Technology Transformation as Strategic Competitive Advantage: Commonwealth Bank of Australia

• CBA begins final step of the transformation of its core banking system to the new SAP platform

• The entire project has taken five years, cost AUD 1.1 billion, involved more then 10 million accounts and over 4 million online customers

• CBA has reduced its IT expenditures by 3%, its Cost to Income Ratio by 46%, its retail costs by 31.8%

• Comprehensive technological innovation strategy with focus online and mobile banking

• Integration of Personal Finance Management tools, peer-to-peer payments, and Point of Sale services through additional cooperation with external partners

• CBA achieved merger readiness, Time-to-Market, and process efficiency

The Commonwealth Bank of Australia (CBA) is heading towards a successful conclusion of its core banking transformation. Aside from the parallels between this process and Deutsche Bank’s current Magellan project, it is CBA’s modernization strategy in regard to online and mobile channels that is of particular interest here. This strategy shows how established banks can use their technological flexibility and recently freed up resources to integrate innovative banking concepts into their own portfolio by cooperating with external parties.

In 2008, CBA initiated an extensive project to transform its core banking system and migrate it to the SAP banking services platform. The program was originally planned to last four years and had a budget of AUD 580 million, but this amount was increased by another AUD 150 million in 2009 in order to integrate CBA’s subsidiaries Auckland Savings Bank and Bankwest into the project.

At the beginning of 2011, an important milestone was reached when 10 million accounts, with a total worth of AUD 100 billion, were transferred to the new platform. At the same time, the program was extended for yet another year due to the complexity of the project, and the expenditures were increased to a total of AUD 1.1 billion. In addition, CBA implemented new functions, such as immediate opening of accounts and the option of directly switching between products. All checking account functions were transferred during 2011, and since mid-August of this year, the majority of corporate customers’ deposits and accounts have been migrated to the new platform as well.

Deutsche Bank is on a similar course with its Magellan project. At the beginning of July, the bank announced that it had reached a first milestone by migrating 5 million savings accounts to the new SAP platform. The project is due to be completed by 2015 and, with an investment sum of nearly EUR 1 billion, this program is of similar scope as that of CBA. Just like CBA, Deutsche Bank is attempting to replace 40-year-old technologies with an integrated platform.

However, the set-up and development of the two financial institutes is very different, as becomes clear from key figures. The Cost to Income Ratio (CIR) of CBA amounted to 46% at the close of the fiscal year that ended in June, meaning it rose by 0.5%. By contrast, Deutsche Bank achieved a CIR of 69%, but was able to reduce it by 4%. And while Deutsche Bank is counting on creating cost synergies to the tune of EUR 200 million for 2012 alone through the Magellan project, CBA was able to reduce its IT expenditures by virtually AUD 35.8 million during the past fiscal year.

Beyond cost reduction and profit increase, what is notable is the way in which CBA has embedded its core banking transformation in a comprehensive modernization program. For example, since March 2011, CBA has been working together with external providers in order to offer its customers extensive Personal Finance Management functions ranging from real-time analyses to monitoring household expenditures to controlling budgets.

In October 2011, CBA will launch its smartphone app “Kaching”, first for iOS and later for Android devices. With this app, customers will be able to conduct payments to telephone numbers, email addresses and Facebook accounts. The app is a key step in connecting online and mobile payments by enabling customers to carry out peer-to-peer payments with their smartphones in order to transfer money. Furthermore, together with a chassis for the smartphone, the app makes it possible to conduct payments via Near Field Communication (NFC). So far, Kaching has been downloaded over 400,000 times and more than AUD 1 billion have been processed using it. For 2012, CBA is planning to introduce a Facebook app that will enable users to complete all of their banking within their Facebook accounts.

CBA presented its latest project in mid-July 2012. In cooperation with Wincor Nixdorf and Ideo, an international design and innovation consulting company, the bank developed “Albert“ and “CommBank Pi”. “Albert” is a terminal and cashier system that turns Android-based tablets into a Point of Sale. This program is complemented by “Pi”, an open interface for developers that allows them to add to and expand “Albert”, such as with loyalty programs or individual client requirements.

CBA’s core banking transformation makes an essential contribution to all of the innovative developments that CBA has initiated within the framework of its modernization program. According to CBA, its head start in comparison with its competititors currently amounts to about three to five years’ worth of development, and is particularly due to the productivity increase linked to the new platform. This increase is noticeable in the reduced Time-to-Market from months to days, the multichannel capibility throughout its products, the passing on of real-time processes in the core to customers, and the ability to cooperate with external partners in various constellations within white label programs and to use IT as a tool.

CBA has understood how to use technological transformation to enable comprehensive modernization in order to develop into one of the most innovative financial institutes among established banks.

Commonwealth Bank of Australia – Business figures, core banking transformation
http://www.commbank.com.au/about-us/news/media-releases/2012/120815-commonwealth-bank-of-australia-delivers-a-good-result-in-an-uncertain-environment.aspx
http://www.finextra.com/News/Fullstory.aspx?newsitemid=23982
http://www.commbank.com.au/about-us/news/media-releases/2011/090211-commonwealth-bank-continues-to-invest-for-the-future.aspx
http://www.finextra.com/News/fullstory.aspx?newsitemid=22257

CBA – Albert, Pi
http://www.commbank.com.au/about-us/news/media-releases/2012/120717-commonwealth-bank-to-revolutionise-the-point-of-sale-experience.aspx

CBA – Kaching
http://www.commbank.com.au/about-us/news/media-releases/2012/120705-commbank-kaching-gives-australians-more-ways-to-bank-on-more-smartphones.aspx

CBA – Personal Finance Management
http://www.finextra.com/News/fullstory.aspx?newsitemid=22360

Deutsche Bank
https://www.deutsche-bank.de/medien/de/content/3862_4172.htm
https://www.deutsche-bank.de/medien/de/downloads/Neske_Handelsblatttagung_final.pdf
http://coretechmonitor.com/deutsche-bank-erschliesst-mit-magellan-neue-geschaeftspotentiale/