Adventures with core systems: part II

The bankers at CBA are in for a bit of a shock.

In the past they told their computing guys what they wanted and IT went away and wrote it.

In the future the bankers can tell IT what they want to do - but IT will dictate how they do it.

Michael Harte, group executive and chief information officer, says that both he and chief executive Ralph Norris understand how big a challenge it will be to deploy a new core banking system. Translating the plan from the whiteboard into reality will be tough.

"I think both he and I would agree on simplifying the approach to deployment where you take a package and you change the organisation. Don't get the organisation to change the package," says Harte.

"There are pre-built architectures and capabilities that you don't mess with."

Harte acknowledges that having the organisation rather than the computer system jump through the hoops is a radical shift in terms of how banks have approached IT over the last 30 years. But it's the way it's got to be, he argues.

By partnering with SAP and Accenture to roll out the $580 million core banking system, Harte has opted for a system which has multiple application modules that can "plug and play" in a service oriented architecture (SOA) framework and a service provider that has worked with banks doing this sort of transformation before.

He's not about to let the bankers stuff that up.

The model the group-wide team are working to envisages federated business IT and shared common utilities. Leveraging that across the bank will, he hopes, make IT cheaper, faster and better.

"We've worked for the first two years to become more efficient, and we've learned in that time to become more effective as we got closer to the business," says Harte.

"As an IT organisation you don't want to push technology - you want business to become great buyers - you want them to really define what they are trying to solve on behalf of customers and work with us to determine how that can be solved."

But as he notes "We see a clear delineation between the business 'what' and the solutions 'how'; the business demand and the IT supply."

And supply will be SAP based.

"The core logic of SAP Banking is parameterised. They've built rich features on an open architecture so you can go and select or deselect the features you want.

"On top of that and separate is the SOA, which as a set of frameworks and disciplines is maturing. That provides additional flexibility beyond the core architecture of SAP.

"SAP has grown up offering a virtual supply chain for retailers.

"Using that notion, they can say 'well a bank is just another retailer, so we're applying banking logic in a componentised form on top of the retail platform'.

"An extra layer of extraction is the notion of 'software as a service' so that should we have some componentised logic, or some other third party have some logic, then those services can be plugged and played across the Netweaver integration layer," says Harte.

In effect the new core systems will replace tall stacks of vertical legacy applications, which are hard to maintain and add to, with a much more granular series of largely off the shelf modules.

The granularity means that new features can be turned off or added in hours or days, where a new module on the current legacy might take six to 12 months to deploy, according to Harte.

For stability's sake the new core system will run on mainframes for the time being, though longer term Harte anticipates it being transferred to distributed servers.

While both SAP and Accenture are major market players, upgrades of this magnitude can and do come unstuck.

Mitigating that they say, is the fact that while CBA may be leading the pack in Australia, SAP has done this before with overseas banks.

Robert Wilson is director of strategic engagement, global banking for SAP Australia and says that SAP has worked with Deutsche Postbank since 2002 to develop a new core banking system.

"We have effectively completed the fun and games," he says.

"They probably have a similar market share to CBA and are probably a bit bigger with 40 million client records."

Other banks using SAP tools include UBS, Standard Bank in South Africa and the UK's Nationwide, which is about six months ahead of the CBA, says Wilson.

Internationally he says: "You have got a group of front-running banks that have been forced to do modernisation - to attack a new market, consolidate an acquisition or because of market changes. Australia's banks are in the second tier."

The cosy status quo that Australian banks have enjoyed, leaving them free to drive the FJ Holden era computing systems, is ending, according to Wilson.  

"All ideas need an internal momentum and market force. The banks have not been in cut-throat competition. When they have had the time to revamp their core systems they have had to react to the millennium (Y2K) problem or to Basel II or Sarbox.

"Now they have managed to put a lot of that behind them and dedicate time to strategic changes."

The timing, he believes, is fortunate as the maturing of SOA architectures allows banks to overhaul their legacy without having to do a big bang change. Elements of legacy can be selected and replaced using the SOA as the "architecture and platform for change".

SAP's product knowledge and Accenture's change management skills combined with a team of a "couple of hundred" CBA IT people now have three years to make it work, rolling out new deposits, transactions and lending applications in that order.

"CBA is obviously the lead, with Accenture and us helping them steer clear of the reefs. We have had a good running start," says Wilson.

So good, says Harte, that the first modules of the new platform are scheduled to go into production in November.

The bank has, since Harte arrived, overhauled its internal IT operations - "we even speak politely to one another," he quips; completed the CommSee programme which harnessed Microsoft's .Net to deliver a new computer front end (launched originally by then CEO David Murray in 2003 as part of his $1.5 billion Which New Bank initiative); and the Customer Information Facility which manages access to data at the back end.

Also, although the $580 million core systems revamp was announced in May, CBA has had teams working behind the scenes for over a year, since March 2007, when the board first agreed to the core systems revamp in principle and provided a preliminary budget for Harte.

Part of that money was spent developing what Harte describes as the 'steel thread' of software code, which has already been used to weave together CommSee, the term deposits applications, and the customer information at the back end.

What he is working to develop is a "Migration engine which is a repeatable and reusable set of frameworks so if you've got new systems to develop or new banks to integrate you can reuse that and develop a core competence for fast migration."

Once the new applications start rolling out, clients will start to see some changes. For example, "They will see transactions in real time. At the moment they make a deposit at the weekend but can't see it until Tuesday because of the batch five-day week approach."

Changes will also take place in products themselves.

"For a term deposit - say you had $2000 coming to you… if you go into the branch and want to set up a term deposit they say 'where's the money?' If you don't have it you have to come back when you do.

"Whereas now you will be able to say 'set it up at this rate, the money will come in two weeks and I'll transfer from an ANZ account.' You can set it up and it will automatically occur as you have configured it. There will be more flexibility immediately within the product."

Harte believes it will afford CBA competitive edge. He's not prepared to discuss which modules will be tackled first, unprepared to give away anything that his Australian rivals might use.

"I think we have wrong footed them all.

"I think with ANZ their strategy throughout Asia might sound brave and exciting… but they are going to have to be fighting very hard to execute because they are being outbid by well capitalised Chinese banks.

"From a systems perspective they have already said what they are doing with Hogan is sufficient here and that Finacle is sufficient for Asia. I don't think that's going to hold them in good stead long term.

"Then there's the well publicised choice between i-flex and Finacle for NAB. They are both extraordinarily complex systems with no less difficult deployment patterns.

"They have not been able to deploy SAP because we have taken that off the table because of access to skills," and also through some contract clauses that effectively locks SAP to CBA and out of the other big three banks.

When it comes to Westpac and its need to overhaul core systems and perhaps integrate with St George, Harte is positively gleeful.

"It's the worst of both worlds. There are two old systems and the challenge will be determining which ones to decommission. It's tough to understand how they will get merger synergies in ops and tech and then have to make a modernisation decision.

"They may end up being six years behind. Where NAB might be two to three, ANZ has said software as a service can create n-tier (effectively a stack of interlinked information services) and rather than wholesale replacement you harvest the existing logic and make it granular across the environment. It's a viable strategy and can be done, but it takes longer," according to Harte.

"But we are not looking behind us to see what the others are doing - we are running really fast to stay ahead."