ANZ CIO on the banking IT revolution

news ANZ Bank chief information officer Anne Weatherston has delivered a landmark speech outlining her belief that revolutionary technological change is coming to the global banking sector and the steps – from changing business processes, systems and even human approaches – that she believes will be required to address it.

The traditional relationship between banks and their customers, Weatherston told a lunch of the Committee for the Economic Development in Australia in Sydney today, was the provision of basic bank accounts which allowed customers to save and borrow money. Hence, the fundamental platforms which underly banks are the general ledger systems – often referred to as core banking platforms.

“For a long time,” the CIO said, “this was the only system of necessity.”

Relationships between banks and customers had traditionally been personal, Weatherston said. Branches were the primary channel and risks – for example, issuing a loan – were calculated based on direct knowledge of the individuals or businesses concerned.

However, Weatherston pointed out that this relationship had changed over the years. Banks moved to a more proactive sales model and gained scale, relationships with customers became more distant and new channels – for example, the Internet banking systems we enjoy today – emerged. Banks also diversified their products into many areas of financial services.

Many of the new business demands ended up being “hard-wired” into banks’ core platforms, Weatherston said. Others were implemented as front-end systems interfacing with the core – this, for example, is how modern Internet banking systems function. However, for all that this approach had facilitated many of today’s banking outcomes, Weatherston said she believed it would need to dramatically change.

“It will not be possible to overlay these new business approaches on legacy IT systems”, she told the audience “While at the heart of all bank systems the core transaction system is still a necessity, new systems will be required to enable 21st century service propositions, real-time data, including transactions, and high levels of service efficiency derived from end to end automation.”

“The reality is that the cost of maintaining hard-coded, legacy applications with inflexible or non-existent process automation continues to rise, while the ability to deliver agility declines.”

Weatherston’s comments appeared to run contrary to her bank’s current technology strategy. Although the bank has recently built a number of new technology platforms – for example, its Transactive cash management platform and new core systems for its expanding businesses in Asia, as well as merging platforms in its New Zealand division, the bank has not followed rivals such as the Commonwealth Bank and National Australia in deploying new core banking systems to replace the decades-old platforms which all of Australia’s major banks have relied on for some time.

Addressing the issue
Weatherston said when she looked at other industries which had gone through similar changes, there were three main themes which helped them embrace the future.

The first, the CIO described as ‘effectiveness’, or doing the same for less – cost control. Banks, Weatherston said, had not historically tried to cut costs to the same level as other industries, due to high margins and the low cost of the industry’s essential input – money. In this area, banks could obtain a detailed understanding of costs and their drivers through implemented integrated enterprise resource planning (ERP) systems that would allow all purchases to be controlled and tracked.

Secondly, Weatherston said, banks needed to focus on ‘efficiency’ – or offering more for less against both customer and market standards. In this vein, banks might need to modify not only technology systems but also processes – for example, to meet customer expectations of immediate loan appraisals, or real-time payments.

“The automotive industry has reinvented itself in the last 15 years and year on year reduces costs of manufacturing while meeting increasingly higher levels of customer expectation for added functionality,” Weatherston pointed out. “This is an industry that is also increasingly moving into the age of the personalised vehicle.”

Lastly, Weatherston noted that the third theme of change she had examined was the changing nature of customer expectations. Mentioning dot com companies like eBay and Amazon, Weatherston said bank customers would increasingly expect banks to deliver service standards that they have received elsewhere – demanding banks who offered “interaction and not transaction-based services” and integrated personalised banking featuring multimedia and tailored to meet individual preferences.

When you add in the demand for customers to access services through a variety of channels, Weatherston said bank technologists would need to take a highly integrated approach to process and data design that allowed modular platform builds, “where transactions are held separately from data, message and servicing layers in their IT architecture.

For these changes to take place, Weatherston noted, banks would need new internal architectures – “both business and IT”. The business and technology staff working in banks would need to find new ways of working together – business unit managers giving up some control over processes and technologists taking an increasing leadership role and not just making incremental changes to internal systems every year.

“Financial services companies will need to prepare themselves to deal with all of these internal change management issues, and above all they must make sure IT and businesspeople are not given any opportunity to revert to a legacy system mindset, since this will undercut the bank’s ability to reinvent and respond to market forces,” said Weatherston.

opinion/analysis
To be honest, I was quite inspired by Weatherston’s speech (which I’ll post in full here later on today when I get back to the office). I have previously criticised the CIO and ANZ Bank in general for its purely tactical approach to technology; with one particular Agatha Christie reference which keeps on being mentioned in conversations I’ve had with industry figures on the issue over the past few months.

Weatherston’s speech today demonstrated that although she may not have communicated it perfectly in the past, the CIO deeply understands the issues facing banking technologists in 2011 – as well as what the next few years might look like in her industry.

However, the difficulty – and this is what discussion following the speech focused on – is that Weatherston’s industry-leading speech today is radically divorced from the path which ANZ currently appears to be on. Far from technology and the business working closely together, ANZ’s top IT management does not appear have the sort of internal leadership role that Weatherston might like it to have – at least from the view of my perspective as an outsider.

In addition, the bank’s persistent focus on Asia and avoidance of deep systemic change in its Australia-based core banking platform, as well as what has appeared to be a somewhat abandonment of its innovative goMoney mobile platform, mediates against the argument that that Weatherston is currently walking the vision that she’s talking.

There is a great deal of hope that this might change with the recent internal restructuring which Weatherston has carried out, with ANZ’s IT operation being split along business lines in the hope of developing deep internal domain expertise. And there is also a certain tenacity about the Scottish Weatherston’s character which you can’t help but admire and believe in … a certain humbleness and resilience which you don’t find in, shall we say, the more high-profile characters of some of her contemporaries at other banks.

But at the heart of the matter is that Weatherston just doesn’t yet seem to have the rock-solid internal executive support which a chief information officer like Westpac’s Bob McKinnon enjoys. And until she does, the CIO will find it hard to enact the stirring vision she outlined today.