CBA proves the case for core banking replacement

It’s a financial world: CBA proves the case for core banking replacement

CBA proves the case for core banking replacement

CBA
(Commonwealth Bank of Australia) has delivered record profits of $8.6bn AUD
(£4.8bn, $8.0bn USD) for the year to June 2014. With a return on equity of
18.7% (versus typically 5-7% for US/UK banks and less for European banks) and a
cost:income ratio of 36% for the retail bank (42.9% for the bank overall), this
puts CBA amongst the most profitable banks in the world. It is also one of the
banks with the fastest growing profits. This is despite fees paid by customers
going down. The profit is being driven a combination of growing the revenues outperforming
their competition and by increases in productivity. The CEO, Ian Narev, is
clear that a major factor in the high performance of the bank is due to the major
investments in technology, including the replacement of their core banking
platforms.

For
many banks the idea of replacing the core banking platforms is the equivalent
of performing a full heart and lungs transplant while running a marathon.
However, whilst most banks have not had the courage to embark on such a
challenging endeavour, in 2006 CBA decided to. CBA made the task even harder by
rather than choosing to replace their old legacy systems with proven technology
they chose to be one of a very few pioneers with the new SAP Banking platform
that, at that point, was largely unproven.

The
journey to their new banking platforms was not straight forward, bumps were
found along the way and the costs rose above original estimates but there were
releases along the journey which released business benefits and they have
succeeded in delivering a completely new set of platforms to drive their
business from. This has given them significant competitive advantage.

One
consequence of simplifying their IT landscape has been a dramatic decrease in
the number of high impact system impacts from 400 in FY2007 to a mere 44 in
FY14. Considering the number of major outages that some of its competitor banks
have had and the damage to the brand this is a significant achievement. It will
undoubtedly have contributed to why CBA is #1 for customer satisfaction amongst
Australian banks.

Among
the benefits that the bank and the customers have experienced is a dramatic
reduction in the time it takes to get innovations into production – two recent
examples of this are Lock & Limit (allowing customers to block and/or limit
the size of transactions) and Cardless Cash (customers being able to withdraw
from ATMs using their mobile phones) which came to market in May 2014 ahead of
competitor offerings.

CBA
has also seen a significant increase in self-service with the percentage of
deposits completed via an Intelligent Deposit Machine going from 10% to 37%
over a twelve month period. With the launch of online opening of accounts
(savings and current accounts) customers can now open accounts in less than 60
seconds.

None
of the big UK banks has embarked upon a core banking platform replacement
programme. Lloyds has consolidated and simplified its systems based on the
legacy TSB platform. Santander has a single platform, Partenon, which is based
on a banking package but it is legacy technology.  HSBC embarked on developing a single system
for the Group, One HSBC, but that programme was stopped after a number of year.
Nationwide Building Society is some way down the journey of implementing SAP
Banking and is beginning to see the benefits with reduced times to launch
products and propositions.

One of the key architects and sponsors of the
technology transformation programme at CBA was Michael Harte. He is shortly to
take up the role of COO with responsibility for IT at Barclays. There can be
little doubt that his experience at CBA was the major attraction for his
recruitment. The benefits that CBA is reaping following this six plus years
journey are clear to see. The question is with all the challenges that Barclays
faces, the size of the investment and the length of the return on that
investment, the decreasing margins in banking and the amount of work needed to
keep up with the regulatory burden whether Barclays will have the appetite and
the staying power to embark upon what can be a highly rewarding but hazardous
journey

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