Banking on a transformation

In March, Allied Irish Banks announced it was embarking on a three and a half year programme to transform its core retail banking systems. Maura Mc Evilly, Head of Enterprise Core Retail Banking at AIB, took time out of the project to explain to FST why.

Everyone knows that aging legacy systems at the core of banking operations are an encumbrance to the modern day financial services industry. After decades of trusted service, the core technology at most banks is beginning to show its age. While it still functions it is having a critical impact upon the agility of the modern enterprise as it tries to grow and meet the raised expectations of today’s customer. Indeed for several years now it seems that this will be ‘the year’ that banks finally start upgrading the core.

And yet. The core systems aren’t broken, so they don’t strictly need fixing. Replacing the systems that are embedded so deeply in the bank’s operations is a huge job, and entails a transformation of not just technology but business processes. And of course everyone is in the same boat – so while your systems might not be leading edge, probably neither are your competitors. In short a core banking transformation implies significant risk, with perhaps an uncertain pay off.

But perhaps things are now beginning to change. Allied Irish Banks (AIB) certainly thinks so, as in March it announced it was biting the bullet and embarking on a three and a half year process to transform its retail core banking platform across all its divisions. It’s a significant step by tier one institution, and perhaps one the competition should be sitting up and taking notice of.

Driving the project is Maura Mc Evilly, Head of Enterprise Core Retail Banking at AIB. FST caught up with her in late April to talk through why the bank had chosen to take the step that many in the industry are still eyeing cautiously. We start by asking about the context to the decision, why did it feel the time was right now?

The first thing Mc Evilly is keen to stress is that this was a business decision, rather than a technology based one. “I’m the business owner, and this is a business transformation program,” she says. Although she is clear the transformation implies a very significant change to the core technology, its not being done for the sake of the technology itself.

So what are the drivers behind the project? “It’s a programme that we see will simplify our retail banking operations across divisions and geographies,” Mc Evilly explains. “And it will differentiate us to our customers, and that’s the driver for us here really.”

Mc Evilly outlines how in general AIB’s strategic intent is to become more of a customer-centric organisation. Beginning from the point of view of the customers. “We’re seeing the needs of our customers changing, and the competitive landscape intensifying,” she argues. Therefore “transforming our core retail banking systems is a vital component for us – positioning us to compete more efficiently in this dynamic market”.

And how will the new systems help the business differentiate itself against the “heightened expectations” Mc Evilly suggests its customers are now displaying. The answer it seems is multi-faceted. “What I see us doing is offering more innovative propositions and packages that will bring greater value to customers,” she remarks. “We’ll be able to customise products to a much greater level than we do currently to meet the needs of different segments of customers.”

And in terms of the timing, Mc Evilly locates the decision in the bank’s ongoing efforts to position itself for enhanced service delivery. “We’ve made a huge investment in our infrastructure to date, and this is the next step in positioning us to continue to do this,” she says. It is a positive approach to a problem that has proved intractable to many in the industry. “We want to continue to enhance the quality of our service going forward,” she continues. “And this is why we’re doing this now – it’s really to sustain the momentum we’ve got now and put in place a platform for growth for the future.”

Change management
The business case Mc Evilly makes is eloquent, so what is the project going to entail. After all replacing the heart of your banking system is an undertaking that is enough to make even the most competent IT director worry. If things go to plan, the project – which kicked off in January, and then has really gained momentum since March when the technology vendor (I-flex) was chosen – should take three and a half years to complete, with the final switch to the new system occurring in 2010. Clearly, AIB have needed to develop a pretty tight play book to ensure the project runs smoothly. “Initially we are starting in the Republic of Ireland and our UK divisions,” she says.

Before even thinking about the technology implementation, AIB is also using the project to review its work-flows – to maximise the impact of the investment. It has already got a head start in this area. “We are looking as part of this to continue to develop robust end-to-end customer friendly processes, and we have some of this work done already,” she claims. “We want to free up more staff time to enable frontline staff to spend even more time with customers rather than being engaged in administrative tasks.” This effort is ongoing. “We’re continuing to refine these processes – making sure it’s simpler and easier for our staff to deal with customers at the front-end, and also in the back-office support functions.”

Another issue for AIB to manage is to ensure the project fits with other initiatives going on throughout the bank. “As part of the enhancement of our operating model, we are going to be working closely with all the key stakeholders to ensure total alignment with other business or IT initiatives that are going on in the bank,” says Mc Evilly. “We have a key role here in the development of the operating model to make sure there is total alignment and a synergistic fit with our strategic intent and business plans,” she muses.

