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Alan Goodrich

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Alan Goodrich - Goodrich analytiX Ltd

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

EUR 33m to reinvent the wheel...

15 June 2009  |  4477 views  |  4

Arguably this is not a blog, as it has been too long since my last missive - perhaps on this occasion it should be categorized as a periodic rant in disbelief at human ability not to learn from others’ mistakes?

In this month’s issue of IBS Publishing (Issue 18.9, June 09) a lead article described a project at Caja Madrid, the fourth largest savings bank in Europe, to build a new core banking system from scratch.

The overall budget was set at EUR 33m in 2006, of which almost half was public money under an initiative of the Spanish Ministry of Industry, Commerce and Tourism.

The Spanish IT services firm, Indra, has reportedly reached a significant milestone in the project – the R&D phase is now at an end, with SOA and BPM-based development and execution architectures now in place. Written in Java, “this would be the first project carried out for a global banking system with this architecture”, says Raúl Torija, the programme director from Indra.

The report goes on – Via Caja Madrid, Indra expects to pick up references in Lisbon, Miami and Vienna as well as in Spain. According to Indra, Temenos’ T24 will be replaced at the former three sites.

Granted that, in 2006, there may not have been a whole host of modern core banking systems in the market that were genuinely built from scratch on new technology, whether Java/J2EE or .Net, but nevertheless there were a number of established vendors that had already embarked on such strategies and, 3 years down the road, surely would have got Caja Madrid somewhat further than the end of the R&D phase for a great deal less investment.

In 2005, it was reported that HSBC entered into an agreement under which the bank and Temenos would "combine their technology resources" to build HSBC's new international banking platform, based on the onward development of the Java version of Temenos CoreBanking.

Back in 2006, Fortis was reported to have recruited Temenos to build European retail banking platform.

– But what happened to those projects and at what cost?

This rant, sorry – blog, is not intended as Temenos bashing exercise – far from it!

In recent times, more than enough egg has been thrown in the face of bankers regarding their management of financial risks – BUT, the IBS Publishing article did incite me into throwing some eggs from a different angle... Why do the decision making powers at the highest levels within banks (at these kind of budget levels it must be the main Board, or very close), equally fail to manage IT risk?

"Well done" to Indra for convincing Caja Madrid and the Spanish Government to throw money at them, and equally to Temenos for convincing HSBC and Fortis to sign up, to reinvent the wheel.

But for the sake of all of us in the industry, will the next tier 1 bank – or any bank / financial services institution, for that matter – please please please check the market more thoroughly and do better due diligence before reinventing the wheel!

There are a number of vendors that have already invested over the past 4 or 5 years in building a brand new technology core banking system wheel that is in stock, on the shelf and ready to go – perhaps requiring some minor modifications, but essentially complete. And, if vendor risk is the issue for these financial institutions (which would be ironic given their perceived risk management track record in other areas), or a wish to have control over future development to achieve competitive advantage (perhaps a more valid reasoning), then I suspect these vendors are open to discussions regarding the inclusion of source code in the deal – especially if even a fraction of EUR 33m is put on the table!

Please, let us not read about another bank investing EUR 33m, or similar sum, of shareholders' money on reinventing the wheel!

TagsRetail banking

Comments: (4)

Paul Penrose
Paul Penrose - Finextra - London | 15 June, 2009, 17:19

Let the sorry saga of Dunfermline Building Society be a lesson to them all:

Failed Dunfermline lost millions on IT project

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Nick Collin
Nick Collin - Collin Consulting Ltd - London | 16 June, 2009, 10:44

Good rant Alan!  Why do banks keep making this mistake?  Well, corporate stupidity, obviously, but I think we can be a little more specific:

- Self-interest on the part of IT.  Clearly it is much more fun to develop a new state-of-the-art system than maintain someone else's - and it looks good on your CV.

- Lack of understanding of IT on the part of the main board.  Not detailed technical knowledge - just enough experience and guts to say No.

- Hubris on the part of everyone.  Both in terms of the "we're different from everyone else argument" (they're not), and the "we'll earn a fortune from selling the package to others" (they never do).

And it's not just banks - I've seen it happen in many industries.  I'm a little out of touch, but people used to write books about how to manage the IT function, and the recommendation was usually to make sure the IT director was on the main board - a little counter-intuitive, but it makes sense when you think about it.  My impression is that this is a lesson many banks have still not learnt.  Any comments?

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Nicholas Hacking
Nicholas Hacking - ERI Bancaire SA - Geneva | 16 June, 2009, 13:31

Alan,

How right you are! But not only at the very large, very public project level.

It really does seem that so often banks have people choosing IT projects, and indeed then running them, who have no idea of what is happening in the market.

Even if the bank employees don't have a view of what has happened and the large number of failed projects which are public knowledge, they could at least get some decent advise/advisors to help them.

 

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Clive Munn
Clive Munn - MFTSE Affairs S.A. - Luxembourg | 01 July, 2009, 11:33

To provide an alternative answer to Alan's plea: 'But for the sake of all of us in the industry, will the next financial services institution please check the market more thoroughly and do better due diligence before reinventing the wheel'

In my opinion, vendor risk is hardly likely to be the decision driver and, rather than a wish to achieve 'competitive advantage', perhaps it is simply a desire to be in better control of ones destiny.

Could it not, in fact, be more a question of job preservation & simply helping one and other? The provision of some common source code, perhaps through 'open source' might be a way forward in the new, less commercial (only a question of money) world. Rather than the next 'deal' should we not be thinking more about co-operation, how IT can help our institutions improve theirs and our world, not purely for the next big financial gain or personal bonus. After all, like it or not, many of the banks are now owned more by the people generally than just a few greedy rich individuals!!

Let’s not go back to the old ways already!

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