The National Australia Bank is four years into a multi-billion dollar technology transformation that touches just about every part of the bank’s business.
It’s a transformation that — prior to mid-2012 — was largely not discussed in public circles, at least until the bank had some runs on the board.
But over the past six months, the bank's technology executives have given iTnews valuable time and insights into this long and complex project.
Originally announced in 2008 and expected to be complete within five years, the NAB now says it is three years into a "ten-year" transformation journey.
With key deadlines approaching and an update scheduled for mid-March, iTnews felt it pertinent to ask why this goal post keeps moving.
What is NAB attempting to achieve?
NAB’s core banking applications sit on legacy mainframe systems that were developed as far back as the 1950s.
When new features were required, they haven’t always been suitable to deploy on this core — so the bank’s IT team has added them incrementally on more modern hardware and software platforms over time. The many connections or integrations within those systems have required a team of software developers to manually configure and manage. This has complicated future upgrades further still.
As customers seek to perform a greater share of banking transactions through online interfaces (web, mobile), the strain on these ageing systems has started to show. Some 1.3 million NAB customers log on to nab.com.au every day, half of which are mobile, processing some $250 billion worth of payments.
The bank’s transformation program aims to “reduce our risk by replacing our legacy, ageing, bespoke systems, replacing them with industry-standard solutions that have upgrade paths built into them,” Adam Bennett, executive general manager of enterprise transformation at NAB told a CEDA conference in Sydney late last week.
The bank signed an agreement with Oracle whereby the latter will use NAB as a model for building a standard software suite for banks — based largely on Oracle's existing middleware and application suite.
Further, NAB has signed an IT infrastructure deal with IBM for the hosting of its systems, and a lease with Digital Realty to house these computing platforms in a purpose-built data centre.
NAB chief technology officer Denis McGee, charged with “removing a lot of the legacy we built into the organisation over the last 40 years", has been at great pains to detail the complexity of the project.
“To give you some perspective, in November, we decommissioned a system with 30 to 40 year old code in it and no documentation around it," he said. "That’s what we’re engineering out of the organisation.”
The National Australia Bank’s tech transformation affects all layers of its supply chain.
Like many enterprise transformations, the bank feels a new data centre is key to this future.
NAB’s applications were running in 20 ageing data centres — some the size of broom closets in high rise buildings — a legacy of the bank's acquisitive years. These facilities have been responsible for over 40 percent of the bank’s total power consumption.
One of the NAB’s larger facilities in East Melbourne is close to 25 years old, and re-cabling it for today’s requirements alone was costed at around $30 million to $40 million.
“There were four or five proposals to upgrade East Melbourne data centre over the last ten years,” explains McGee. “The current leadership made a good call to finally get out and move to a new data centre.”
Last month, the bank began moving its racks and firewalls into a new state-of-the-art data centre in Deer Park, Melbourne, which the company will lease from Digital Realty.
Gradually the bank intends to decommission its 20 older computer rooms down to just two — keeping only its existing facility in Knox, Victoria and the new facility in Deer Park.
The PUE (power usage effectiveness) of the new facility is expected to be 1.3, compared to a current NAB average of 2.5. This consolidation effort is expected to reduce data centre power consumption by some 40 percent and save the bank $22 million over seven years.
The bank has also taken a new approach to ownership of the IT infrastructure within this new facility.
The IT infrastructure deal with IBM keeps capital costs off NAB’s books.
The bank can “dial server, storage and network infrastructure up and down on-demand” and only pay for what it consumes, McGee said.
The longest, riskiest and most complex part of the transformation is the overhaul of NAB’s core banking system.
In 2008, the company announced a core banking platform that will allow it to retire 100 legacy systems.
“It spells the ends of our legacy systems,” Bennett said. "It integrates all layers of our banking —the customer-facing systems, our middleware, our manufacturing layer, our enterprise layer — our finance and risk systems — and that means we won’t have to worry about integration.”
The company has set up a standalone online direct channel bank, uBank, using the new Oracle platform, and has migrated 300,000 customers onto it.
But the bank’s technologists estimate it will take another five-to-seven years to migrate the data from all its legacy core banking systems onto the NextGen platform — and will therefore be four or five years later than originally anticipated.
Read on for progress on the transformation so far....
What gains have been made?
NAB’s technology team was restructured in November 2012 to ensure the transformation would hit its milestones.
Gavin Slater, the bank’s group technology executive, split the CIO role in two, appointing Bennett as executive general manager of enterprise transformation and McGee as CTO. The Australian Financial Review — without naming sources — suggests Slater may be overdue for a promotion into a new area of the bank.
Bennett’s team is accountable for mapping out the “optimal sequence” of the transformation — nsuring the bank’s various technology projects are scheduled for completion at the appropriate times.
Denis McGee is responsible for business-as-usual operations around everything from applications, mainframe, server, data centre and IT security. But just about every piece of kit or service he manages has implications for the transformation.
The first win for the bank was a network consolidation contract signed with Telstra some 18 months ago, which collapses ten networks into one. NAB will now pay for traffic on this network in more of a utility-style fashion and Telstra will be involved in the upkeep of the network assets.
“We are essentially contracting Telstra for an outcome,” Bennett told iTnews. “The capacity of that network must be met and by a network that is current.”
Bennett said the NAB has made savings of 30 percent on its telecommunication costs as a result.
