Moving a large bank from its existing 20 or 30-year old legacy system to a new core banking platform is often compared to changing engines on an airliner flying at 30,000 feet. Volunteer mechanics have been rare. But it has been done -- Commonwealth Bank of Australia (CBA) has installed SAP as its core system and Nationwide, a mutual bank in England, has also been implementing SAP.
What will it take to move a large U.S. bank off a legacy system?
“It could be a major customer outage, it could be a fraud or just that their competition does it,” said Mark DeCastro, research director at IDC Financial Insights.
SAP said one of the banks that moved to its core system was able to drop their efficiency ratio -- the non-interest costs of generating revenue -- into the 40s.
“When you have banks in this country in the 60s to 80, if anybody comes and gets 40s they will start to make the others move.” It could be one of the large regionals or US Bank, perhaps, he said.
Only a couple of companies can do this. Temenos provides systems for mid-size banks but hasn’t done a major money center bank. The leading contender for large banks is SAP which has been installed at Commonwealth Bank of Australia -- the 4th largest bank in the world by market capitalization -- and is underway in a long-term project at Nationwide, the UK savings bank.
DeCastro said that Oracle is developing a new platform -- not related to the Flexcube core banking system it acquired several years ago -- that will be geared to large banks.
“They have been developing it for 18 months and they are still adding modules. In this country it is going to take a significant event to rattle the nerves and get these banks to set up and start modernizing their core systems.”
Wells Fargo, which is a leader in understanding clients to cross-sell and up-sell to increase wallet share -- a company-wide objective -- is running its consumer accounts on an aging CSC Hogan mainframe system.
Andrew Hagger, general manager for transformation and analytics at Commonwealth Bank (CBA), explained his firm’s use of the SAP core banking platform at an SAP financial services conference in October. With more than 1,000 branches, the bank has the largest volume of transactions in the southern hemisphere, he said.
CBA believes that real-time banking provides a competitive advantage through greater liquidity and reduced transaction costs. Its investment in technology supports its goal to be customer centric, channel agnostic, real-time and 7-day and to be agile in making offers and bundling products -- all familiar goals in banking. Still, CBA calls it the Revolution Story.
“The revolution is about simplicity, customization and greater control for you in meeting your customers’ needs. It’s about agility, it;s about consistency, and most of all, it’s about our fitting our customers’ goals and aspirations, not them fitting our products and systems.”
The bank hits a theme that has appeared with increasing frequency in banking technology -- industrialization, or as CBA describes it ”Introduction of common processes across businesses, segments and products.” It also talks of multi-entity support -- the ability to use the core system to support something like an Internet-only bank or an entirely mobile platform.
Two keys to success are richer customer information and innovation at speed, supported by being able to experiment to find out what customers want.
DeCastro said that banks have typically done a very poor job of managing the customer data they have.
“Typically it is managed at the product level, not at the customer level, although we are beginning to see that change,” he said.
“When I have a customer on the phone or in a branch, I don’t really care so much which products they have. I want to know their overall profitability, behavior, life events -- that is where the analytics and the tools becoming available will really help -- looking at the customer as an individual relationship.”
Scott Gnau, chief technology officer at Teradata, said that its analytics combined with Aprimo relationship manager technology for marketing, can draw on data to deliver individually personalized offers through a branch, call center or Internet and mobile banking. The offers are based on the individual, not a broad ranking like a platinum or gold customer, he said.
“When we have an interaction and I say no, the operator hits a button, the system goes back through the infrastructure, recalculates all the segmentations and comes back with the next best offer. It can do that multiple times. That creates the illusion of discretion without the cost of discretion through real-time active data warehousing.”
DeCastro said that American banks have been a little slow in developing highly personalized marketing compared to some other regions around the world.
“Some of that has to do with the legacy core systems we have in this country.
CBA has a significant investment with SAP and because of that they are now able to do a lot more with analytics and drilling very targeted offers.
Implementing SAP hasn’t been easy or quick. The bank’s timeline shows it introduced the idea to the board in 2007 and signed with Accenture and SAP later that year. It launched part of the system in 2009, migrated 10 million accounts in 2010 and offered 24x7 banking later that year.
Some of the goals sound very much like Wells Fargo -- long-lasting customer relationships and the ability to use technology and analytics to deliver the right offers at the right time. A more ambitious goal is ”to acquire and retain high value customers by meeting their needs at the right time in their decision making process through the right channels.”
DeCastro said banks haven’t successfully absorbed all the new technology, especially on the customer-facing side.
“I think we have spent too much time looking at mobile banking and not enough at looking to integrate all the channels for seamless experience. Mobile has been elevated at the expense of online which is an extremely important channel that won’t go away.”
He expects that banks will eventually move to a single platform which is device agnostic -- mobile will operate through a Web browser and provide the same experience as internet banking rather than through an application.
