Five core banking systems overhauled at CBA

Commonwealth Bank hopes to get first mover advantage over its big bank rivals by launching a project to overhaul several of its most antiquated, but core, information systems.

CBA yesterday briefed the media and investors on plans to spend $580 million over the next four years building new processing systems. This investment will cover five core systems: home loans, deposits, term deposits, passbooks and customer information.

The investment announced yesterday does not apply to a multitude of other bank systems such as the general ledger, data warehouses or front-end systems. The latter were the primary aim of the IT investment phase kicked off in 2003 and hyped under the moniker of "Which new bank?".

The majority of the bank's accounts sit on these systems and transactions are run through them.

The bank's partners in its core banking modernisation project are the software company SAP and project manager Accenture.

A couple of the systems covered by this upgrade date back to the 1960s. The bank's chief executive, Ralph Norris, noted that some of these systems were developed in assembly language and that the availability of skilled staff to maintain systems was now problematic.

The project will be rolled out with four launches, the first planned for this year.

Chief information officer Michael Harte said the aims of the project were to create efficiencies in the back office by introducing common processes across business groups.

Norris and Harte also talked of "real-time, straight through processing", though neither provided much detail on this goal.

Harte said other goals will include shorter time to market and more flexible product design.

Harte did not quantify the savings the bank would make but said the group had made efficiency gains of $200 million a year over the past two years by reorganising functions within the IT group.

CBA's IT efficiency ratio has come down from 20.3 per cent in 2005/06 to 14.5 per cent in the December half. The bank is targeting a ratio below 13 per pent by the end of this year and 11 per cent by the completion of the project.

"That will put us in the upper decile of best practice," Harte said.

He would not be drawn on head count, saying the purpose of the project was not to reduce staff numbers.

Norris said investments of this nature were needed in order to pull the bank's cost to income ratio down to somewhere in the 30 per cent range over time.

The project will be headed jointly by Dave Curran, who moves from his position as head of operations and technology for the retail banking services division, and Leslie Martin, who was head of banking products in the premium business services group.

Curran said: "With our current systems a product like a term deposit has a number of preconfigured features. For example you have to open a term deposit account with a payment.

"We can't accommodate a customer who wants to open the account and then have the payment come in some time later. Our new system will bring the product development cycle down to a matter of days and we can start to look at offering greater flexibility."

Harte said it would be possible to contemplate services such as auto-approvals on home loans.

Harte said all the big banks were looking at changing their back office systems to take advantage of software development that would allow them to meet customer expectations for greater flexibility and speedier delivery of services.

The current phase of investment builds on past work, including separation of data storage from processing in the 1990s and the work on front-end customer information systems in the early 2000s (that produced the CommSee interface, for example).

Harte said the bank's IT group had been doing R&D on the project for the past two years and had developed a proof of concept (called Steel Thread) with a working capability from the CommSee branch system through to the back end.