High cost of Westpac's IT rebuild
Westpac may be left scrambling to meet the Reserve Bank's timetable for real-time banking services. This is one conclusion that can be drawn from a presentation made by the group's senior executives outlining Westpac group's profit announcement. It was during this session, on Monday, that the group's chief executive, Gail Kelly, announced that the first phase of Westpac's multi-billion dollar strategic investment priorities program was almost complete, making the tacit admission that the group's technology upgrade will be more wide ranging - and costly - than previously acknowledged.The "Phase I" upgrade is expected to be completed in 2014, Kelly said.While the final price tag was not mentioned at Monday's briefing, analysts were quick to point out that at A$1 billion (on top of at least $1 billion more) the upgrade is likely to cost Westpac less than those of its peers, NAB and CBA.The SIPS program has cost over $1 billion over the past three financial years, according to the executive team's presentation slides, and totalled $203 million for 2012/13. The bank claimed improved efficiency gains from phase one are expected make the rest of its core platform upgrade less costly, adding that "investment required for Phase II is expected to be similar to that for Phase I."Kelly disclosed that implementation had been difficult, but a pilot of the platform, developed under phase one, was underway, with about 4500 employees using it, along with an undisclosed small number of customers. New features included the display of real-time account balances and credit card purchases, and the ability for customers to search up to three years of transaction history online; it provides even more functions for business customers.Phase two aims to "refresh" the bank's key processing systems, building on phase one's investments on customer-friendly systems. The first task will be to begin work on a new BT Wealth platform, with the first stage being due in late 2013. The main part of phase two, however, will be an upgrade of St George's CSC Hogan system to CSC's new Celeriti system. Westpac then aims to consolidate its system on the Celeriti platform and migrate transaction and savings deposit accounts across the whole bank to the new system. If successful, it will give Westpac the capability to make improvements to mobile and digital payments, as well as to shift to real-time payments, support the bank's Asian expansion ambitions and upgrade customer analytics.According to CIMB's Australian equities analysts, what Westpac is proposing - an upgrade of its core banking system using its existing vendor, CSC - is a far less complex and less risky project than the rip and replace upgrades at CBA and NAB, which will cost an estimated $2 billion each. The total cost of the remaining IT upgrade work by the Westpac group could still hit $1 billion though, CIMB noted.Although Westpac did not give a time-line for completion, based on the presentation slides, the bank seems to expect this to be a three to four year project, which implies it will