Banco Santander, the euro zone's
biggest bank, has been on an acquisition spree over the past five
years, helped by a powerful and flexible core banking
system.
The Spanish bank, which
bought Abbey for £9.5bn in October 2004, has also agreed to buy
UK firms
Alliance & Leicester and
Bradford & Bingley.
IT has been at the heart of the Spanish bank's acquisition
strategy, with Santander using its own core banking system,
Partenon, to consolidate its systems and run the businesses of
acquired banks.
The integration of bank IT systems after a merger or takeover is
always a tricky project, given the millions of customer records
involved and the potential for customer service to be disrupted. If
the IT switch over hits a problem, the reputation of the bank can
be damaged. Santander's use of an inhouse core banking system as a
global system raises the stakes even further.
Advanced banking technology
Partenon, Banco Santander's core banking system, is seen by
analysts as one of the
most advanced IT systems in the industry.
The database, which has been developed in-house and runs on IBM
middleware, Banksphere, provides the bank with a single view on
each customer, across various business lines, such as mortgage,
credit card and insurance. Because all of a customer's
relationships with the banks are automatically linked, and can be
viewed immediately by bank employees, it is easier to cross-sell
services to customers.
Carol Wheatcroft, an analyst at Tower Group, a research company
specialising in the financial services industry, says Partenon is
"probably the best of breed" due to its speed and ability to take
the strain off of back office IT systems.
Another key advantage of Santander is its flexibility. It can
adapt to different banking businesses, in different countries,
relatively easily.
"[Banco Santander] can be confident that it can strip out a lot
of cost in a banking acquisition because it is proven and it has a
lot of faith in it,' says Wheatcroft. "It gives Santander the
confidence to go anywhere in the world and it has the experience of
any problems it is likely to run into [when using Partenon to run
an acquired company].
"You can admire Santander for its perseverance to put [Partenon]
into a different country and language. You have to reassure people
and you are probably
making people redundant on both sides."
Reliable system not without risks
But Santander's reliance on a single IT system does have risks,
particularly for overseas acquisitions where banks will have
different business processes and markets have different rules.
In November 2007, Abbey customers had their
services disrupted when staff struggled to cope with new ways
of working on the Santander system.
Chris Skinner, chief executive of Balatro, a financial services
think tank, says, "When Santander bought Abbey, [Partenon] was
built for the Spanish market so it was not really suited to the UK
market. Partenon had to be adapted to at the same time as migrating
Abbey to a new core system. A combination of the two caused quite a
few difficulties."
Santander has lots more big systems to integrate following its
acquisition last year of Alliance & Leicester for £1.3bn and
Bradford & Bingley for £612m. Santander has said it hopes to
make efficiency savings of up to £50m for Alliance & Leicester
by integrating computer systems at the bank with Partenon.
Before the Santander deal, Alliance & Leicester had been in
the process of moving to Accenture's Alnova banking platform.
Alnova was intended to replace the systems used by Alliance &
Leicester for current and savings account customers and loans and
commercial banking business.
Skinner says that the IT integration of Alliance & Leicester
and Bradford & Bingley should go more smoothly as Santander can
learn from the problems it faced during the Abbey integration.
Partenon helps drive Abbey integration
Santander says it is on track to hit its target of £300m in cost
savings through the integration of Abbey's business onto the
Partenon database, although it declines to give a date for when it
expects the project to be completed.
The IT project has involved moving all customer records onto a
single database, reducing the total number from 52 million to 20
million. In addition, Abbey has moved 10 million savings accounts,
four million current accounts and eight million accounts to
Partenon. The branch communications network has been renewed, a
back-up datacentre infrastructure has been created, and staff have
learned to use the new IT system through face-to-face training and
e-learning.
An Abbey spokesman says it expects to complete the migration of
Bradford & Bingley systems onto Partenon by the summer.
"To continue growing our business and enable further investment
in frontline services and branches, we will be transferring
Bradford & Bingley's operations and then Alliance &
Leicester's onto Santander's proprietary IT platform, Partenon, as
well as removing duplicated back office and support functions
across the businesses. This process is underway for Bradford &
Bingley," he says.
Platform migration, RBS and NatWest
When Royal Bank of Scotland took over NatWest bank in 2000, it
faced one of the biggest business integration projects ever
attempted in UK banking. The aim was to boost revenues and customer
service within the NatWest business.
When the takeover was announced, RBS told shareholders that the
takeover would create annual gains of £1.2bn through increased
revenue and cost savings.
One of the key areas for savings was IT. RBS targeted £350m in
savings over the first three years of the merger through the
integration of the two banks' IT platforms.
RBS's IT system was chosen as the main system for the merged
banks. Speaking at a conference in 2000, Mark Fisher, then chief
executive of RBS's manufacturing division, said company directors
needed to make an early decision on one company's IT infrastructure
as the backbone for the merged company, and be prepared to scrap
most of the other company's IT systems.
"The conventional wisdom is that you should go through process
by process and see which is better. But if you do this you are
taking different pieces of a jigsaw which do not fit together,"
said Fisher, who is now director of group IT and operations at
Lloyds TSB and overseeing the integration of acquired HBOS
bank.
The creation of a new banking infrastructure for RBS and NatWest
involved some huge projects, such as testing billions of customer
accounts and billions of pounds of customer funds to be correctly
migrated and reconciled, as well as allowing the bank to run as
normal while the data migration was occurring.
By November 2002, the bank announced the completion of the
integration of the NatWest customer base onto the RBS Group IT
platform. IT savings of £400m from the integration beat the
original target. Speaking at the time, Fred Goodwin, who was then
group chief executive of RBS, praised the project.
"When we acquired NatWest in March 2000, many doubted whether we
could migrate a customer base three times the size of The Royal
Bank of Scotland onto a single group technology platform. While the
scale and complexity of the challenge was without obvious
precedent, I had every confidence that our people would deliver -
they have done so and completed the task well ahead of schedule,"
he said.
Global banking software
Banking software is going global, according to Forrester
Research, with leading suppliers selling their product in six or
seven regions of the world. The trend should make international
acquisitions easier to integrate for banks' IT departments.
And despite the banking crisis and global economic downturn, the
research company says many banks are still looking to update their
IT systems.
'[IT] renewal efforts may even help banks better position
themselves for the crisis and the time after," says the Forrester
research into global banking platforms.
Forrester ranked banking software according to criteria,
including functionality, "agility" and the supplier's strategy.
Suppliers ranked in the "leader" category were Infosys
Technologies (whose Finacle banking software includes customer
relationship management, consumer banking and wealth management
modules), TCS Financial Solutions (product: TCS BaNCS) and Temenos
(product: T24).
Infosys' Finacle scores highly on banking platform functionality
and strategy, while TCS was praised for its overall performance.
Temenos' banking platform scored well on regulation and corporate
strategy.
Oracle and SAP banking platforms were judged "strong performers"
by Forrester. The research company said Oracle scored well on
corporate strategy and installed base, and praised SAP's potential
to adapt to service-orientated architecture technology.
Photo: Sipa Press/Rex Features