Co-operative Financial Services's integration and change director tells The Banker how it is upgrading its core systems in the midst of a merger with Britannia Building Society.

Embarking on a complete core banking system replacement can be a risky business at the best of times, but doing so while simultaneously integrating an entire new business segment would surely be the stuff of nightmares for many a technologist.

It became a necessity for UK bank Co-operative Financial Services (CFS), however. The bank had already decided that it needed to update its decades-old banking systems, when, in 2009, it merged with Britannia Building Society. Neither integration with Britannia, nor the system replacement could be delayed, so CFS pressed on with both.

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“Going live with a new system and doing a migration at the same time doubles the risk,” says Phil Lee, CFS’s integration and change director. “The textbook says you shouldn’t do that, but the world isn’t always like a textbook.”

Mr Lee, who joined CFS with the rest of Britannia, describes the project as the biggest single change the bank has ever made. It is no small claim, but with £729m ($1.17bn) earmarked for a three-year programme stretching until the end of 2012, it is no small undertaking.

Taking stock

When the Britannia/CFS merger was approved, the newly formed group’s management took the opportunity to review both segments’ IT infrastructure and decide how best to merge CFS’s broad product range but narrow distribution with Britannia’s broader presence and more limited range of services. The decision was made to switch the entire business to a more customer-focused operating model, but that would not be possible with the existing systems.

“It required a significant shift in our tech capabilities,” says Mr Lee. “But given that CFS had already embarked on that path, it came together nicely. That was the genesis of what we’re doing now.”

The project involves a complete replacement of all core banking functions, from payments to teller functions. To achieve this, CFS elected to employ Infosys’s Finacle product, partly thanks to its extensive pedigree, says Mr Lee (it is currently used by banks in 73 countries). This has the added benefit of allowing CFS to profit from the experience of its peers, he adds.

“Because of the investment and intellect going into the product from all the other banks using it, with each release comes things which other people have thought of. It will enable us to move in the mobile banking space, for example, and keep up with the most modern users.”

UK first

As numerous as Finacle’s users are, CFS will be the first to employ it with UK clearing infrastructure. So part of the challenge has been to adapt the platform to the UK market, says Mr Lee. It is a sizeable job; at one point Infosys’s Bangalore offices had as many as 900 people working on product development to get the release ready for the bank.

The integration of Britannia’s operations is now nearly complete, with only distribution channels such as call centres, branches and the like still to be merged, before that can be completed. However, for that to happen the core systems must be in place.

To that end, things are “full steam ahead”, says Mr Lee, and the group is set for some large system deliveries over the coming year. By the time this issue has gone to press, the process of enabling Britannia branches to service current account offerings for CFS customers should have begun, a move that will boost the number of branches servicing CFS current accounts from 90 to 340. October should see legacy credit-card systems replaced, before embarking on a replacement of the entire payments system.

Staged roll-out

This staged approach has been crucial to managing the sizeable risks involved in such a complex project. “One of the options was to say to the board that in three years' time there would be a 'D-day' where everything would happen at once," says Mr Lee. "But the risks would have been quite high, so we carved it up into chunks which we are steadily delivering,”

By the same token, CFS is also in the process of building 'dual tellers' so customer-facing staff can access legacy and new systems at the same time, while the old components are switched off one by one as data is migrated.

There is still much to be done, however, and the project is not due for completion until 2012. Once everything is in place, the benefits will be numerous, says Mr Lee. CFS staff should benefit from a comprehensive single view of the customer and understand their entire relationship with the bank. Similarly, it should boost efficiency, removing parts of the system infrastructure that currently require rekeying data, for example.

The new system should also make it easier to take a new product from concept to market, a process that can be cumbersome on existing systems, says Mr Lee. “The challenge is always how to react fast enough to things happening in the market and how to do that cost effectively. The current systems are reliable and have been for many years, but things were more difficult [with them] and we think this infrastructure is going to give us a step change.”

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