Bancolombia, the largest bank in Colombia,
has reiterated its ambition to become a regional superbank. A
central plank of its strategy is an IT modernisation project, which
has received a major boost with the planned implementation of a
replacement core banking system from Infosys’ Finacle unit, reports
Douglas
Blakey.
Colombia’s largest bank, Bancolombia, has agreed one of the biggest
IT deals in its history – the replacement of its existing core
banking system – as it pursues its goal of becoming a regional
heavyweight in Central and South America. 
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The core banking deal, which extends across
the bank’s domestic and international operations, was awarded to
Finacle, a subsidiary of Indian-headquartered tech giant Infosys,
and is the latest in a series of major IT agreements signed by the
bank as part of an ongoing technology transformation project.
For Infosys, the deal has strategic regional
significance.
Sanat Rao, Finacle’s vice-president and global
head of business development, told RBI the agreement with
Bancolombia will be its largest core banking implementation in the
region: “The Spanish speaking parts of Latin and Central America
are important and growing markets for us and it is a great deal for
us so early into our foray into the region,” he said.
“Hopefully, this deal will open more doors for
us as we go along.”
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By GlobalDataThe bank’s IT project has been led by its
vice-president of information technology, Olga Botero Pelaez, who
told RBI the bank’s timing for such an investment
programme was impeccable: “Other banks in the region may want to do
something similar but will have postponed their investment
decisions due to the events of last September [the collapse of
Lehman Brothers].”
The Finacle deal augments recent Bancolombia
IT investments, including a core system for the bank’s credit card
operation from Spanish-based vendor Tecnocom; replacement ERP and
CRM systems from SAP as well as new risk management technology from
SAS.
Pelaez, appointed to her current role in 2006,
is also driving forward a consolidation of the bank’s data
operations, with 18 data centres already reduced to 13 with an
eventual target of only three or four.
She has overseen a major increase in the
bank’s use of outsourcing, which includes the data operations, as
well as applications maintenance and support, telecommunications,
including voice and data, and the bank’s direct banking
channel.
“In outsourcing, we are probably more advanced
than our peers… [but] we have a strategy to focus on our core
business and can take advantage of our partners processes and
knowledge by increasing our outsourcing activity,” she
explained.
The
sheer scale of the challenge facing Pelaez and her team to
transform the bank’s IT is apparent from the numbers she rattles
off: “We have around 500 technology applications and are replacing
42 percent of those, or just over 200, with a mere 10
applications.”
The IT systems scheduled for the chop are, she
says, the legacy of a number of banks acquired by Bancolombia over
the past decade, while the existing core system is around 15 years
old and was installed by a locally-based vendor now reduced to only
two banking clients, including Bancolombia.
Choice of the Finacle core banking system was
the result, said Pelaez, of a “lengthy evaluation process”
(summarised by Rao as a “fairly elaborate exercise”) involving
trips to banks in Asia, Europe, North and South America, who had
installed a similar set-up.
“I wanted a modern architecture. I set out
clearly defined business needs the system had to cover and also had
to look at capacity and the ability to integrate with other
systems.”
Pelaez also imposed a strict cost-benefit
structure on the choice of system, extending the bank’s cost-income
ratio to its IT investment, calculating IT costs as a percentage of
operating revenue.
“For Bancolombia, the choice of core banking
system is one of the most important investments we make and has to
offer a clear business case with a return, helping the business to
grow, as well as offering improved customer service,” Pelaez
said.
It also must offer longevity, with a scheduled
shelf-life of around 15 years.
According to Rao, the Bancolombia deal stood
out on a number of counts, not least the bank’s willingness to
consider a technology vendor from outside the Americas.
“In the past, local banks have tended to work
with local technology partners, or have looked to the US for
solutions. Bancolombia’s detailed due diligence included a visit to
our Indian headquarters and I believe the bank took comfort from
our track record in delivering projects in new markets,” he
said.
“Today, when banks spend money replacing an
old system they do not just want a marginal change from what they
had, in terms of functionality or technology… now they want
something very different,” added Rao.
While Pelaez does not seek to downplay the
importance of selecting the best available technology, she is quick
to point out that on its own, the latest IT will not achieve the
bank’s goals: “The IT is only a tool if used correctly. It can give
us a competitive advantage but if not used correctly, we are dead
as a business.”
She is however effusive about the relationship
with Finacle: “We are very pleased with the decision to go with
Infosys and have been pleasantly surprised by their methodology,
the way the system will be implemented and have very high hopes of
this being a long-term relationship,” she added.
For Finacle, the Bancolombia contract followed
a number of major deals it has signed, including multi-country
agreements with Spain’s BBVA and Austria’s Raiffeisen, as well as a
lucrative contract in the UK from Co-operative Financial
Services.
“While it will not be business as usual for
the next few quarters, I remain optimistic about the future and we
have certainly had a successful year at Finacle,” added Rao.
Much work to do
While Bancolombia is, says Pelaez,
happy with its current retail banking market share leadership in
both Colombia and El Salvador, there is “much work to do”.
“There remains an opportunity to target the
unbanked as well as improving our product and customer service
offerings to our existing customers.
Investment in the bank’s multi-channel
distribution strategy has paid off and will be stepped up, such as
the bank’s franchised system of non-correspondent banks – local
shops in villages offering basic banking services – which has
expanded to 400 outlets in the past 18 months.
Further growth of the bank’s 700-plus branch
network in Colombia, currently growing at around 40 branches a
year, will continue while its ATM network is set to continue
growing with one new ATM going live every day. One area where
Pelaez is not so upbeat is the slow uptake of its mobile banking
service.
“We hoped it would grow at a faster rate since
launching at the start of last year but it continues to offer a lot
of potential for future growth,” she said.
Despite a slow start, the m-banking service
has received a kick-start with the recent launch of a SMS alerts
service and will, says Pelaez, prove itself in time.
As for the bank’s recently reported first half
results, Pelaez expressed quiet satisfaction with a resilient set
of figures (see below) and said the Colombian banking
system had performed relatively well due to a conservative lending
policy and strict risk management.
“The climate is challenging but we are still
profitable, still growing and in general I am very happy and
confident about the future,” she concluded.
