Commonwealth Bank chief information officer (CIO) Michael Harte has shrugged off National Australia Bank's core banking overhaul as the "Jetstar" of overhaul projects in a briefing where he and other executives repeatedly emphasised that the bank's own $1.1 billion revamp put it technologically two to five years ahead of its rivals.
Michael Harte (Credit: CBA)
The bank's project initially kicked off in 2008, with a projected value of $580 million, but has since almost doubled in size, with Harte yesterday confirming its ongoing value is 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 (NAB, which first rolled its fledgling UBank business onto the new systems before extending them to other areas of its operations.
Harte said no other bank in the region had a strategy similar to the Commonwealth Bank of Australia's (CBA), calling the NAB's core overhaul "a completely different strategy, akin to Jetstar". Harte explained that NAB's core revamp would see the group create an alternative bank within its own operations, similar to how Qantas' Jetstar subsidiary is functionally separated from its parent.
The CIO and other senior CBA staff such as the chief executive Ralph Norris and the head of its core banking overhaul project, Dave Curran, went to great lengths yesterday to display how the bank'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," Curran said when asked about the effect of other banks' systems on the interbank processing of cheques. "We would naturally like to see that change over time ... we are held back by the other banks in this regard."
The CBA'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. He said that 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 added, noting the other banks had not followed the CBA in that time. "We don't think we've got five years' head start," he said, but he added that the bank considered itself out in front.
CEO Norris said the bank was already seeing benefits from the project, with the volume 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 that the bank's number of severity one technology incidents had dramatically reduced — down 94 per cent from 2006, when it had 66 such outages.
However, Norris said it was over the next five to 10 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 '60s", with "overnight batches and regular delays".
Harte said that two years ago when the CBA embarked on the core overhaul project, many had regarded the program as being a risky endeavour "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 yesterday's briefing would demonstrate that "execution is no longer in question" with respect to the CBA's overhaul.
Analysts questioned whether the bank had opened the door for rivals to mimic its success, by being the first to take the plunge in Australia. 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 the company's 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 that ANZ Bank chief executive Philip 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 to change the heart and soul of a bank while it's still open," he said.
"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."
At the event, Harte and Curran fielded a number of questions about the amount of expenditure associated with the program and how the costs would compare to the benefits accrued from the initiative.
The bank 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.
Harte defended governance controls on the project, saying that the bank's board of directors met quarterly to oversee the progress, and that monthly meetings were held with internal sponsors, chaired by Norris himself. The bank continued to make ongoing investment in the project as added value could be returned, he said.
Harte said that 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. The bank was also expecting savings from its increasing move to on-demand infrastructure (both public and private cloud).