FinacleConnect - Quarterly Journal From Finacle, Infosys | Nov 05 - Jan 06 / Volume 01 / Issue 04 / 2005

Inside Talk

Technology- A Catalyst For Organizational Changes

The biggest banking group in Italy, Banca Intesa is among the largest banks in Europe and has total assets worth Euro 271 billion (USD 325 billion). With over 3000 branches spread across Italy servicing 8 million customers and over 800 international branches in nearly 30 countries servicing 3.5 million customers, Banca Intesa is a full service banking group that provides a wide range of retail, commercial banking and other financial services.

Banca Intesa group originated from the integration of three major players in Italy's banking system - Banco Ambrosiano Veneto and Cariplo in 1996, then with Banca Commerciale Italiana (BCI) in 2001. While this merger created the largest banking group in Italy,it also brought along a legacy of three different cultures, a staggering array of 1500 retail products, different technology platforms and rising costs. The consolidation efforts from 2002 to 2005 have completely transformed the bank such that Banca Intesa is now rated as Europe’s largest and most successful merger experiences. The bank’s net income rose 55% in 2004, to $2.5 billion, and return on equity hit 12.9%, up from 1.4% in 2002.

“The focus on information technology lies at the core of the bank’s transformation,” says Dr.Romano De Carlo, who currently heads technology at Banca Intesa. In a career spanning forty years, Dr. De Carlo has been the technology head at several leading banks in Italy where he has overseen the technology program and the restructuring of complex organizational units.Here he talks to research and contributing editor, Rekha Menon, about the bank’s technology strategy, current focus and future plans.

What was the key post-merger technology initiative at Banca Intesa?

The biggest challenge created by the merger was that each of the three banks had their own core banking systems. This led to high maintenance costs, unnecessary duplication of activities and lack of communication between the three banks. It was therefore essential to create an integrated technology platform across Banca Intesa. Keeping the high transaction volumes and costs in view, we decided to use the existing in-house developed core system at Banco Ambrosiano Veneto.It was a strategic decision since we felt that this would help us retain information system knowledge within the organization. The core technology system at Banco Ambrosiano Veneto was enhanced and then it replaced the existing solutions at the other two.

What was the impact of the technology integration exercise?

Putting together a single technology platform that replaced existing systems and is now serving the bank’s entire network has been one of the most critical projects for the bank in recent years. The entire migration exercise took 3 years. There is a single core-banking platform with three modules - private banking, retail banking and corporate banking. This reflects the new organizational structure at the bank.

Technology was in fact a catalyst to creating business and organizational changes at the bank. There have also been other efficiency and streamlining benefits. For instance, between the three banks, there were initially 1500 retail products that have now been brought down to 250. Our customers now have easier access to loans, for instance, if they meet the requirements, individuals can get consumer loans up to $40,000 within 48 hours.

What were the key challenges of the technology integration exercise?

The biggest challenge was managing change, because with this new system we have changed how people work in the bank. We had decided on which functions to implement and which to discard in all the three banks. This took a lot of planning and time. Managing a project of this size, which involved thousands of people, different processes and systems was very challenging. For such a complex and intensive project to be successful, it was essential to have the complete commitment of both the top management and employees throughout the duration of the project.

Are you planning any enhancements to your
existing systems?

We are working on the simplification and rationalization of our Information System. We are also working in parallel on defining standard policies for the same. Our priority is to optimize the cost of maintaining the information system and create synergies between Banca Intesa and other banks in the group. We are also focused on developing a true multi-delivery channel bank. We are creating a new self-service focused layout for our branches and are also investing on delivery channels such as telephone, mobile and Internet banking.

With the technology integration project through, what other technology initiatives have you been focusing on?

After the migration of the core banking systems, we have been focusing on four key objectives. The first was a recently concluded project on accounting standards prescribed by IAS 39, the International Accounting Standard for the recognition and measurement of financial instruments. The second task, which is nearly through, was to provide technology support to our business divisions. The other key objectives were with regards to risk management, because of the Basel II Accord, and business continuity. Business continuity and disaster recovery planning requires huge effort. We have created a new disaster recovery service for Banca Intesa and are extending it to other group companies.

Please describe the importance of risk management at Banca Intesa.

At Banca Intesa, we place a huge emphasis on risk management. We were the first bank with an internal model for market risk approved by Italy’s central bank, nearly four years back. Today, risk management is even more critical at the bank because of the upcoming mandatory Basel II capital adequacy requirements. We have focused our efforts to ensure management of risk at all levels in the organization. In the first phase of our risk management efforts we have deployed a risk management framework in Banca Intesa that helps the bank meet the regulatory requirements. Now we are working on the second phase, to extend the same instruments and models to all the other banks in the group.