How to understand NAB’s core banking strategy


analysis If you follow Australia’s banking technology scene closely, no doubt you’ve probably become quite confused over the past four or so years about the National Australia Bank’s core banking overhaul strategy and how precisely it is actually put together and progressing; and you wouldn’t be the only one. But if you delve a little under the surface it all becomes clear.

The bank first announced its plans to modernise its core IT systems back in August 2008. At that time it was only the second major bank in Australia to commit to such a project, after the Commonwealth Bank of Australia allocated some $580 million to its own overhaul a few months earlier. But where CommBank at that stage dove straight into its SAP-based revamp with a vengeance, NAB took a different path.

The first notable aspect of NAB’s core banking overhaul plans was its choice of enterprise IT giant Oracle for the project. While Oracle is a household name in enterprise IT circles and has software (and sometimes hardware) solutions in virtually every area which a chief information officer could want to spend money in, the vendor’s presence in banking and financial services was as yet relatively undeveloped, unlike rivals such as CSC, whose Hogan core banking platform is virtually an institution in banks right around the globe. Oracle’s strengths in the area centred on its acquisition several years previously of i-flex, an Indian software firm which had carved out a niche in the banking sector.

It was this product which then-NAB chief information officer Michelle Tredenick cited as being the centrepiece of Oracle’s financial services product strategy. “Oracle had been on an acquisition path in the financial services sector and has really been about assembling a set of products that are best of breed and that will form a broad platform for us to choose from,” the CIO told ZDNet at the time. “I think the i-flex acquisition was quite fundamental to that and will form the core of their offering to us.”

But the factor Tredenick didn’t mention at the time – and what has no doubt puzzled many in Australia’s technology sector since NAB’s project was announced – was the key role which NAB would take in not only implementing Oracle’s technology in its operations, but also helping to define that technology right from the start.

When it first detailed its Oracle-based core banking overhaul back in 2008, NAB said that its first step as part of the process would be to invest just $30 million (remember, CommBank had already committed to a $580 million project) in deploying Oracle’s technology to its new ING Direct-style online banking brand Star Direct (now UBank). The deployment was seen as a test bed in a brand new NAB brand which would provide lessons allowing the bank to migrate its mainstream operations across to Oracle later on down the track.

So why, four years later, did NAB announce in August 2012 that only at that stage had it migrated its UBank online brand onto its new Oracle-based core banking platform? The move raised some eyebrows at the time in Australia’s technology sector. Isn’t that what NAB had done some four years ago, after all? What, if not Oracle, had UBank been running on for all this time?

The answer to this puzzle, according to NAB’s group executive of Group Business Services Gavin Slater, who spoke at a media briefing on the bank’s technology roadmap and projects this week in Sydney, is that for the past four years NAB hasn’t just been implementing Oracle’s technology; it’s been helping to shape it.

Slater described the relationship between Oracle and NAB over the past years as one where the pair have been “co-developing” Oracle’s new banking platform, with i-flex at the core and other pieces of the puzzle coming from in-house Oracle development as well as pieces bolted on from acquisitions such as Siebel.

Oracle, Slater said, had all the components it needed for a comprehensive financial services product offering when NAB signed on with the vendor back in 2008. However, the vendor’s ‘Fusion’ strategy has seen all of those components being ‘re-architected’, so that they come together. NAB, Slater told journalists at the briefing, had helped Oracle understand what a tier one banking system should look like, with direct reference to its own environment. It has been a symbiotic relationship, with Oracle seeking direct inspiration from NAB on how to shape its product offering, and NAB being the first customer to adopt that offering, tailored more closely to its own needs than it would have been able to achieve with another vendor.

And NAB’s relationship with Oracle has played out at the highest levels. The vendor’s co-president Mark Hurd has presented to NAB’s board of directors in Australia on the issue, and Slater himself has met with Oracle co-founder and chief executive Larry Ellison to discuss the project and Oracle’s vision for its place in the financial services industry.

