Australia’s IT banking revolution is here

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The antiquated systems of our banks are in need of an IT makeover and the pressure is starting to come to a head for the majors.

The crest of an IT revolution is looming over Australia’s banking industry where the creaking of forty year-old legacy IT systems continues to drone out the sounds of the banks’ metronomic money-counting machines.

The internal machinations of Australia’s modern banking IT systems have long been built on top of antiquated architectures reliant upon overnight batch-processing to complete the average banker’s needs. But in this world of user connectivity and Web 2.0, banks are beginning to find that they have been left behind while today’s busy banker demands more.

The big banks’ reluctance to replace their aging core systems can be attributed to the ridiculous amounts of data they are required to process on a daily basis. Australia’s big banks manage around seven million customers, which is not only an incredibly huge customer base, but also a source of intense stress for the banking industries’ outdated core IT systems.

We’ve come to the point now where banks are beginning to realise that the continued practice of quick-fix action is destined to come back to haunt them. Just as the organs of cosmetically rejuvenated 60 year-old Hollywood types continue to slow, so too do the systems at the heart of 40 year-old legacy IT systems. After all, there are only so many cosmetic enhancements one can undergo before the engine finally blows.

The main problem that most banking legacy systems face is the uncertainty surrounding their capability. As it stands, the big banks are only ready to tackle systems at the periphery of the legacy core banking system because they don’t really know if their legacy software can handle today’s high volume transactions.

It was not until the Commonwealth Bank announced its $580 million plan to modernise its core banking infrastructure that the revolution really got rolling. Since the Commonwealth Bank made its plans public, the ANZ has declared similar intentions to upgrade its legacy systems across its Asian operations, as too has the National Australia Bank which has earmarked up to $1 billion to overhaul its legacy banking systems.

While the signalled intention of each of these banks is to be commended for addressing the changing landscape of customer interaction, before these big IT refreshes go ahead, a number of unanswered questions will need to
be answered.

The most important question is just how far do these banks want to go? Do they want to change all of their IT architecture to fully take advantage of new online real time applications and processing, or just change some of it?

In the Commonwealth Bank’s case, the next four years will see it replace its 40 year-old legacy IT systems with a range of SAP applications to improve the bank’s customer service platform, infrastructure and business services, as well as provide significant operational benefits and cost savings.

But rather than simply ripping out its core banking systems and replacing them with a new platform, the bank will take a more measured approach, marked by migrations away from the core, followed by the eventual retirement of its
legacy systems.

The Commonwealth’s success in refreshing its core systems will no doubt be under close scrutiny by Westpac and St George when they merge to become one of Australia’s biggest banking behemoths (estimated value: around the $66 billion mark) in the coming 12 months – assuming of course it gets the go-ahead from the Australian Competition and Consumer Commission and Federal Treasurer, Wayne Swan.

In fact, not only will the merger create one of Australia’s largest financial institutions, it will also create one of the private sector’s biggest IT shops – being so large that it will rival the total IT staff and spend of big government departments like Defence, the ATO and Immigration.

Just how this emerged entity goes about integrating and refreshing its core systems to a common platform will be closely watched by competitors and pundits alike. In fact, it will serve as a good lesson for anyone looking to marry two disparate IT departments.

Regardless of Westpac’s plans for St George’s IT operations, the fact that each of Australia’s major banking institutions has signalled their intentions to leap in line with 21st century IT conventions is a good sign. Whether Australia’s banks are looking to streamline IT efficiencies, or improve customer experience, it’s refreshing to see the institutions responsible for safeguarding our money taking IT seriously.

We haven’t even begun to consider how the cost, disruption and potential risk incurred by these projects will affect the rollout.

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