhaul. “But that was three years ago,” he said, noting the other banks had not followed CBA in that time. “We don’t think we’ve got five years’ head start,” he said – but he added the CBA considered itself out in front.
CEO Norris said the bank was already seeing benefits from the project, with volumes of customer service calls dropping, positive comments from customers rolling in and the bank’s ability to roll out new financial products such as its new GoalSaver deposit platform being streamlined. In addition, Harte noted later on that the bank’s number of severity one technology incidents had dramatically reduced — down 94 percent from 2006, when it had 66 such outages.
However, Norris said it was over the next five to ten years that the biggest changes in the banking field would arrive. “Ten years from now, banking is likely to be very different from the way it is today,” he said, noting the next generation of customers “will not, and should not, accept systems built in the 60’s”, with “overnight batches and regular delays”.
Most of Australia’s banks are still running core banking systems based on mainframe technology which has been in place for decades – unlike the CBA’s new core, which is based on modern software from German giant SAP and was integrated with the help of IT services giant Accenture.
Harte said two years ago when the CBA embarked on the core overhaul project, many had regarded the program as being a risky endeavor, “for reasons of execution”. There were many examples around the world where core banking modernisation projects had failed, he said. However, the CIO said he believed today’s briefing would demonstrate that “execution is no longer in question” with respect to the CBA’s overhaul.
At the event, Harte and Curran fielded a number of questions about the amount of expenditure associated with the program, and the link to benefits accrued from the initiative.
The CBA has twice ploughed further funds into the project, initially raising its overall budget by $150 million after the bank acquired BankWest, and unexpectedly then topping up its funds with a further $370 million in early February this year. In February, the bank provided few details about what the extra money would be used for, citing only increased project complexity and the ability to add extra functionality to the project as justification for the increased funds.
Today, Harte defended governance controls on the project, saying the bank’s board of directors met quarterly to oversee the project, and monthly meetings were held with internal sponsors, with Norris himself chairing the monthly events. The bank was continuing to make ongoing investment in the project as added value could be returned, he said.
In general, Harte said his Enterprise Services division – which includes the IT portfolio in its responsibilities – managed around $1.8 billion worth of expenses each year, including technology infrastructure costs of around $650 million annually. The core banking modernisation project was expected to save about $300 million in total operating costs within a three year time frame, he said — and the bank was also expecting savings from its increasing move to on-demand infrastructure (both public and private cloud).
However, Harte also declined to go into detail on some areas. “I don’t think we need to manage the program in the public domain,” he said. “I believe our governance project internally is sufficient to maintain the commitment that we have.”
Analysts also questioned whether the CBA had opened the door for rivals to mimic its success, by going first in Australia and ploughing the way. The NAB has a relationship with SAP, while Westpac and its St George brand maintain strong links with CSC and its Hogan product.
Harte said the CBA had never had a contractually exclusive arrangement with its partners SAP and Accenture, but that by “defacto”, the bank had soaked up their best staff for its project, and had also taken “a lot of the available talent off the market” in general. “This is not something we’ve outsourced to a third party, it’s something we’re determined to do,” said Curran.
Curran added ANZ Bank chief executive Phil Chronican “could buy the SAP product tomorrow”, but putting together a crack team to work on such a project “takes effort”. “Everyone else who follows has to do what we’ve done, and it’s not easy,” he said, “to change the heart and soul of a bank while it’s still open.”
“Good luck to those who think it’s an automatic slam dunk,” said Harte. “We’re at least two or three years ahead of the others even if they were to choose SAP.”
Image credit: Commonwealth Bank of Australia