If you view NAB’s core banking strategy through this “co-development” lens, it explains much about the bank’s progress on implementing its so-called Next Generation Platform core banking overhaul effort. As Slater and fellow NAB IT executive, executive general manager, Enterprise Transformation, Adam Bennett, told the briefing, in 2008 NAB conducted an audit of the banking IT systems market and formed a view that no vendor was offering “a fully integrated core banking system” across the three key layers of the bank’s core platform – from origination systems to manufacturing systems and enterprise systems. The pair said CommBank’s overhaul – while comprehensive and more advanced than that of the other banks – had primarily touched what in banking parlance is described as the ‘manufacturing layer’ of the IT stack.

Lacking such a comprehensive product offering, NAB appears to have essentially gone far towards creating its own through its co-development work with Oracle. But that custom development work now forms Oracle’s off the shelf Banking Platform, formally announced in September this year. It is this more comprehensive package – which goes far beyond i-flex – that NAB announced it had implemented in UBank in August this year. UBank was already running on i-flex – but now it is one of the first brands in the world to be running on the full Oracle Banking Platform product suite.

The bank’s co-development effort with Oracle also explains why its own core migration has taken so long, compared with the faster-moving product which appears to have largely reached its completion at CommBank. While CommBank has been gaining a march on its rivals with its core overhaul, the NAB vision has seen it working at a more comprehensive level, in the view of the NAB IT executives. Getting this right has been crucial to the bank’s future for the next several decades; and what better vendor to commit with over the long term than Oracle?

Being at the forefront of Oracle’s development effort also moves NAB into a solid position in the global banking sector. With some 70 major installations of CSC’s Hogan platform globally (including several in Australia, notably at Westpac), Oracle is now champing at the bit to convert those other banks onto its new Oracle Banking Platform, and any development work done as a consequence will only benefit NAB.

The co-development effort also explains other things, such as Suncorp’s apparent pullback from a commitment to the full Oracle Banking Platform after initially committing to the platform late last year. “As part of Suncorp’s transformation journey, they have focused first on deploying the customer capability through Oracle CRM On Demand. Phase 2 of their program will look to replace the CSC Hogan core banking system with more components from the Oracle Banking Platform,” said Ashwin Goyal, Oracle’s global vice president & general manager, Financial Services, in an interview in October this year.

Reading between the lines, it appeared as if Suncorp was set to follow in NAB’s footsteps in committing to an overhaul of its core and migration onto Oracle’s Banking Platform. But it could be that the bank got cold feet after getting more of the inside scoop on what is actually going on between NAB and Oracle. After all, doesn’t it seem just a little bit risky to jump on board with Oracle, when the company has only just finalised that co-development effort on its Banking Platform sufficiently to announce it as a formal product in September this year?

When it comes to core banking overhaul projects, it’s hard to analyse them if you’re not in the middle of one. The complexities of NAB’s Oracle relationship or CommBank’s relationship with German software giant SAP are not easy for outsiders to delve into; and the interlocking, incredibly complex weave of systems which make up modern banking platforms are different for each bank and have a million tiny oddities which make writing about them hard.

However, what I can say is that as a journalist who’s covered Australia’s banking technology scene for many years, NAB’s approach stands out as an unusual one. Not just implementing a vendor’s technology, but helping to work on shaping it. Not following the global market, but getting ahead of it. Not trying to keep up with the Jones’ (or, in this case, the Hartes’), but trying to tread their own path; no matter if it takes longer and is misunderstood by many.

I asked Gavin Slater at NAB’s briefing this week about risk inherent in this kind of strategy. “If faced with the same decision, we would go with them today,” the executive said of Oracle. “In our view they’re a very progressive organisation.” As is NAB, if you look at the strategy I’ve detailed today and its wider technology transformation, which is touching virtually every area of its technology stack. It will be fascinating seeing how this strategy will play out in the coming years.

Image credit: Delimiter