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Replacement of core banking systems is regarded as complex, risky and expensive and, understandably, such projects among large banks are extremely rare. But for Deutsche Postbank, one of Germany’s largest retail banks with more than 14.5m domestic customers and total assets of €140bn, the decision to replace its system with SAP’s version in 1999 has proved beneficial.
Postbank was using Kordoba, an ageing system developed for the German market by Siemens. As it was designed for medium-sized banks, Postbank needed 14 systems running in parallel. Maintenance, cost, flexibility and the age of the technology all became issues.
Postbank chose SAP to supply its new system even though, at that time, it lacked some important features such as support for multiple delivery channels and risk management. “We were looking for a flexible and modular standard software. We also needed an established player who understood the German banking environment and with whom we could maintain a long term relationship,” says Dr Thomas Mangel, a member of the management board of Postbank Systems.
Postbank and SAP agreed a co-development strategy aimed at providing the bank with a modern core banking engine, and the vendor with an enhanced system that it could later offer to the market.
Teams from SAP and Postbank began development work in late 1999. “We adopted a phased rollout approach to minimise the risks of the overall migration effort,” explains Rainer Fassnacht, General Project Manager SAP, at Postbank.
In 2002, the bank went live with a centralised application for storing and managing all customer information. A year later, it switched all 4.5m cheque accounts over to the SAP system, mortgage accounts were migrated in 2004 and in 2005, Postbank moved 17m savings and deposit accounts to SAP.
“We have successfully replaced the 14 Kordoba systems and are now only running on SAP,” says Fassnacht. He adds that despite the phased migration, each step felt like a ‘big-bang’ wholesale migration. ”A project of this magnitude and duration which involved intensive testing in a live environment is immensely challenging. To be successful, it is very important to not only have top management commitment, but have a buy-in from the entire organisation,” says Dr Mangel.
Postbank’s new core banking solution is now the basis for its multi-channel architecture and has successfully reduced the time to market for new financial products and services for its customers. Furthermore, the bank has simplified its IT by re-engineering processes and consolidating data centres.
Postbank spent more than €200m on the core systems replacement project, but Dr Mangel says the payback is the reduction in overall process complexity.
Christian Goeckenjan, VP Financial Services at SAP, says: “Banks have realised that all their processes, while they may be highly complex, do not necessarily add much value to the organisation. A core systems replacement project provides banks with an excellent opportunity to streamline and re-engineer their back office processes.
“At Postbank, for instance, the number of deposit related processes have reduced from more than 120 to 35 which has positively impacted the bank’s profitability.”