Kiwibank flags trouble with its SAP-based core banking system project
- 05 July, 2017 10:05
While phase one of Kiwibank's CoreMod project went well, phases two and three are falling behind and running over budget.
Kiwibank's core banking system replacement project is falling behind schedule according to a new disclosure in company's quarterly reports and costs are mounting.
The bank, which is mostly owned by NZ Post, revealed the delays in its statutory quarterly disclosure (pdf) statement to the end of March 2017.
"Kiwibank is in the process of modernising its core banking system," the report said. "This is a significant and complex change programme which is taking longer than anticipated and will involve a higher level of investment and operating risk over the next 2-3 years, both of which are being actively managed."
The previous disclosure, for the quarter to the end of December, was similarly worded but did not mention delays to the project, dubbed CoreMod.
The only cost figure ever attached to the project was a minimum of $100 million but it appears the costs may be signicantly more.
A Kiwibank spokesman said the bank was cautious about providing detailed information about the CoreMod project.
"It is continuing to progress and our CEO will provide an update in general terms when we release our financial result in late August. We consider the progress of the project as commercially sensitive."
Last February, Interest.co.nz reported Kiwibank's expenses were rising as it pushed on with the upgrade.
Kiwibank's chief executive Paul Brock said at the time the project would cost "more than" $100 million but progress was "broadly in line" with budget.
According to a briefing on Kiwibank's 2016 annual results, released in August 2016, the bank was moving on to phase two of the project, migrating savings and transaction accounts to the new SAP system. Phase one, implementing the SAP payments engine, was completed in August 2015.
Brock told Interest.co.nz phase three which would include moving across lending systems and customer records, was to follow.
At the time of the interview, the build of phase two, which included the migration of most savings and transaction accounts, was complete and in testing with data migration scheduled for "later in 2017".
Brock said phase two was "costing a little bit more" than planned and was very complex.
"I think at the end of the day it's a multi-year programme, they're pretty complex, they always seem to take longer and be more complex than what you expected," he said. "So how you establish budgets around these things is an ongoing process, but we're broadly in line with what we've expected for the first phase.
Brock said he wasn't sure how long phase three would take but estimated the end of 2017 for possible completion.
However, by February and after reporting its financial results for the half year ended December 2016, Brock was saying the cost of CoreMod would be "significantly more" than the $100 million flagged initally.
"This is a very expensive and long programme that will go over many years, and I don't intend to get into the detail of the costings around that," he told Stuff.co.nz
In May last year, Kiwibank's general manager of IT emphasised that the project was implementing SAP "out of the box", bending the bank to fit SAP and not the other way around.
SAP’s pre-configured banking software would run alongside and integrate with NZ Post’s financial system, Unit4’s Business World ERP suite.
Phase two was scheduled for completion between May and July 2017, she said, comparing the project to "taking the engine out of the car while it is still going". However, the bank had so far avoided service interruptions.
Last year, NZ Post sold just over 37 per cent of Kiwibank to The New Zealand Superannuation Fund and the Accident Compensation Corporation. NZ Super Fund paid $263 million for a 25 per cent stake while ACC invested $231 million for a 22 per cent stake.
The $494 million deal valued Kiwibank at $1.05 billion. Around $90 million of that sale price was left with Kiwibank as additional working capital.
Kiwibank is no longer subject to the Official Information Act as a result of that transaction.