What now for banking IT services?

Trade

1 April 2005

Bank of Ireland and AIB are now pursuing separate plans for reducing costs in their IT divisions following their decision to exit from a proposed technology joint venture between the two organisations.

The banks called off plans for the proposed merger of their IT operations in late August, citing an indication from the European Commission that the venture would be subject to prolonged investigation.

The joint venture company, which was proposed in June, was to provide IT services on a commercial basis to divisions of both businesses in the Irish and UK markets.

Each bank had expected to save close to €20m per year from the merger, as the combined services entity would allow for savings on managing their processing costs. Despite the collapse of the deal, the need to drive costs down in their IT businesses—while making them as efficient as possible—still applies.

Technology accounts for a large proportion of the cost base of both organisations. Without the economies of scale that an IT merger would have brought, neither bank is now able to say how much it expects to save, although any figure will be considerably less than if they had joined forces.

Bank of Ireland will not now be exiting from its IT outsourcing agreement with Perot Systems Ireland. A ten-year contract between the two organisations had been signed in 1998, in what was at the time a landmark outsourcing deal.

‘As of now, the status quo has been restored and the Perot arrangement is still in place,’ said David Holden, head of corporate communications with the bank.

The joint venture would have seen the deal terminated but now that the proposal is off the table, the bank is re-evaluating its IT options. ‘We can’t say what the future will hold; it may or may not involve Perot,’ said Holden. ‘We are looking at ways of making our IT processes more efficient and by dint of the proposed merger I think we’ve shown that we are prepared to take a radical look at that.’

Meanwhile, according to chief information officer Brian Gannon, AIB is continuing to implement a three-pronged strategy of streamlining, consolidation and growth.

‘One area we’ll look at is procurement—purchasing hardware and software,’ he told ComputerScope. ‘If you look at our cost base, a significant part of that is IT. We should be able to make significant inroads into that.’

AIB will also examine the possibility of consolidating some of its data centre facilities. Its two mainframe centres act as mirror sites and as such are likely to remain, but the bank also has midrange and file server farms in a number of locations between Ireland and the UK which may be combined into fewer sites.

The bank will also substantially revise its growth plans. It will not be pursuing another joint venture or partnership arrangement with any other organisation. ‘There will be nobody out there as similar to us as Bank of Ireland,’ explained Gannon.

That proposed venture made sense because the two banks had sufficient processes in common, he said. From an integration point of view, any other partnership would be too onerous and would not bring the same level of efficiency.

AIB has also ruled out the option of outsourcing its IT functions to a third party. ‘To give out the message that we are looking for an outsourcer would be very unsettling for staff,’ said Gannon. 

Interestingly, one cost-saving option being considered by AIB is the use of Open Source software. ‘It’s moving up the priority list,’ said Gannon. ‘We do have some installations of Linux but we’re not trying it out in a huge way.’ The bank is considering wider adoption of Open Source for two reasons, Gannon said. ‘It’s partly cost and partly a desire to get away from dominance by any one player.’

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