Post - Y2K - What Now for Technology?   Bryan O'Connell specialises in providing strategic and marketing consultancy services to banks and financial service providers. He has more than 18 years experience in the industry both as a banking lawyer and strategic consultant.He has worked and acted for a wide range of banks, non bank financial institutions and corporations involved in the financial services industry.

Benefits of Y2K 

Of course the banks' information technology focus for much of the 1990s was not solely on Y2K problems, and there has been various direct and indirect benefits arising from the exhausting and painstaking technical Y2K work.  

The head of information technology at National Australia Bank, Michael Coomer, noted that the extensive Y2K reviews by the banks actually improved the overall system.  

"(The) IT platform within the (National's) banking system has been replenished and is now much stronger than it was before,'' Coomer said.  

''We now have code' that is relatively new, and what is even better is that it has given us the opportunity to sift through a number of applications that, by banking standards, were out of date. These have been upgraded or replenished."  

By way of analogy, Coomer suggests the National's overhaul might be compared to the recovery of a patient who undergoes a quadruple heart bypass operation and ends up with a heart of a 20 year old.  

Preparing for the E-Commerce Environment 

Technology has taken centre stage as the key driver of change and competitive advantage within the banking and financial services industry. On top of the benefits arising from the Y2K overhaul, banks are accelerating their technical activity to get ready for new e-commerce environment.  

Some are taking bold and large-scale decisions to go forward. For example, the National's in late October revealed it would link up with Concert, the global venture between two of the world's largest telecommunications groups, the US-based AT&T and British Telecom.  

The National will be one of the first companies to pilot a range of web-based applications which will be developed by Concert, and it will receive other global services and customer support from Concert. 

Concert is developing web-based applications that would provide the National's customers with products and services to support e-business and e-commerce solutions. 

Michael Coomer says the National's aim is to build an Internet-based network and evolve its Intranets and extranets in conjunction with Concert.  

The National intends Concert to become the backbone of the bank's IT network, and it will want the arrangement to provide various applications that must be rewritten in conjunction with other partners of the bank.  

Concert will provide the bank with a lot of "Internet savvy", Coomer said. ''Concert will teach the bank how to do business on the Internet at a much more rapid rate and also in the Intranet space for the bank's employees and customers."  

There's no doubt most banks want to build new Internet banking software services for their retail operations. Many have already begun to implement new software applications across their business units and operations to help improve efficiencies, cut costs, and provide a platform for e-commerce.  

Westpac, for example, last year introduced an online web-based trade finance system for its customers, known as Impex. ANZ Bank and the National have introduced foreign exchange online trading systems which are web-based. 

Still, a major focus and challenge for the IT specialists is how banks might create a more customer-oriented view so help them respond to changing customer conditions. 

This is partly what is known as Customer Relationship Management (CRM), where the aim of banks is to harness customer data and present it in a meaningful and consistent form. That would help the bank better understand its customers' needs, and make bank sales staff more effective in their cross-selling efforts. 

Problems and Challenges 

Post Y2K, there remain a number of problems and significant challenges facing the banks.  

IBM's Michael Aaron believes that with the passing of Y2K, the major issue might be meeting the immediate demands of customers.  

''... As you move into the e-business environment, both from an internal and external point of view, you are in a real-time environment and all segments of the market, particularly customers, want real-time responses,'' Aaron said.  

"Why do I ( the customer) have to wait three days to get my cheque cleared? And why do I (the customer) have to wait to tomorrow to see the impact of the deposit that I have made today on the Internet?"  

In Aaron's view, the challenge facing the banking industry "is how they ( the banks) move to real-time processing, produce rapid product development, how they customise product engines and deliver them to the market."  

The problem, he said, is that the major banks have legacy core systems which cannot deliver these goals. The banks, he argues, are in a dilemma: ''Do we keep the current mainframe system going and build a system in parallel (and carry) all the associated costs of doing this?"  

Aaron believes there may be other solutions. 

For example, the banks could establish a new system for customers who bank directly and do not use the branches. The bank would be completely electronic and have its own core system. It would want to gradually migrate customers from the old bank to the new electronic bank. e.g.BankOne US has set up a "pseudo direct bank" through its separate Internet bank, WingspanBank. 

Another option would be to set up a new, separate subsidiary bank and effectively "kill the old bank over time", Aaron said. 

A third option is close to what the NAB is trying to create through Concert. This, Aaron believes, essentially means reverting to a bureau-style arrangement. Yet the system would be global, and web-based.  

Similar systems are being developed in the US. They are real-time based, and have rapid, product-development capabilities. But these applications, which are currently available from global software providers, are mainly intended for relatively small banks, and they do not have the capability to provide the same solutions for Australia's larger banks.  

Very few US banks have the branch networks and customer bases of Australia's big banks, Aaron noted. Bank of America and BankOne are obvious exceptions, but they face the same problem as the major Australian banks - how do they replace the existing, old, core systems without incurring massively duplicated costs.  

There are no immediate answers to these problems, and it will be interesting to see how banks and financial institutions resolve this major IT.  

E-mail: bryanoc@aibf.com.au