In the world of finance, it’s the closest thing to open-heart surgery on an aging patient: replacing a core IT system, extended and painstakingly tweaked over many decades, with completely new software, hardware and processes. For bank directors, it can cause sleepless nights. But faced with increased competition, lower margins, and failure-prone antiquated systems, more and more banks are replacing legacy systems with more flexible and modular standard solutions. And for some it appears to be paying off.
A good example is Nationwide Building Society, which is the world’s largest building society, as well as the second-largest savings provider and third-largest mortgage provider in the UK. Building societies (similar to credit unions in the U.S.) are financial institutions owned entirely by their members that provide banking and other financial services.
The goals: new products, a larger market share
Nationwide’s aim was to achieve a 10% share of the UK market for main personal checking accounts by 2015 (from 6.2% in 2011) while continuing to build on its existing savings base of some six million customers. The legacy systems at Nationwide were designed with branch banking in mind, and extending them to mobile, tablet, phone and internet banking had turned out to be a practical impossibility. To reach its goal, the society needed to break away from the traditional in-house software development model to launch a new range of flexible products.
It therefore embarked on a five-year core banking transformation program, resulting in the first UK implementation of SAP’s Transactional Banking package. Nationwide formed a close partnership with IBM Global Business Services to help architect and manage the project, with SAP Consulting Services and Axxiome for consultancy and skilled SAP technical resources.
SAP and IBM: joint expertise in banking
IBM and SAP are partnering to deliver core banking transformation, multichannel transformation, internet & mobile banking, and analytical banking to joint customers. “IBM and SAP’s strong partnership, with a focus on banking as a strategic industry, combines our joint banking expertise to help banks worldwide with their transformation programs, making their businesses more flexible and efficient,” said Simon Paris, SAP’s global head of Financial Services. The focus of the collaboration is reflected in the new demo capabilities at the IBM Client Center at La Gaude, France
The first step was to set out the business requirements around long-term strategy, growth, service, and banking capabilities. At a total investment cost of more than £500 million, this was a decision that required total confidence in the program outcome along with buy-in from all key stakeholders, including partners.
Next page: The benefits of the transformation
“Nationwide wanted the security and commitment of a partner that is committed to the sector and offers a long-term strategy,” said Richard Heeley, Nationwide’s program director for the transformation project. “In software terms, we wanted a real-time platform that we could buy, not build, and that was in production in other banks, all of which led us to SAP.”
Three benefits: new products, competitive prices, and flexibility
“SAP is at the heart of our core banking transformation,” said Heeley. He named the three main benefits of the transformation: getting new products to market, offering customers competitive pricing, and flexibility. “Nationwide aspires to maintain its No. 1 position in customer service in the UK, and we’re going to use SAP banking platform to help us do that,” Heeley added. “The product runs out of the box,” he continues. “All we have to do is the customization to meet the customers’ needs.
Nationwide relied on the SAP Services organization to bring expertise for the solution itself, in tandem with the SAP Active Global Support organization. The SAP team ensured that the solution would function to its maximum performance, fully integrated with legacy systems. Nationwide employed SAP Custom Development to specify and deploy the web services component that enabled the Society’s back-office team to manage the SAP solution.
The SAP Transactional Banking package offers integrated, multi-channel banking services able to deliver flexible product development and rapid launch with streamlined processes. These are key issues for Nationwide, which launched two new current accounts in six months. “In terms of service, in addition to the existing FlexAccount, customers now have the opportunity to buy the pure online and telephone FlexDirect account, which is designed to become the UK’s number one credit-interest current account.” Nationwide also offers the added-value FlexPlus account, which includes insurance services.
New products mean SAP program “will pay for itself”
“We could not have been more pleased in terms of delivery,” says Heeley. “The SAP Core Banking package gives us the ability to meet new market conditions and changes, but also initiate new products ourselves. This program will pay for itself.”
“As more of our customers are transferred to the new system, Nationwide will become more SAP-centric,” he adds. “This will allow us to accelerate our use of analytics to tailor our services more closely to the customers’ needs.”