Information Systems: A Case Study of Bank of America and Commercial Bank of Ethiopia Presentation by Biniam Asnake

1. • Abey Bruck
• Biniam Asnake
• Gezehagn Gutema
• Girma Aweke
• Girma Debele
• Negasi G/Egziabher
December 2011
A case study on Bank of America and
Commercial Bank of Ethiopia
1

2. Presentation Outline
• Introduction
• Historical Development
o Early banking
o History of BOA
o History of CBE
• Information Systems Organization at BofA
o IT strategies of BofA
o Technological Trends in BofA
o Information System Developed at BofA
o Success of the bank as a result of the ISO
o Failure and Reasons
o Challenges Faced by the IS Organization of BofA
• Information Systems Organization at CBE
o Departments under IS Organization
o Planning at the IS Organization
o Technology Trends in CBE
o Challenges faced in CBE
o Future Plan of the IS Organization
• Conclusion 2

3. 1 Introduction
• A Bank is any financial institution that receives, collects,
transfers, pays, exchanges, lends, invests, or safeguards
money for its customers.
• This paper focuses on studying and comparing the
technology trends in two banks – Bank of America
Corporation (BofA) and Commercial Bank of Ethiopia
(CBE).
o both are among the largest and prominent banks in
their respective countries to implement new
technologies and relevant for our historical study on
technology use.
3

4. … 1 Introduction
• Bank of America (BofA):
o an American multinational banking
and financial services corporation,
o the second largest bank holding
company in the United States by assets
and
o the fourth largest bank in the U.S. by
market capitalization.
o headquartered in Charlotte, North
Carolina.
o serves clients in more than 150
countries
o In 2010, Forbes listed BofA as the 3rd
biggest company in the world
4

5. … 1 Introduction
• Bank of America (BofA):
o The vision and strategy of BofA
• the world’s finest financial service company.
o The mission of the bank is to offer lending and
investment products that:
• Serve low- and moderate-income individuals and
families
• Improve underserved low- and moderate-income
communities
• Create sustainable practices for the long haul
5

6. … 1 Introduction
Figure 1: Organizational structure of BofA
6

7. … 1 Introduction
• Commercial Bank of Eth. (CBE)
o the largest commercial bank in
Ethiopia
o as on June 30th 2011,
• total deposits = birr 86.5 billion
• total asset = birr 114 billion
• total capital = 6 billion
o Currently,
• 500 branches
• more than 9, 000 employees
• 45 branches in Addis Ababa
7

8. … 1 Introduction
• Commercial Bank of Eth. (CBE)
o The vision of CBE:
• to become a world-class commercial bank by 2025.
o The mission is stated as:
• “We are committed to best realizing stakeholders’ needs
through enhanced financial intermediation globally and
supporting national development priorities, by deploying
highly motivated, skilled and disciplined employees as
well as state-of-the-art technology. We strongly believe that
winning the public confidence is the basis of our success.”
8

9. … 1 Introduction
Figure 2: Organizational structure of CBE 9

10. 2 Historical Development
o Early Banking
• In ancient Mesopotamia, where
temples, royal palaces, and some
private houses served as storage
facilities for valuable commodities
such as grain, the ownership of
which could be transferred by
means of written receipts.
• There are records of loans by the
temples of Babylon as early as
2000 BC.
10

11. … 2 Historical Development
o History of BOA
• The 1998 financial merger between the San Francisco-
based Bank America Corporation and the Charlotte-
based regional giant Nations Bank created the Bank of
America Corporation.
o the largest financial merger in US banking history to that point
• At first BofA controlled assets valued at over $570
billion, and today is the largest domestic retail bank
based on deposits, with 4,800 branches in 22 states.
• As of 2010, BofA is:
o the 5th largest company in the United States by total revenue
o the second largest non-oil company in the U.S. (after Wal-mart).
11

12. … 2 Historical Development
o History of CBE
• In 1963: the Ethiopian government split the State Bank of
Ethiopia (est. 1942) into the National Bank of Ethiopia,
the central bank, and the Commercial Bank of Ethiopia
(CBE).
• In 1980: the Government merged Addis Bank (the
merger of the newly nationalized Addis Ababa Bank,
and the Ethiopian operations of Banco di Roma and
Banco di Napoli) into the Commercial Bank of Ethiopia
to make CBE the sole commercial bank in the country.
12

13. … 2 Historical Development
o History of CBE
• In 1991 when Eritrea achieved its independence, CBE
lost its branches in Eritrea to nationalization.
• In 1994: the Ethiopian government reorganized and
reestablished CBE.
• A few years ago, the government restructured CBE and
signed a contract with Royal Bank of Scotland for
management consultancy services.
• In January 2009, CBE received regulatory approval to
open a branch in Juba, Southern Sudan.
13