The bank is taking a similar "outcomes-based" approach to its IT infrastructure. It has completed most of the groundwork for a build of a ‘private cloud’, which attempts to take advantage of cloud-like self-service provisioning and utility pricing, without sharing computing resources with other organisations.
“We have created an infrastructure-on-demand cloud, with a number of test and dev [programs] running in that environment to shake it down,” McGee said. “We are well advanced with building the patterns required for the production environment to move those applications across. We’re on track for late March or April to push the first production application across.”
The bank has, as mentioned previously, taken delivery of the new Deer Park data centre, and has completed the fitout of racks, cabling and most recently, firewalls and other physical security assets in recent weeks.
But the migration of new applications into this facility will take most of 2013.
By the fourth quarter, NAB expects most applications to be running in Deer Park — with a few notable exceptions — and will then begin decommissioning its racks in Telstra and IBM co-lo facilities and the small computer rooms dispersed elsewhere through the country. The bank is unlikely to find time to decommission the East Melbourne data centre prior to 2014.
McGee told iTnews the migration of applications into the new data centre is a "matter of scheduling" and will be more or less timed with any software updates that need to be applied.
“We are now going through the prioritisation of which apps move first into the data centre. We’re scheduling around code drops.
"We prefer to time the re-platform of any system into the new data centre rather than deploy it in East Melbourne and then do a physical lift and shift.”
Progress so far has been made on updating to the latest database engines, tuning the performance of those databases, and moving the bank’s data warehouse off Sun 8000 boxes onto the Oracle Exadata platform.
NAB’s core banking system will continue to run on IBM z11 and z10 mainframes in an existing facility until the NextGen migration is complete, which as stated, might take up to seven years.
NAB’s IT future
Like his counterparts at ANZ and Westpac, Gavin Slater, group technology executive at NAB envisions his future technology team as an “orchestrator of technology services” rather than a traditional IT shop.
Slater does not feel the NAB’s billion-dollar annual technology spend can compete with the combined $10 billion Oracle and IBM spend annually on R&D.
“We will need to be far better at orchestrating our services,” Bennett reiterated last week.
“That will change the skillsets of the people we need in our organisations. We will need in some cases less development work, but more orchestration and commercial management work.”
Consigning all software development to third parties requires a leap of faith. NAB’s future will be inextricably tied to the fortunes of Oracle, which will use the intellectual property it gleans from the NAB deployment to resell a financial package to banks across the globe.
“NextGen will not be left to age gracefully and become legacy,” Bennett said last week. “We do already have a clear upgrade and development path.
"Around the world there are probably 100 tier-one banks with a pent-up need to invest and replace their legacy systems. Many were getting prepared prior to the GFC, and while the GFC stopped that investment, the pent up demand has only grown over that four and five years.
"We see 100 Tier One banks Oracle has got its eye on to market that platform to. We think its unlikely they won’t continue to invest.”
Oracle — and its peer SAP — are known for raising the price of their licenses, restricting the use of existing licenses and threatening court action when customers don’t play ball on licensing. But Bennett said he is entering the Oracle partnership in the right spirit and with eyes wide open.
“You have to make the partnership work,” he said. “You need transparency and trust, clarity of objectives — they are the kind of things we’ve been building. You also need executive sponsorship in both organisations, which we have on both sides.
“Each partner needs to have the will and permission to say when they are happy and when they are annoyed. It's like a marriage of our organisations. The relationship with Oracle has to surpass any personality that happens to be in a role at any point in time. You want a win-win for both organisations.
“I firmly believe you can’t have these relationships if you go down that traditional path of hitting the vendor on the head when you aren’t happy — entering the partnership in that spirit will not work.”
Seeking discounts and savings often means your account won’t attract the technology company’s best people, he said.
That said, from an architecture perspective NAB is working to ensure — through the Open Data Center Alliance, for example — that it has options should any relationship sour.
“We are building towards packaged and standardised and trying to take out the customisations and bespoke nature of these things so that ultimately we’ll have options,” Bennett said. “And if we want to exercise those options in the future we can do so.”
With everything from the data centre, IT infrastructure and software off the bank’s books, NAB will only be able to differentiate itself from its peers in terms of what it does with its customer data.
The hope is that once the plumbing is managed by partners, the bank’s technologists can focus on keeping pace with the data analytics gains being made by peers such as the Commonwealth Bank.
“We need to provide real-time insights from a data analytics perspective,” Bennett said.
“Big data is a game changer. Our infrastructure transformation allows us to store and process more data. We already capture interactions with our customers every day, and we use it to tailor advice to people. We can already scrutinise and analyse that. We can make real-time decisions about the pricing of products."
Like CommBank's Michael Harte, Bennett is concerned at the onset of new financial services options in the digital world, none of which have the technology legacy of the big four.
“In a short period of time, technologies have disrupted the business of financial services across the globe - as it has with media and retail,” he said.
“There are plenty of examples of organisations that missed this — that didn’t get their strategy right — and paid a high price. It’s incumbent on all business leaders to invest in technology now to allow for rapid innovation and not leave the hard work for future management.
“We will keep pace with incremental growth in the volumes of data and transactions, and innovate in our market quickly. People want continuous change and innovation.
“It’s far too early to tell in these banking technology wars who is going to come out the winner,” Bennett said.