IT was one of the key selling points to encourage voters to support the $20 billion merger of Newcastle Permanent and the Greater Bank last year.
A $100 million digital transformation project being undertaken by Greater Bank, to deliver more than 40 technology improvements, including a new cloud-based core banking platform that would position the merged entity as leading challengers to the major banks.
But just four months after the merger, unanimously recommended by both boards, the Newcastle Herald can reveal that the new institution, known as Newcastle Greater Mutual Group or NGM Group, has failed to deliver on its cornerstone project in a move that one customer described as the "biggest governance failure in Newcastle corporate history".
If the promise of cloud migration was seen by voters as the future for the new institution, not delivering on that costly promise will no doubt be NGM Group's greatest challenge to date.
The much-hyped project was to migrate the Greater Bank, and then Newcastle Permanent after the March merger, from two different legacy banking systems to a cloud-based core banking platform capable of delivering new products to customers and driving productivity gains.
But the program that began in 2019, has been quietly scrapped, with an NGM Group spokesman confirming it had dumped plans to shift the banks to specialist software and services provider Data Action's cloud-based core banking platform.
Instead, he said the group would adopt a "technology enablement approach that is aligned to our strategic direction and preferable for an organisation of the size and complexity of the merged group".
"Our long-term group strategy is coming together, part of which included a strategic evaluation of the group's existing and planned technology solutions and work underway," he said.
"The evaluation, including an external review, assessed the Greater Bank digital transformation program in its current shape and its alignment to our NGM Group strategic plan and direction ... The outcome of this review is that NGM Group and Data Action have agreed that the contract between the organisations for Data Action's core banking system will not continue beyond the date of expiry in August 2024."
Technology enablement typically builds on existing processes.
Digital transformation, on the other hand, involves greater risks as it's a significant change in the way a business operates, and requires a new approach to managing the organisation, workforce and customers.
A booklet to members outlining the merger proposal distributed in the lead up to last November's ballot made it clear how crucial the digital transformation project was.
"Without this merger, Newcastle Permanent will require significant investment in its technology and core banking system, which will take time and will be costly," it reads.
"This investment can most efficiently be achieved through a merger - and Greater Bank has already invested substantially towards both these and is well advanced on its path to digital transformation."
Going a step further, the information booklet lists failure of the project as a reason not to vote for the merger.
"Greater Bank's digital transformation may not be achieved within the anticipated timeframe and cost," it reads under the heading 'Against the merger'.
"Greater Bank's digital transformation program is a large and complex project and, despite extensive planning, there is a risk that delays and challenges could impact the delivery and cost of the digital transformation and its expected benefits."
In November last year, the Newcastle Herald reported that then Newcastle Permanent chairman Jeff Eather and Greater Bank chairman Wayne Russell recognised the importance of the digital revolution in banking, with growing numbers of households and businesses doing most of their banking on the phone or online.
Mr Eather said at the time it was accepted that the Greater Bank was further along the path of its "digital transformation", and that the merger recognised this, with the Greater's digital offering to become the basis of digital banking platforms across both brands.
Cloud computing is seen as the future for banking in a marketplace driven by rapidly evolving technology.
At the time when the Greater Bank and Newcastle Permanent announced its merger plans in 2021, it was the latest example of consolidation that saw the number of mutuals in Australia fall from 200 to just 70 in the past ten years.
A key reason for the mergers is more scale is needed to invest in technology to remain competitive due to the dramatic shift in major bank thinking about technology and innovation.
Cloud computing is widely recognised as a crucial ingredient for banks to become more agile, and create more engaging experiences for customers. It functions 10 times faster than legacy systems and costs much less to run, allowing banks to reduce tech project costs while bringing new products to market faster.
The Newcastle Permanent has 47 branches and the Greater Bank 53, with about 1600 employees and 600,000 members.
NGM Group's spokesman the Greater Bank's digital transformation program was a broad series of technology initiatives designed to deliver long-term benefit for customers and the organisation, a part of which was the build a new core banking system, supplied by Data Action.
The spokesman said shifting to technology enablement would "help us leverage Greater Bank's recent investment in banking technology for the benefit of the entire NGM Group, including Newcastle Permanent and Greater Bank customers".
"This recent investment benefit includes, but is not limited to, a simplified set of products and features, an enhanced web experience, as well as a substantial uplift of technology skills and knowledge within the organisation," he said.
"As a longer-term benefit, we've also laid significant groundwork in terms of capability and investment for NGM Group's regulatory, compliance, and legal processes that will be of benefit to all our 600,000 customers."
Newcastle Permanent and Greater Bank currently use different banking systems and over time, it was anticipated that they would both transition to Data Action's cloud-based core banking platform.
According to the merger information booklet, this would have allowed the banks to "more efficiently deliver, support, and enhance customers' banking services".
Director of Engaged Research and Associate Professor at the University of Sydney Business School Daniel Gozman said over decades banks had built "layer upon layer of technologies" creating a "technological spaghetti".
Dr Gozman said getting layers of legacy technology to interface with new technology was complicated, costly and had the potential to create security risks.
"The technological spaghetti has slowed down the digital effectiveness and makes new projects costly and difficult to manage," he said.
"But overall the sector needs digital transformation. Across the sector you have a newcomer come in and it doesn't have all this legacy spaghetti technology and builds systems from the ground up and it can do new and exciting things that other banks can't do because they are weighed down. They don't have the albatross of the legacy systems."
Due to complexities of integration, Dr Gozman said it was not uncommon for large scale IT projects to fail or be abandoned.
"Organisations can underestimate the complexity of the problem, the process involved and how things speak to one another," he said.
"They can underestimate the data, the quality of the data and the list of things goes on. We are talking about a really big task. Understanding what people really want and what they actually need, how that's embedded in these very complex architectures is often a very big problem."
Dr Gozman said new technology was more customer centric, able to understand customer's needs and requirements, was much faster and made transactions "more frictionless".
"The new technology can make all your financial interactions with the world frictionless and make you better informed," he said.
NGM Group's spokesman said the work completed as part of Greater Bank's digital transformation was a cornerstone for the group's technology strategy and enablement plan.
"NGM Group is committed to continuing to invest significantly in technology to deliver excellent services and experiences for our customers," he said.
"For example, in the coming weeks we're looking forward to bringing our Newcastle Permanent customers a digital home loan offering, and in the coming months delivering a modern update for our Greater Bank banking app."
Newcastle Permanent was established in 1903 and the Greater in 1945.
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