March 31, 2009

Was Dunfermline Building Society’s failure hastened by IT blunders?

Was it too busy trying to be an outsourcer to other building societies?

By Leo King, www.computerworlduk.com

The collapse of Dunfermline Building Society, Scotland’s largest, may have been worsened by “unfortunate” decisions relating to IT.

Last year DBS, which is now being taken over by Nationwide, was forced to write off £9.5 million as a result of a “failed IT system”, the Financial Times reported. That was in a year where profits were only slightly higher, at £11 million.

Jim Murphy, the government's minister for Scotland, said that unfortunate decisions on technology were part of a string of “reckless decisions” taken by the company, the FT noted, alongside over-exposure to commercial loans and involvement with subprime mortgages.

DBS was focusing IT efforts around the Temenos T24 banking product, successfully implemented in November last year, Anthony Miller, analyst at TechMarketView, noted. The International Banking Systems journal wrote in 2004 that when DBS used T24’s predecessor, Temenos Globus, it was the “first UK building society” to do so, implying that it was taking some risk.

It said “the Dunfermline is confident of its applicability, to the extent that it has created a subsidiary company" which would aim to sell on the system to other building societies.

DBS subsequently ploughed £31 million into its IT subsidiary, Dunfermline Solutions, to "provide software solutions and back-office services to deposit takers and mortgage lenders", the Herald newspaper reported.

At the end of 2007, following the IT failures that helped swallow most of its profits, DBS said in its annual report that there had been “changes in the IT market”, and it had decided to focus its efforts on other non-IT areas that would offer more “member benefit”.

Even though DBS was Scotland’s largest building society, the Herald article classed it in a group of smaller building societies in the whole of the UK, comparing it against others which had bought off the shelf systems, including Lynx and MTV, to reduce risk and cost. Only much larger societies such as Yorkshire and Skipton had developed their own mortgage systems, it noted.

“It’s really hard to say what contribution the failed IT programme made to DBS’ collapse with such scant information,” Miller noted. “Was there a problem with Globus? Or was it just that DBS management were so dead set trying to turn Dunfermline Solutions into a third-party outsourcer that they forgot who was actually paying the bills?”

DBS could not be reached for comment at the time of writing.

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