But the meat and drink of the project will be the replacement of the core technology. In terms of minimising disruption as the old systems are replaced, Mc Evilly explains that the migration plan calls for a roll-out in well-managed phases, delivering wins along the way. “We’re not waiting three and a half years to get results out of this,” she states. The project will progress incrementally incorporating individual products and functions along the way.

It remains a complex execution though. “There are some systems we will be closing fairly quickly,” she suggests, “whereas some such as the branch-accounting system, can’t close until we have the last piece of migration done, so there will be some dual-running there for a period of time.”

For the systems that are being migrated in one piece – such as the retail deposit system – the dual running of systems will be very short, and this presents a challenge in ensuring they are correctly set up. Mc Evilly is confident a smooth transition will take place: “We are ensuring the highest quality in terms of significant testing being done before we move from the old to the new, and we have communications and training plans for each move.”

Of course, come 2010 there will be a point when all the new core systems will be in place, and those underlying systems will be switched off for the last time. It should be an interesting day? “It will certainly be that alright,” she acknowledges wryly, “but I think we’ll be well prepared for it”.

Service oriented architecture
With such a big project, with so much riding on it, the technology and vendor choice could be critical to the successful implementation, and the bank’s future prospects. AIB has chosen to go with Indian operator I-flex, which offers a solution based on a service oriented architecture approach. Why did it plump with this particular solution?

Mc Evilly points to AIB’s experience on the wholesale side of its operations, and its positive experience with the vendor then. “We had the benefit and hindsight of the UBS experience (our wholesale product). While we’re still in the early stages of implementing that, we have a very good working relationship with them [I-flex].”

Of course such a momentous decision wasn’t just taken on the basis of a friendly working relationship. “In terms of the solution itself it is modular based, and designed very much for high levels of flexibility, and very customer-centric.” This brings us back to the strategic business case that the project is pinned on – the technology being chosen to support that drive towards a better customer proposition and the development of a platform for growth.

“We chose the technology as we wanted flexibility and speed to market; we wanted customer-centric processes in place as a result of this; and we wanted to ensure compliant processes,” Mc Evilly explains. “These were the kind of decisions for us; we had to meet our critical need for high levels of agility, so that’s where we’re playing.”

Future growth
Speed to market and customer-centricity are desirable for any business. But its perhaps the final part of the value proposition this project promises to deliver that explains why AIB finally took the leap – efficiency. “The whole business of simplification, standardisation, and automation of our end-to-end processes will support us in an efficient way.” This is important as it gives AIB the kind of growth platform it feels it needs going forward: “As our business continues to grow we will be able to ensure that our operational cost per unit won’t continue to grow at the same rate, we’ll be able to create efficiency, so that’s key for us,” Mc Evilly explains.

So what kind of growth is AIB shooting for? “We’ll be looking at both organic and inorganic growth, so yes we’ll be looking to grow where we are, but if other opportunities present themselves in the marketplace, we want to be able to capitalise on that with speed if we choose to do so.” Mc Evilly acknowledges that it is getting harder to see growth opportunities, but in a sense this makes the agility the new banking platform gives AIB even more important. “When they appear, we want be able to respond very quickly to those market opportunities. This new flexible core will give us the light-footedness to do this,” she argues.

It’s the customer-centric strategy that AIB is really looking to drive the organic growth it is looking at. Earlier we have talked about developing innovative customer-centric propositions, but what in practice might these look like? “Our intention is to continue to develop innovative propositions, very much customised to meet the needs of our customers.”

When pressed further, Mc Evilly is coy about how these propositions on how these innovations will translate into product. “We’ll be keeping new products under wraps until they’re ready to launch, but we’re certainly looking at our options now and considering those. For competitive reasons I wouldn’t like to disclose those now,” she explains. But she is less shy when outlining the philosophy behind the development of these propositions.

“What I will tell you is that we’ve done a lot of customer research in different segments, and we have mapped out what we see as the current and emerging needs of customers. Our intention now is to develop packages and propositions to meet those needs, and in the eyes of our customers they’ll deliver superior value.”

Final thoughts
Mc Evilly’s enthusiasm for the project is infectious, and as we reach the end of our time, we ask for her final thoughts on what the project will deliver. It’s an upbeat message. “I believe this is a critical step in our ability to compete successfully in the market. The new operating model will give us competitive advantage from the point of view of differentiation with the customers. We will have simplified the way we operate internally. We will have speed and flexibility. We’ll be much more agile. And we’ll be operating more efficiently, which in turn will give us leverage to pass on more benefits to customers and to develop our business further. . So we’ll be positioned to grow and capitalise on market opportunities fully, and that’s really what I see as the hallmark of success for this. It’s absolutely central to our strategy going forward.” It only remains for FST to wish AIB good luck with its transformation, and promise to call in 2010 for an update. Watch this space.