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.
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.
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