<updated to clarify this is for Kiwibank’s Core Banking System>
Fairfax Media report that Kiwibank is signing up to SAP as their “principal computer platform” provider for their core banking system. The core banking system runs the business of the bank – including real time transactions, interest calculations and payments., and it is unclear where the line is drawn between this and the other systems in the bank.
If the reports are true, then that’s arguably very problematic.
SAP, and I’ve been through a few cycles of SAP rollouts, is a vast, complex and barely usable system for managing complex businesses. It has a history of failure, but I also sense that much of the failure is unreported.
SAP and other ERP systems are sold, as I understand, on making it easy for the most senior managers to manage their sprawling businesses. But SAP and other systems like it generally make it very very difficult for the huge numbers of end users inside the company to actually do business. The recurring joke is that SAP promises to save tens of millions, costs hundreds of millions and causes billions of dollars in lost productivity and opportunity.
I can’t back that up, as I have never done a study on it, and I could never talk about anything I have seen, but I can refer to the AU$1.3 billion and six years that Commonwealth Bank reportedly spent on
upgrading <update – it was a new install for core banking, and they run Peoplesoft/Oracle for their ERP> their SAP system to be able to do live transactions and for compliance with new laws. Note that ASB, which CommBank owns, coded and delivered their own live transactions banking system themselves back in 1969 – and it still works. And also note that in September last year Tom Groenfeldt reported only two SAP core banking replacements – CommBank and Nationwide Building Society in the UK.
CommBank is huge, and arguably needed the complexity of something like SAP. While the project was a big risk, they were able to throw vast resources at it and no doubt customise it to better fit their business. It looks like they got away with it.
Moving to a system like SAP (or installing any large IT project) is a very risky endeavour, and generally means changing the way you do business. The waterfall-like approach to these projects means that requirements are set years before delivery, and the rigidity and complexity of software like SAP almost always means failure to deliver on promised costs or benefits.
For Kiwibank I worry that they are too small, with only 850,000 customers, and with little money to invest, they will have to use the out of the box solution. And to quote Groenfeldt on smaller banks “When they do a core replacement, they make a fundamental decision to adopt the structures and procedures defined in the vendor’s package with minimal customisation.“
So I worry not just that the cost of implementation will be high and the result may be poor, but that the very nature of what Kiwibank is will irreversibly change.
But then again I know very little about SAP for Banking, and I hope for their customer’s sake that I am wrong.
The ideal solution is, of course, for Kiwibank to wake up to the very strong local development talent, hire them in and give them true power and air cover to reinvent banking, piece by piece and digital-first. It’s that approach is good enough for the entire UK government, it’s good enough for a tiny antipodean retail bank.