Leading Canadian bank jettisons legacy systems to gain agility

Why would ATB Financial – the largest Alberta-based financial institution – in one fell swoop, rip out core banking systems it used for more than three decades?

And then why would it replace these with an applications suite from a software vendor with whom it had never done business before?

ATB Financial executive Ken Casey says there were several compelling reasons why his bank opted for SAP’s suite of enterprise software.

Casey was speaking an the Canadian media and analyst event held at Sapphire 2008, SAP AG’s annual conference currently on in Orlando.

Formerly the CIO of ATB Financial, Casey now has an unusual title: vice-president, major initiatives.

He anticipates one major initiative will really occupy him for a long time to come – overseeing the bank’s mammoth SAP rollout, and ensuring it delivers anticipated business benefits.

What was the overriding reason for this unprecedented program at ATB Financial?

Casey sums up it up with a single word: agility.

“We’ve [focused on] retail for most of our history. But as we moved into [other areas] – commercial oil and gas, and wealth management – we experienced challenges with our legacy systems.”

The greatest challenge was around being nimble enough to react quickly to changing customer needs.

More than 660,000 personal and business customers avail of ATB Financial’s ever increasing range of services – including retail and corporate banking, wealth management and mortgage services.

With the growth in its product offerings, Casey said, there was also a growing demand for personalized service.

And while ATB recruited the brightest and best in its attempt to respond to this demand, it soon realized this was not enough.

“While we hired the smartest people, the tools they had didn’t empower them to do what we asked them to.”

The bank, he said, just couldn’t respond to new and daunting business challenges with legacy systems created in the 70s.

It wasn’t that this technology was flawed. “In fact it was very good for what it was built for,” Casey noted. “For instance, it offered us a bullet proof transaction process.”

But systems developed in a previous era, just couldn’t cope with the needs of ATB’s rapidly expanding business, and an increasingly fastidious customer base.   

For instance, the bank sought to enhance its customers’ experience by providing greater choice, better processing of applications, and products targeted at specific demographics.

But it encountered a major hurdle.

The core legacy systems were hopelessly ill equipped to support all this, and the cost and effort to build around them was a huge challenge.

Casey said the bank realized patchwork remedies weren’t the real answer – and over the past two years has dedicated itself to looking for a core replacement.

“We brought in consultants, and did studies ourselves.”

ATB looked at the broad spectrum of banking systems available. “We were fairly confident there was something out there for us.”

The first RFP went out in September 2006.

It listed all of the functional requirements required from the new system – around 2,800 of them!

From those who responded, ATB began filtering down the applicants. “We shortlisted ten vendors,” recalls Casey. “Then whittled the list down to five, to three, to two – and finally we’ve been working with SAP for the past couple of months getting the project off the ground.”

This wasn’t any run-of-the-mill contract. ATB Financial bought pretty much the entire SAP business applications suite.

It also selected SAP for Banking, the SAP software portfolio that supports a range of business activities associated with efficiently running a banking organization – including operations management, bank management and human capital management.

“It’s a big one for us,” acknowledges Casey. “After all we’re looking at taking out and replacing the entire legacy banking system in one shot.”

He said ATB will use the SAP for Banking application to support a broad range of services including deposits, loans, payments, and business partner transactions. 

While the rollout has only just begun, Casey is confident that anticipated benefits will be realized very soon. And he can describe them very precisely. They include:

The end game

Flexible product development 

Much like other banks of its size, ATB’s revenue, for years, depended upon “spread income” – the difference between its deposits and loans.

But its business challenges are also similar to those experienced by other banks. As Casey puts it, “We’re challenged in our deposit gap. It’s easy to put loans on the books, but trying to keep deposits up is difficult in this fast growing economy with all the competition.”

For this reason, he said, new product development is crucial to ATB’s growth.

“We need to create many segmented products that fit certain demographics – and do it quickly, for less cost.”

The idea, he said, is to target different constituencies – to reach out to rural customers, city customers, as well as our commercial and small businesses with different sets of products.

SAP’s apps – along with a services oriented architecture (SOA) strategy – will support such flexible product development.

“We are very comfortable with SAP’s SOA architecture,” Casey said.

While SAP’s chief competitor in the business applications space – Oracle Corp – has also adopted a SOA strategy, at least one analyst believes there’s a vital difference between the SOA functionality available in Oracle and SAP apps.

“The main difference is that in SAP the functionality exists largely within the core of the suite itself,” noted Joshua Greenbaum, principal with Enterprise Applications Consulting in Berkeley, Calif.

By contrast, he said, Oracle’s high-end financial SOA support is provided via an application from i-flex Solutions – one of Oracle’s acquisitions.

“If you want to marry that to a high-end CRM solution that’s a Siebel solution and then if you want to link to the back office that may be E-Business Suite. So now you have three different products, three different data models – and the job of Fusion middleware is to integrate all of that.”

This, Greenbaum noted, is a very different from integration available at the core.

Cost reduction

ATB Financial is confident its IT costs will decrease significantly – partly because of the sharp reduction it anticipates in back office systems.

An initial backoffice reduction of 25 per cent is being projected, said Casey. “And that will happen by simply pushing many of the processes forward so our frontline people can complete them, bring a customer experience to an end, and ensures customers go out of the door with the product they came in to buy.”

Risk reduction

By reducing points of failure, it’s expected the new system will also minimize service disruptions.

It’s also expected to support better regulatory reporting, anti-money laundering and enhanced compliance.

And he predicts these “hard benefits” will translate into other less tangible – but nevertheless critical – advantages.

“While when we did our business case we needed to prove hard value, the softer benefits – such as increased capacity, employee engagement and customer satisfaction are also vital.”

Reducing back office costs

Just the ability to have a more efficient database, less middleware, fewer integration points that need to be done and maintained – makes it less expensive.

SAP’s strategy for enhancement packages – which is their upgrade – also works very well towards lowering cost of ownership. And clearly, the ability to take advantage of SOA and business process modelling to create and maintain new functionality and services is a more cost effective way than doing it in COBOL.

Having a SOA model based environment allows a bank to have a very efficient process – both for the creation and ungoing maintenance of a service.

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Jim Love, Chief Content Officer, IT World Canada

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