14. 3 Information Systems
Organization at BofA
14

15. IT strategies of BofA
• BofA is investing a considerable amount of its
resources in improving technology, both
o in order to lower operating and transaction costs and
o to gain competitive advantage by staying at the forefront of web-
based e-commerce and e-payment development.
• The underlying strategy is:
o to provide customers with the ability to manage their accounts
and payment options any time of the day anywhere in the
world.
o It also helps the bank to capture competitive and lucrative
corporate clients for their diverse product range.
15

16. IT strategies of BofA
• BofA offshores application maintenance and software development
services to three Indian-owned and operated software development
partners:
o Infosys, Tota Consultancy Services, and Accenture.
• From the value chain perspective, BofA outsources low value-
added activity and areas in which
o it does not have specialized knowledge,
o to focus on specialized, high value-added activities in banking
and finance.
• To capitalize on technological development and prevent IT partners
from shifting value down the value chain,
o BofA set up a wholly owned and operated IT subsidiary in
India, Continuum Solutions Pvt. Ltd., [1,000 employees by 2005]
16

17. Technological Trends in BofA
• IT & organizational improvements co-evolve.
o IT evolution can be described using the four
traditional area: hardware, software, data and
communication.
 In 1983: BofA implemented Transaction
Processing Facility (TPF).
the infrastructure was host based hierarchy.
 In 1981:
BofA introduced ATMs into its California market.
Distributed system was introduced.
17

18. … Technological Trends in BofA
 In 1984, BofA went on-line with their point of
sale system; named Interlink:
a successful real-time debit card service,
BofA developed the product with three banks.
 In late 1987, BofA integrated “TradePro” into its
securities clearing operation.
• In 1988, BofA developed a retail Customer
Information File (CIF)
o - renamed Customer On-Line Information Network (COIN),
o the system won an award for systems excellence from
the Society for Information Management.
18

19. … Technological Trends in BofA
 By 1989, BofA had seen success in its attempt to
consolidate networks.
The California Data Network (CON) connects the
three major data centers in San Francisco, Los
Angeles, and Concord with high-speed digital IT
communications lines.
 In 1991, the institution first joined the Internet
using FTP and Telnet protocols, later adding TCP/IP and
ICP/TP.
 In 1993, the Bank introduced its electronic
document management system software.
19

20. Future Technological Trends
 seems to be bright.
 One of the big drivers of payments security technologies
will be:
 new encryption initiatives, and
 interoperability to point to point transaction encryption.
 A number of factors (computing and telecommunication
industry) or (data) converged at the end of 2010 that
made 2011 a big year for mobile banking.
 Self-service that includes mobile, dashboards, advanced
IVRs, call centers and high-touch branches will be
utilized.
20

21. ISs Developed at BofA
• The bank deployed a mix of Sun servers on Solaris
8.0 to run its new mortgage origination application.
• The bank integrated core systems:
o in 2002, it replaced two proprietary customer data
warehouses with one massive data.
• IT has increased the level of competition and forced
banks to integrate the new technologies in order to
satisfy their customers.
• In recent years, the bank has been implementing
different hi-tech state of the art technologies in the
banking industry.
21

22. … ISs Developed at BofA
• Developed and implemented solutions such as:
1. Self-inquiry facility: to inquire and view the
transactions in the account.
2. Remote banking: Remote terminals at the customer site
connected to the respective branch through a modem
3. Anytime - Anywhere banking: Installation of ATMs
4. Tele-banking: A 24-hour service over the phone.
5. Electronic Banking: This enables the bank to provide
corporate or high value customers with GUI software on
a PC.
• Technology Electronic Data Interchange (EDI).
• It is used to transmit business transactions in computer-
readable form between organizations and individuals
in a standard format.
22

23. Successful ISO and Bank
• Bank of America was named best in Class for
the seventh consecutive year on the latest Javelin
Banking Identity Safety Scorecard.
• The award is based on consistent performance in
each layer of online security and outstanding
performance in fraud prevention.
23

24. Failure and Reasons
• In 1992, BofA initiated the development of the
MasterNet trust accounting system.
• After $78 million in losses on the project, the
bank announced in 1998 that its trust business
was being given to a subsidiary/subordinate
o because: it could no longer handle the operational
requirements.
• The failure was particularly difficult for BofA
with its rich history of technological successes.
24

