Erste CIO uses outside knowledge to lead bank's innovation

Christian Gosch, CIO of Erste Bank, only ended up in banking because he wanted a job that would place emphasis on enterprise architecture and, at the time he entered the business, banks were becoming interested in this concept.

Twenty years on, and Mr Gosch has kept this ideal, pulling Erste Bank through the first phase of an extensive upgrade to core banking solutions across its central and eastern Europe (CEE) markets at a time when its underperforming Hungarian operations and a goodwill write-off in Romania have dragged down group earnings to a net loss of €718.9m at the end of 2011.

The bank's return on assets is still declining in some of its core markets, such as Croatia and the Czech Republic, but it has returned to profit with a net gain of €453.6m in the first half of 2012.

Standardisation agenda

In these stressed times, Mr Gosch continues to lead Erste Bank’s progress in standardising its back-end systems across its entire European network to optimise the bank’s operating model. His experience from working in different markets, including Turkey, the UK, the US, and, of course Austria, has helped him maintain a focus.

“We live in tough market conditions. But this makes innovation possible. This is the benefit from all the markets I have worked in, and which we can apply to others in our network,” he says.

“You have to walk the walk and remember that focusing on the end-user helps you understand the real problems in systems. Banks could learn a lot from customer-centric financial systems. They have usually built their systems the way they understand it, not the way customers understand it,” he says.

The modernisation of Erste’s core banking system sits in line with the so-called common service-oriented architecture framework established by the Banking Industry Architecture Network, a non-profit community that consists of banks, software providers and system integrators that identify common IT requirements to enable the execution of faster and more efficient IT system upgrades.

The bank has stuck with SunGard to provide the core banking technology, Ambit, for the upgrade. Erste is already using SunGard's systems in the Czech Republic, Hungary, Slovakia and Ukraine. The first phase of the upgrade has just finished in Slovakia and is close to going live in Hungary, says Mr Gosch. Other pilots will go live in May 2013 and subsidiaries will see the full upgrade probably in 2015, he adds.

“But we do not have a pressing need for this right now, so we can adjust implementation plans according to individual business needs, which makes the evolutionary upgrade easier," says Mr Gosch. 

Evolutionary upgrade

As with the rest of the industry, innovation, regulatory compliance and optimised operating models are key priorities for Mr Gosch. “Behind these priorities is one big plan,” he points out. “Our aim is not to unify all core banking systems, but to unify them in clusters. This is not a core banking replacement project, but instead we are having an evolutionary upgrade, which will be minimally invasive for our different businesses,” he says.

Erste’s retail and small and medium enterprise segments are run differently from country to country as market requirements vary, but the bank also has a number of standards in performance and risk management that apply to the whole group, such as in the group markets division that looks after large corporates, says Mr Gosch.

“Our subsidiaries in the different CEE markets do have quite different requirements. Aligning that into a group-wide strategy and making sure we are still responsive to the individual business needs is a really complicated part of my job,” he says. 

In comparison, the alignment of the individual data centres is relatively easy, he adds, and now almost 75% of all infrastructure in data centres has been consolidated. 

“We have identified best practices by country and have built excellence centres in those countries that are ahead of the others. These excellence centres educate and help the banks in other markets to establish services based on their own market needs. We have, for instance, best practices on [customer relationship management], internet banking and mobile banking,” says Mr Gosch. 

Fresh ideas, fresh people

There is plenty of opportunity for banks to learn from non-banks, argues Mr Gosch. One such case is Erste’s partnership with a start-up in Austria. Together, they created an app called Impulssparen (saving by impulse). Users can set a savings target and when they look at items they would like to buy, they can save the price of the item in their savings account and even post it on Facebook.

“There is also a threat for banks, but we are actively partnering with non-bank start-ups in our region. We are trying to bring them closer to the bank. I like to get in fresh ideas with fresh people who do not have a banking background who can help us with innovation and more customer-centricity. We have benefited from these cross-industry partnerships,” says Mr Gosch.