02 February 2011

IBS Journal – News

AIB headquarters

Allied Irish Banks (AIB) is attempting to recoup around €84 million from Oracle FSS, which was contracted by the bank to supply its core banking software. The bank claims these were the costs and expenditure it ‘wasted’ on trying to implement Oracle FSS’s Flexcube as a retail banking system. AIB is seeking damages for misrepresentation, breach of contract and negligence. It is also claiming further compensation for loss of profits and damage to goodwill, with the amount yet to be calculated. The bank’s action has been transferred to the Commercial Court.

The vendor was originally contracted in 2005 to provide the software for AIB’s wholesale banking activity (to replace Misys’ Bankmaster). At the time, the vendor was known as I-flex Solutions (it was bought by Oracle the same year – IBS, September 2005, Market weighs up Oracle/I-flex deal; and rebranded as Oracle FSS a few years later – IBS, April 2008, I-flex is no more; long live Oracle FSS?).

Flexcube Universal Banking System (UBS) was selected ahead of offerings from Misys and Temenos. Besides Bankmaster, Misys also had an implementation of its Opics system for FX and other dealing operations at AIB and Temenos had an implementation of its T24 banking system at AIB International Financial Services (IBS, February 2009, AIB IFS: Outsourcing on the agenda?). Speaking to IBS in early 2010, AIB’s head of operations and technology, Marcel McCann, said that the decision to go with Flexcube was based not only on functionality but also the ‘capability that we believed the I-flex guys had in helping us to implement it, versus the Temenos guys’ (IBS, February 2010, AIB: When Irish eyes are smiling).

The 2005 Flexcube deal, dubbed Project Pentagon, does not appear to be part of the bank’s action. In the aforementioned IBS interview, McCann stated that Oracle FSS had fulfilled its part of the deal well, and the only rough edges to the project centred on ‘the usual things you’d find on a project of this scale’. ‘But at no stage did we feel that we were up a cul de sac, having made the wrong decision. We wouldn’t change the decision we made or the relationship we have with Oracle FSS because all those things are working very well,’ he said.

Marcel McCann, AIB

However, this agreement gave AIB an option to acquire Oracle FSS’s software for its retail banking activity. This project, known as Project Acorn, was given the green light in 2007 (IBS, May 2007, Who’s bought what?). Prior to signing for Flexcube, the bank evaluated its other existing providers, including Temenos, Misys and SAP (the bank was rolling out SAP’s GL at the time). The final decision came down to Oracle FSS and SAP. In parallel, AIB set about selecting a systems integration partner, ultimately choosing another incumbent, Accenture.

According to the bank, the 2007 agreement applied the terms of the 2005 one. Oracle FSS was to replace AIB’s 20-year old retail banking software with Flexcube. The system was to be deployed on IBM System z with DB2 platform, which the bank considered to be an achievable task (this making AIB the first to adopt such a platform for Flexcube). The vendor was informed of this key requirement, claims AIB, and accepted it. In the interview to IBS, McCann noted that AIB’s sights were set on taking a single instance of the technology – deployed in a shared service centre for back office – and a single operating model across all divisions and business units. That singularity of approach saw Flexcube being taken by AIB for its retail business, for Ireland and Poland (Bank Zachodni WBK), although the latter operation of the increasingly troubled bank was later sold off to Santander for €3.1 billion. Flexcube for international payments and SEPA Credit Transfers apparently went live in a parallel project to the retail roll-out.

However, apparently, Project Acorn was plagued by technical problems as well as project management failings. The bank claims it has tried time after time to have Oracle FSS respond and was given assurances by the vendor that the problems would be resolved. The intention (and agreement) was to move around five million AIB customers to the new system in the course of three years, but in reality this was applied to merely 3000 customers. In March 2010, the Flexcube implementation work was halted and the 3000 clients were reverted to the previous system, which continues to be the main retail banking solution at AIB to date. Interestingly, speaking to IBS in early 2010, McCann stated that although the ‘massive’ project of implementing Flexcube for retail operations had ‘its challenges’, it was ‘going fine’.

In March 2010, the supplier informed that although it would continue to work with AIB on the development of Flexcube on z/DB2, the overall development of the system for western banks on this platform from IBM was being terminated. This, claims AIB, contradicted what had been conveyed by Oracle FSS prior to the 2007 agreement: that AIB would be among a number of top-tier banks in Europe and the US using z/DB2-based Flexcube. The bank anticipated to benefit from the resulting efficiencies, such as shared upgrade costs. But Oracle FSS’s announcement in March 2010 meant that AIB would be the only bank among its peers using this version of the system, thus negating the awaited benefits. The bank claims it was induced into the 2007 agreement by misrepresentations made by people working for the supplier. As an alternative, the bank was offered the Oracle-based version of Flexcube, but AIB’s evaluation of the proposed system showed that it was ‘wholly unsuitable’ for the bank’s retail business requirements.

As no satisfactory resolution has been found, the matter has been taken to court. Neither party would provide further commentary to IBS. However, an unnamed Oracle spokesperson was quoted in the press saying that all of the bank’s allegations ‘are being rigorously defended by the company’ and furthermore, Oracle FSS ‘will also be counter-claiming against AIB for breach of contract and outstanding fees’.