25. Risks during MasterNet Project
1. Financial Risk
• The potential loss due to system failure could be higher
due to factors including:
I. Completion of Work – A system failure forces the bank to
perform the intended services in an ad hoc manner, usually via
manual labor.
II. Loss of Peripheral Business - The press coverage of the
MasterNet project damaged BofA’s reputation.
• In retrospect, BofA spent an additional $58 million over
the original $20 million in direct costs cleaning up the
MasterNet mess.
25

26. … Risks during MasterNet Project
2. Technical Risk
• The core trust accounting system turned out to be the
most difficult to implement.
3. Systemic Risk
• is the possibility that the system has such a large impact
that it alters the environment and all assumptions about
costs and benefits.
• is entirely unpredictable and very little can be done to
combat it.
• The sophistication of MasterNet was known by other
firms too.
26

27. Challenges Faced by ISO
1. The disappointing execution of BofA’s network
2. On January 2004:
o communication failure through the website
disrupted money transfer.
3. Other subsequent challenges:
o BofA loses its customers to other rivalries because of
the network failure and difficulty of money
transaction.
27

28. 4 Information Systems
Organization at CBE
28

29. Nomenclature
• The bank has 9 Vice Presidents (VPs).
• The nomenclature for the top IS professional and
head is:
Vice President for Information Systems
(“VP for IS” or “IS VP”)
o came after the implementation of BPR.
o Before BPR:
• there were many directors under the president;
• the ISO was under Marketing department.
29

30. Departments under ISO
 Department’s top professional is “Manager”.
1) Management Information Systems (MIS)
Ӂ MIS Expert
2) Application and Infrastructure Support
Ӂ System admin, Database admin and Network
specialist
3) Application Customization and Development
Ӂ Programmers and System Analyzers
4) IS Security
Ӂ IS Security Specialist
30

31. Departments under ISO
 The CORE banking project that is being
developed and deployed (Temenos – T24)
reports directly to the president of CBE
because:
 it is one of the prominent contributors to improve
the competitive advantages of the bank.
31

32. Planning at CBE ISO
 Using Michael Porter’s model, the critical success
factors (CSFs) of CBE are:
 customers, IT and human resources.
 The way CBE conducts IS planning has shown
changes over time.
I. There was no formal strategic planning
+ CBE has been under strict control and
supervision of the National Bank of Ethiopia
(NBE) for nearly two decades.
32

33. … Planning at CBE ISO
• not efficient.
• BPR was implemented in the year 2007-2008.
• BPR is used to some extent but now BSC is the dominant
management and planning principle being used.
Staff Meeting with
VPIS
Meeting of VPs
A Committee of
business & IT prof.
approved
Local or international
survey
In-house Vs.
Outsource
Tender
/RFP
App Customization
and Development
Selected/
ApprovedNew
Committee
for
Migration
33

34. … Planning at CBE ISO
o In the BSC era,
• the top managers including the president and all the
VPs designed a 5 years general plan for the bank
o contains strategies and performance measurements.
• Then departments develop their own plan based on
the corporate strategic plan.
• Again, sub-processes drive their plan from the plan
made by their respective department.
 Top-Down Strategy Making
34

35. Eg. Mission and Objective
of the IS Process
I. Mission
o We are committed to enhance stakeholder’s
confidence by providing reliable
data/information and robust state of the art
technology along with continuous support and
play significant and measurable role to the
satisfaction of customer by way of enhancing
the business activity and enable the core and
support process of the bank to realize its
objective.
35

36. Eg. Mission and Objective
of the IS Process
II. Goals and Objectives
o In order to meets the information/banking service and technology needs of
its end-users, the process is entrusted to:
• Satisfy bank wide information and information technology requirements;
• Ensure our information systems investments align with the strategic directions
and priorities of the bank.
• Establish and provide efficient and effective Information Systems and
Application Software.
• Create highly secured networked environment and ensure stable LAN/WAN
connectivity.
• Ensure continuous system availability and on time support service.
• Provide secured infrastructure, system, data and user and build central data
warehouse and repository.
• Maintain skillful, knowledgeable and competent operators within the process
and strive to have trained and motivated staff by equipping the necessary
training and reward as well as making feel each member contributes to make a
difference.
36

37. Technology Trends in CBE
 This trends go or evolve together. Hence, they overlap.
 CBE is one of the fewest institutions in Ethiopia that
started to use computer for its accounting activities
back in the early 1960s.
 Old days: CBE used to do the operations manually.
 Then a system was implemented using COBOL.
 was not efficient and user-friendly,
 “Branch Power” was bought.
 used Oracle database and runs on HP server.
 This system is still used to connect 34 branches in Addis.
37

