The long-term future of the four large Australian banks is going to be closely related to the very different computer system strategies each is adopting.
This week, National Australia Bank went public in explaining that it was three years into a nine-year program to replace its entire computer system, which is based on very old computer technology – the same technology that the other banks have at their base.
NAB is embracing the Oracle total banking computer solution, which has been successfully introduced into a number of small banks (including the NAB’s UBank) but has never been applied to a bank as complex as NAB.
As technology now stands, if the introduction is successful (and NAB’s Gavin Slater says it's like converting a 747 to an A380 at 30,000 feet) then NAB will have a big advantage over its competitors.
Commonwealth Bank is currently the market leader in technology, thanks to the work of former chief executives David Murray and Ralph Norris. Commonwealth has developed a first class consumer banking system. But it did not tackle its core underlying systems as NAB is doing.
But the CBA systems are up and running. CBA critics say it is not going to be easy for the CBA to change its base system in a way that is compatible with its upfront systems. Commonwealth Bank would disagree.
Westpac and ANZ have not undertaken any fundamental change in computer systems and their investments have been confined to upgrading their product availability.
They would ague that when Commonwealth started its developments there was no overall replacement system available for existing banks. Oracle now has one but to some extent NAB has become a global pioneer. Westpac and ANZ will wait until the pioneering stage is over.
Long term, the bank that ends up with the best computer systems will be much faster and more flexible in tackling the revolution in banking products that is going to come from the rise of mobile phones and other new developments.
And they will have a lower cost base.