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TWITTER ONSLAUGHT: CUA ramped up its call center and social media team to keep up with customer inquiries about the core upgrade. "We underestimated the impact of social media," says Sue Coulter, its general manager for business transformation.
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What U.S. Banks Can Learn from Credit Union Australia's Core Upgrade

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An Australian credit union has taken the plunge on a technology overhaul that could serve as a model for U.S. banks that have been reluctant to replace core systems.

Credit Union Australia, the country's largest credit union, recently spent $57 million — about 18 months' profits — and two and a half years replacing its core banking system with Tata Consultancy Services' Bancs platform.

The credit union needed to replace an aging legacy system with one that could scale as it grew and allow it to roll out new products and services quickly. Key to its decision to make the investment was that a new system would also enable it to offer risk-based pricing.

CUA's experience, the headwinds it faced — such as a barrage of negative reactions in social media — and its ultimate success could prove to be instructive for U.S. banks that have been holding off on replacing core systems due to concerns of regulatory scrutiny and the expense and disruption related to such a large and daunting project.

Still, many U.S. banks are using out-of-date core systems and if they don't upgrade eventually, they risk losing customers to more technologically advanced banks or even nonbanks that are offering bank-like products and services. The process is painful, but those that have invested in core replacements say that the payoff comes in the form of reduced risk and enhanced ability to innovate and quickly respond to customer demands.

Gordon Baird, the chief executive at Independence Bancshares in Greenville, S.C., says that banks still using old core systems are inhibited in their ability to offer the most up-to-date mobile banking features that customers are increasingly demanding.

"All the infrastructure that's been put in place in the last 20-30 years is not optimized for the mobile channel," Baird says. "It's optimized for bricks and mortar and all the controls and processing around bricks and mortar, which is the traditional banking model."

BBVA Compass, which recently completed its implementation of a new core system from Accenture, has seen benefits from the new technology already.

"The core platform benefits both customers and the bank," says Gabriel Sαnchez Iniesta, chief information officer for BBVA Compass. "For customers, real-time banking provides greater transparency of account information and therefore greater financial control. For BBVA Compass, the core platform allows us a foundation for our digital transformation — helping us to roll out all-digital accounts like NBA Banking, for example — and better meet our channel integration goals." 

The $10 billion-asset Credit Union Australia had a 20-year-old, home-grown program that had become out of date — only a half-dozen people even understood how it worked. Chief Executive Chris Whitehead called for an independent review of the system, which found it was becoming increasingly harder to maintain and support, that it would not be able to scale and accommodate new products as the institution grew and that the user experience for staff was below par — they were looking at decades-old green screens.

The credit union created and the board approved a business case around risk mitigation. Zions Bank made a similar business case for its recent purchase of the Bancs platform — specifically, vendor risk mitigation. Several of the legacy systems it was using had only a few bank customers.

Credit Union Australia was also looking ahead: it had growth aspirations and knew it needed a modern system that could keep up.

Another driver was the unique competitive landscape in Australia. The four major banks have bought up the formerly second-tier banks. About 90% of all banking business goes to the behemoths, which can afford to price aggressively. The large banks Down Under have been modernizing their banking platforms. National Australia Bank is spending $1 billion deploying the Oracle Banking PlatformCommonwealth Bank of Australia has completed its conversion to SAP for Banking; it also spent $1 billion on the new system.

"How can a small player remain relevant and play in a competitive market?" says Sue Coulter, general manager for business transformation at Credit Union Australia.

Alongside the core replacement, the company also decided to replace its online banking system and roll out mobile banking. It chose TCS for the entire project, based on site references and the fact that the vendor had successfully deployed its technology in other Australian financial institutions. "That gave us comfort that we wouldn't have too many issues with localization, compliance and regulation," Coulter notes.

The credit union signed a contract with TCS in March 2011 and started the project in early May. The "technology transformation," as CUA calls it, took two and a half years. The new system went live in October.

CUA held several dress rehearsals and mock data conversions to make sure the new system would work properly and employees would acclimate. The credit union also tested the system extensively; for instance, it tested the execution of 28 key transactions prior to "go live."

Now that all the technology is in place, phase two will be what Coulter refers to as business transformation — taking advantage of the new gear to reengineer more efficient processes and improve the customer experience.

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