Meet the architect

By Huw Thomas, Editor

José María Fuster, Group CIO of banking giant Grupo Santander, talks to FST about building a global infrastructure and technology’s relationship with business.

Quizzed on being named CIO of the Year 2007 by The Banker, José María Fuster acknowledges his pride in the recognition before quickly deflecting attention to other achievements. “The year before, The Banker granted Santander the Core Banking Systems Innovation award for our new core banking system Partenon,” he says. “The awards highlight the importance that Santander gives to technology. At the same time they reflect the reputation we have gained in the industry and the excellent work our team has done in building an state-of-the-art technology in the banking industry.” It’s a fairly typical response from a man whose eyes are firmly focused on the big picture.

Managing a technology infrastructure like Santander’s requires just such a global view. As the biggest financial group in the eurozone and the seventh in the world in terms of market capitalisation, Santander presents a daunting technological challenge. It is fortunate that in Fuster the organisation have a CIO of impressive pedigree. With both an MBA and an engineering degree, he understands better than most the relationship between business imperatives and IT innovation. In a career that has seen him take positions at Citi, Natwest and Banesto, he has built a reputation among his peers as one of the most capable CIOs in the business.

Though the group’s roots are in Spain and its core market is in Europe, it has a strong presence across the world. This has been built through a number of acquisitions in the last few years. The takeover of UK bank Abbey in 2004 is just one example of this much wider strategy. “Business and geographical diversification is an opportunity to improve our technology with functionalities from different markets,” Fuster states. “It has helped our core banking system to become one of the most technically and functionally advanced in the industry. At the same time, the diversification also enhances best practices and product sharing.” Naturally, the opportunities presented by diversification go hand in hand with the challenges involved in realising them. Including essential regional functionalities in any new system while also keeping to the tight deadlines demanded by business objectives is a major concern for any bank set on geographical expansion. Fuster states that Santander overcame these hurdles by leveraging three relevant IT capabilities. “First of all, our multi-layer software architecture allows us to implement new functionalities with high levels of flexibility and reduced time-to-market,” he explains. “Second, our IT organization is structured around different units focused on building our multi-layer architecture and software components, which form a multidimensional puzzle easily interconnected and adaptable. Finally, deep in our DNA, we have strong capabilities for software implementation and change management.”

Fuster gives the example of the Abbey acquisition, claiming that technology was never a constraint through the decision making process. “On the contrary, we were very confident that Partenon would accelerate Abbey’s integration in the group,” he says. “At the same time, it generated synergies by transferring our deep expertise in commercializing financial products and services. In essence, we were exporting our way of doing banking.”

Central to this idea of spreading the group’s banking methods is its reliance on building its own technology. Doing so allows Santander to design and implement an architecture that better adapts to its need for flexibility and quick time to market. “It also permits us to really make technology a sustainable differentiator,” Fuster explains.” Protecting intellectual property is also an important factor, as the group’s model is included in all its core applications. Fuster further expresses the feeling that many ‘off the peg’ banking solutions are not quite fit for purpose. “I would say that packages for core retail banking are not yet matured,” he says. “At least for banks with the size and complexity that Santander has in most of its locations.”

This is not to say that there is no place in the group’s plans for technology that originates outside its walls. “We recognize the virtues of standard software for some specific functions or businesses,” Fuster continues. “The maturity of some industry standards such as SOA or XML is making the integration of commercial packages easier and more efficient than some years ago.” He goes on to describe the captive outsourcing model used to create and support certain elements of Santander’s technology assets. Here, corporate factories offer worldwide, specialised services to the bank in critical IT functions.

All this talk of technology brings us to a topic that seems to be a constant in IT circles: the changing role and responsibilities of the CIO.  We ask Fuster if he views his position as a technical one or as something more managerial. Characteristically, the response shows a clear understanding of the big picture: “Given the current relevance of technology not only in the optimization of business processes and cost control, but also in supporting an effective M&A strategy, a CIO should combine technical and managerial capabilities with a strong business vision.”

A common complaint of many IT professionals is the difficulty in communicating to management the value technology can bring to the enterprise. Happily, for both Fuster and the group, this is not the case here. He describes how the CIO is broadly recognized as a change agent who has to manage technology as a strategic function, a function that can bring competitive advantage and value centric business transformations. “At Santander, the relevant role of technology in supporting the company to achieve its strategic objectives is well understood by the Board,” Fuster says. “Its impact in helping to improve efficiency, increase revenues and transform business models and even industries is recognized.”