38. … Technology Trends in CBE
 To increase the number of branches that use the
system, a system called “Smart Banking”
which uses SQL Server database was bought.
 connected the main branches of the bank such as
Finfine, Arat Kilo, Lideta, Ayertena, Bole, Saris and
Sarbet.
 Problem: it is not networked to the corporate
mainframe.
 problems in maintenance, updating, data backup
and recovery, and security.
38

39. … Technology Trends in CBE
 Starting from the end of the year 2011, a web-based
CORE-banking system called Temenos T24 is being
tested.
 is the most technically advanced banking system available today.
 This gives it unprecedented power and opportunity to meet the challenges of
today and the opportunities of tomorrow.
 T24 is built on open architecture, offers low cost of ownership and uses
established standards such as HTTP, XML and J2EE.
 Probably the most innovative aspect of T24, however, is that it will
totally eliminate the need to run End-of-Day processing.
 It is expected that the testing and deployment of T24
application will end on May 2012 and be ready.
 This system will run on an IBM Server.
39

40. … Technology Trends in CBE
 CBE is the first in Ethiopia to implement and install
ATM in 2007.
 At first, only three branches were connected first but
now the service is available in 34 branches.
 Currently, a large number of machines are imported
and waiting the approval of VISA credit card
company to be deployed.
 POS machines are also available recently.
 The plan is to experiment it and then distribute
with the release of the ATMs.
40

41. … Technology Trends in CBE
 For security purpose, firewall software such as ISA
Server and two Linux-based security systems named
Zential and ClearOS are also used.
 A new security system called IronBox with a backup
technology is purchased, tested and ready to be
deployed.
 A physical security with CCTV camera system is being
developed by the in-house IS Security department and
a local governmental company known as INSA.
 CBE uses Sematic Management Console as antivirus
software which is licensed, updated frequently and
provides high-level security.
41

42. … Technology Trends in CBE
 The applications used by different departments
are not an integrated system.
 HR department uses UNIQUE and
 For internet banking – IBSNet is used.
 The main database uses Bank Master software.
 The undergoing web-based project i.e.
 T24 will integrate all this systems.
42

43. … Technology Trends in CBE
 Outsourcing
 The main reasons for are:
 to increase efficiency of internal employees
 to focus on the major functions that improve the
competitiveness of the firm
 lack of skilled manpower and
 the requirement for speedy job.
 E.g.
 ATM & telephone line maintenance, website design &
maintenance
 Sometimes, infrastructure development is outsourced
 E.g. currently the infrastructure for the Temenos T24 system is
partially outsourced for a local organization named INSA.
43

44. … Technology Trends in CBE
 For communication purpose:
 dedicated telephone line was used to connect the mainframe with the
terminal.
 WAN system initiated in 1994
 The objective of new computerizations is:
 At Managerial levels:
 to improve MIS, to improve internal control and audit, and to
make CBE ready for global competition.
 At operational levels:
 to upgrade the bank’s services quality & capacity, to reduce
costs & improve productivity of employees, to utilize
information technology to avoid competitive cost
disadvantage at this time & set competitive advantages in the
future and to develop strong customer loyalty to the bank.
44

45. … Technology Trends in CBE
 Regarding hardware,
 the branch offices operated NCR 2262 financials
terminal and NCR 7900 non-financial terminal for
data entry and inquiry.
 The servers were changed from: NCR 4300 to NCR
S26 server to HP to IBM Servers.
 Generally, the data processing systems trend is:
stand-alone networked web-based
computing (decentralized) systems
computing
45

46. Challenges faced by ISO
 In 1998, AC-2 OS collapsed.
 The implementation of WAN was
delayed
 because of restructuring of CBE was initiated and
 lack of experienced personnel.
46

47. Future Plan of the ISO
 The IS department plays a significant role for
the success and fulfillment of the bank’s vision.
 The future plan of the IS organization is:
 to begin mobile banking with highly
interactive report generation utility in
addition to online-banking.
 to outsource all hardware maintenance in
the coming future.
47

48. 5 Conclusion
 This paper assesses the various technological
milestones and technological advancements in
local (in case of Commercial Bank of Ethiopia)
and foreign (in case of Bank of America) banks.
 Based on the study, we found out that there is a
big technological gap between CBE and BofA.
 BofA implements new technologies very fast
whereas
 CBE uses new technologies late after exploited by
other international and sometimes national banks.
48

49. 5 Conclusion
 Because of lack of skilled manpower and
experts in IT field, CBE is losing:
 competitive advantage and
 the opportunity to become a leader in introducing
new technology to the financial sector and
 the opportunity to attracts many customers.
 Therefore, we recommend CBE to learn from
the experience of international banks like BofA
regarding the use IT in strategic level to be
competitive and become an international bank.
49

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