Technology offers 'no sustainable competitive advantage'

A dearth of technology skills and changing market place priorities were two of the key factors that led Westpac to announce last week that it would mothball its core computer systems' revamp plans for the next four years.

Although the bank has added 1200 additional people to its IT team in the last year (staff sourced through its partners IBM, TCS, Wipro and Infosys), these people are developing customer-facing systems rather than overhauling the bank's legacy systems.

At a briefing in Sydney yesterday Westpac chief information officer Bob McKinnon said; "From the business strategy [point of view] our current most pressing issue is around customer outcomes.

"I struggle with the fascination that people have with core transactional banking platforms, because, globally, in banking 44 per cent of all the money is in front-end platforms, 17 or 18 per cent in payments systems, and about another 15-17 per cent is to do with core banking platforms."

Last week McKinnon confirmed that bringing Westpac into the Hogan core would cost $250 million. It has so far spent $25 million on preliminary planning and design. The project will now be mothballed until 2014 when the refresh is scheduled to begin.

In the meantime, the IT group will plough on with the $2 billion Strategic Investment Priorities (SIPs) project, which has been broken down into 15 programmes, many of which are aimed at lifting productivity and performance.

It's just as well, as, according to McKinnon, there is: "No sustainable competitive advantage purely in technology."

The transition to a new core computing system was not a "burning issue" for the bank, he said. Although McKinnon acknowledged the bank would be better off when the core refresh was completed, "we would be better off again with a common teller platform," he said.

It's a strategy not dissimilar to that which McKinnon adopted when he was CIO of the Commonwealth Bank, from 2000 to 2006. McKinnon restructured CBA's internal IT operations. He then rolled out the CommSee platform, as part of a $500 million technology programme that underpinned CBA's Which New Bank marketing campaign.

Again he focused efforts on the bank's outward-facing computer systems, including an online banking platform, and left the core system of the bank largely untouched. It was only with the arrival of current CIO Michael Harte that the CBA has overhauled its core system, using SAP as the platform.

According to McKinnon, the decision to push back a Hogan refresh and core systems overhaul until after 2014 is simply a case of determining priorities according to where maximum benefits can be derived, and based on the skills available to the organisation.

In a briefing session yesterday, McKinnon was asked to what extent its customer-facing technology could be impacted by older, occasionally batch-based processing systems currently used in Westpac's core. "The answer is not particularly," he said.

McKinnon acknowledged the Westpac core banking platform that supports transactions, savings and deposit accounts is based on old technology. "But it's written in Cobol; it isn't written in Assemble; it's efficient, understood and it works. The only thing is it's less flexible than you would like, so has its challenges."

"[Even so,] Westpac has run on these for a long time, and done so very successfully, so  a couple of extra years won't make that difference."

Despite the protracted delay CSC's Hogan is still in the box seat, with McKinnon describing it yesterday as a "lay down misere" in terms of system selection.

"The platform is modern, a real-time banking platform already. You can go into a St George branch today, open an account, deposit a bank cheque, be given a card and take that money out of the wall (ATM) outside."

Westpac clients will have to wait a while longer for that luxury, although it seems likely that McKinnon and his team will be under pressure to complete the refresh by 2017, when Westpac celebrates its 200 year anniversary.