But Fuster freely admits that the position of CIO has changed in time with the march of technological progress. “It has evolved to match the relevance that technology is assuming in our businesses, becoming a key player in the company’s growth, risk and efficiency strategies with a global perspective. As a result, the CIO’s role has moved from a pure technical vision to technical-business vision.”

Asked about current priorities for financial CIOs, in a time when budgets are being squeezed and results are expected in ever-shorter timeframes, Fuster has some advice to give. “CIOs should try to think what is in the company’s top execution agenda, both now and in the future,” he says. “In the financial industry, this is quite important. IT professionals need to be conscious of not only what is critical today, but also what will be important tomorrow, from an inner and outer perspective.”

It’s impossible to conclude our conversation without exploring Fuster’s thoughts on the credit crisis rocking markets across the globe. How are this and other scandals such as the SocGen rogue trader affecting the industry? “Even though Santander has no exposure to the sub-prime mortgage issue, such events are clearly pushing up uncertainty in the financial market,” he says. “They are therefore causing a change in priorities of different players in the space and the industry as a whole.”  Fuster predicts that the there will be three major responses from financial markets.

First, banks’ agendas for 2008 will give a higher priority to credit and market risk management, cost control, collections capabilities and liquidity management. Also, operational risk management will be reinforced to avoid future scandals or pitfalls that jeopardize the reputation of the industry. Second, regulators will start pushing new legal frameworks to prevent or minimize future market crisis. They will request stricter internal business controls and the provision of more transparency to local and global markets. Finally, certain players will look for mergers as an alternative to exit the sub-prime and liquidity crisis. Others will try to take advantage of low valuations to keep on building a global franchise via selective acquisitions.

As befitting someone who has devoted his career to building bridges between technology and business, Fuster states that ongoing technological advances will be key in polishing up the industry’s tarnished image. “Confidence in financial institutions will be rebuilt based on new business approaches, new risk management paradigms, higher market transparency and increased internal business controls’” he explains. “None of this can be achieved without an extensive use of technology.”

Santander in numbers

Founded 1857
12,000 branches
131,819 employees
65 million customers
2.3 million shareholders
€9.06 billion profit in 2007

At Santander, technology has always been considered a competitive weapon. Both our vision of becoming the world’s most efficient global bank and our persistent customer focus have been the most relevant drivers for undertaking such an ambitious project to implement the Partenon and Alhambra systems.

Partenon is the core banking system that covers the whole company’s operating model, creating value through better control, quality and efficiency. Its architecture allows integrated, multi-channel customer management, short time-to-market and flexible product development, together with consistent management information. We include all our best practices in Partenon, so we transfer them every time we implement it in a new bank. Alhambra complements the Partenon core banking system with a flexible and easy to use front-end solution, focused on providing local banks with customised tools to increase commercial effectiveness, streamline customer services and improve the multi-channel end customers experience.

All in all, with both solutions, we have in our hands a very solid architecture which is helping us to optimize our end-to-end processes, from both a commercial and a cost centric point of view. They also allow us to export our way of doing banking to all our new franchises. Partenon and Alhambra have proved that it is possible to increase revenues and improve customer service, while contributing to continuing cost reduction objectives.

The Partenon and Alhambra projects are not only about technological development, they are also a transformation project. This has been the main challenge for us as we have been implementing a new architecture which had embedded a new business, organizational and operating model. In essence, it’s a new way of doing banking.

Payday: Santander and SEPA

I think that SEPA will bring several opportunities to the banking sector by developing a unique payments market in Europe, such as simpler cross border competition for customers in Europe, more efficiency in operations, and better opportunities to offer a more attractive value proposition to corporate customers. However, these opportunities will come along with other challenges, such as increased competition and price convergence. In such a context, banks will have to adapt their participation model in the processing market, since it will move from an atomized/local model to a more consolidated/cross border one. Banks will have to choose among direct, indirect through third party providers or integrated participation a Pan European Automated Clearing House (PEACH).

Since January 28 of this year, Santander has been technically prepared to issue and receive SEPA products with no problems. The difficulty now is not technical but of commercial nature. Our main challenge is to expand customer acceptance of these products by modifying our customer preferences and habits.

In cards, we do not expect to have problems with the migration to fulfil the 2011 deadline. In regards with transfers and direct debits, there is not an established end date for final migration yet. The industry has started to discuss about it. My opinion is that the sooner, the better but without causing any damage to the market. Setting a deadline helps to accelerate migration and transition period, however it’s important to prevent any problem to customers, banks and competitive rules.