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Kiwibank mulls development of new core banking system that could cost hundreds of millions of dollars

Posted in News

By Gareth Vaughan

Kiwibank is considering upgrading or replacing its core banking system with building a new one a move that could cost hundreds of millions of dollars.

Talk in banking circles is that, whilst no decisions have yet been made, the 11 year-old Kiwibank, which now has north of 800,000 customers, is mulling the replacement of its existing core banking system. Asked about this on Friday a Kiwibank spokesman told interest.co.nz: "You are getting a bit ahead of us. We constantly review our banking system requirements, but have no specific plans for change at this time. Put it down for a check in a few months to see if there have been any changes."

And asked in today's interim results briefing, Kiwibank CEO Paul Brock said the bank continued to focus on all of its IT infrastructure and continued to look for ways to invest both in the systems to cope with its increasing scale, and also to cope with regulatory requirements as these change.

"It's too early to tell when or if we may make any changes to our core banking system," said Brock.

Two years ago Kiwibank announced it had completed a comprehensive review of its future technology banking requirements and decided to continue with its existing Ultradata core banking system. Its then CEO Sam Knowles said Kiwibank had experienced tremendous growth since its 2002 launch and carried out the review to ensure its systems could accommodate the requirements of servicing a customer base of nearly 700,000.

Aside from growth of customer numbers, Kiwibank's now also dealing with an increasing focus in the banking industry on digital transacting methods.

Banking industry insiders suggest the cost to Kiwibank of a new core banking system could be in the vicinity of NZ$200 million to NZ$300 million, which raises the question of where it might get this sort of money from. ANZ Bank NZ, which last October moved ANZ to the National Bank's core systemics banking platform, has booked total operating expenses from the move of NZ$372 million.

Asked about the potential cost of a new core banking system, Brock said all IT investments were substantial costs.

"I think right through from Kiwibank's beginning we've invested in our IT infrastructure every single year and we continue to invset in our IT infrastructure every single year. But how we go about it is a different question and they are expensive exercises and that's certainly a key consideration to how we might approach it," said Brock.

Kiwibank's parent New Zealand Post is battling a dramatic drop in mail volume and is undertaking a major cost cutting review.Kiwibank says it's too soon to say what this might mean for its branch numbers with all 280 odd branches located in Post Shops. The bank does say, however, that its customers will be serving themselves more in the future via self service kiosks.

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