Databank Systems

Databank Systems Limited was a New Zealand not-for-profit company established in 1967 by a consortium of competing trading banks to provide shared computing, systems-development, and operational-processing services. It was created during a period when computers were scarce and expensive in New Zealand and their importation was subject to government licensing. Rather than each bank separately acquiring and operating a large computer installation, the consortium pooled resources through Databank and used a common infrastructure while retaining competitive control over its own banking products and customer relationships. The organization emerged from cooperation between the Bank of New Zealand (BNZ) and the National Bank of New Zealand (NBNZ) in 1966. Databank was incorporated the following year, and the other three trading banks subsequently joined the arrangement in 1968. Its original ownership was divided among BNZ, NBNZ, Australia-New Zealand Bank, Bank of New South Wales, and Commercial Bank of Australia. After the merger of the latter two Australian banks, the ownership structure included Westpac Banking Corporation in place of the former separate interests. Databank’s operating model was defined by a 1969 Processing Agreement. The agreement specified the services and service levels Databank would provide, while also protecting the banks’ ability to compete. In particular, the contractual framework addressed ownership of newly developed applications and systems, helping prevent the shared technology provider from eliminating distinctions among the participating banks. The company’s work included transaction processing, customer-accounting systems, systems development, and operation of a national banking computer network. The organization initially used IBM System/360 Model 40 computers and processed banking transactions overnight. Its Money Transfer Services were introduced in February 1969, and all branches of the participating trading banks had been converted to computer processing by November of that year. Over time Databank became a critical part of New Zealand’s banking infrastructure. Within twelve years of its establishment, it was described as the largest non-government data-processing organization in the Southern Hemisphere and was servicing more than 1,200 banking offices. Its activities extended beyond routine bank processing. Databank operated Portran, or Portable Fortran, a service that allowed school students to learn computer programming through punch cards. It also processed services associated with the Post Office Savings Bank and several trustee savings banks after cheque accounts were introduced for those institutions in 1974 and 1975. Databank’s position changed after the Fourth Labour Government began restructuring and deregulating the New Zealand economy in 1984. Because Databank operated much of the country’s payments and clearing infrastructure, the arrival of new banks created pressure to make the existing systems accessible on equal terms. At the same time, the consortium banks increasingly questioned whether Databank’s growing operating costs continued to provide sufficient value. A 1989 legal decision that inter-company transactions between Databank and its shareholder-customers were subject to Goods and Services Tax further weakened the organization’s long-term economic case. The banks subsequently separated the core common payments-system processing from Databank and placed it under Interchange and Settlement Ltd, an all-bank forum known as ISL. Between 1992 and 1994, Databank halted major new banking-systems development, closed development projects, and retrenched associated personnel. CEO Tony Hood was charged with disposing of the company. In 1994, Databank, including its subsidiary Databank Investments Ltd, was sold to Electronic Data Systems Corporation, then a General Motors subsidiary, for an undisclosed price. The company employed approximately 950 people at the time of the sale. EDS viewed the acquisition as a New Zealand base for expansion in Asia-Pacific banking and information technology services. Databank Systems therefore ended as an independent bank-owned shared-services institution, although its sale reflected the continuing commercial value of the technical capabilities and personnel developed during its operating life.

Databank Systems was created in response to the unusually high barriers to computer adoption in mid-1960s New Zealand. Computers were expensive, in short supply, and subject to import licensing under the country’s regulatory regime. The Bank of New Zealand wanted to automate transaction processing and customer accounting because rising cheque volumes were becoming difficult to handle manually. The National Bank of New Zealand was the only one of the principal trading banks with an appropriate computer import licence, making cooperation a practical route for both institutions. The two banks began working together in 1966 and established Databank in 1967. The remaining three trading banks joined in 1968. Databank was incorporated in Wellington as a not-for-profit organization serving the trading banks then operating under New Zealand’s statutory banking arrangements. Its initial ownership was 40 percent BNZ, 20 percent NBNZ, 20 percent Australia-New Zealand Bank, 10 percent Bank of New South Wales, and 10 percent Commercial Bank of Australia. Following the combination of the latter two Australian banking interests, Westpac Banking Corporation held the resulting 20 percent position. The company’s responsibilities were formalized in a 1969 Processing Agreement. Databank supplied computing capacity, application development, operational processing, and defined service levels. The agreement also established safeguards for competition: the participating banks remained separate businesses, and ownership of newly created applications or systems was allocated so that shared infrastructure did not automatically become a common commercial product. Databank built a national computerized banking network and initially relied on IBM System/360 Model 40 computers. Processing was performed overnight, reflecting the technology and telecommunications limitations of the era. Money Transfer Services began in February 1969, and the branches of the participating trading banks had moved to computer processing by November. This made Databank a foundational institution in the modernization of New Zealand banking. Within twelve years it had grown into the largest non-government data-processing organization in the Southern Hemisphere and served more than 1,200 banking offices. The company also undertook work beyond core bank accounting. It ran Portran, a punch-card-based Portable Fortran service intended to help school students learn computer programming. In 1974 and 1975 it supported the introduction of cheque accounts for the Post Office Savings Bank and various trustee savings banks. These activities illustrated the breadth of its role as a national computing utility rather than a conventional consumer-facing technology brand. The economic and regulatory environment changed substantially after the Fourth Labour Government came to power in 1984. Banking deregulation allowed new competitors to enter the market. Because Databank controlled or operated important elements of New Zealand’s payment and clearing arrangements, those systems had to be made available to new banks on a level-playing-field basis. The consortium banks also began to view Databank as an increasingly expensive operational structure and reassessed whether its benefits justified its costs. A 1989 legal decision concerning Goods and Services Tax on transactions between Databank and its shareholder banks added another problem. The decision made the existing inter-company model less attractive and increased perceptions of financial risk. The banks therefore separated the central common payments-system function and transferred it to Interchange and Settlement Ltd, an all-bank forum generally known as ISL. Databank entered a managed wind-down. From 1992 to 1994, major banking-systems development was abandoned, projects were closed, and related staff were retrenched. Tony Hood, who had held commercial and information-technology management roles at Databank and Westpac, was appointed chief executive and tasked with disposing of the company. In 1994, Electronic Data Systems Corporation acquired Databank Systems and its subsidiary Databank Investments Ltd for an undisclosed sum. EDS, then a General Motors subsidiary, intended to use the acquisition as a New Zealand platform for expansion in Asia-Pacific banking and for the sale of information-technology services to non-banking customers. Approximately 950 people worked for Databank at the time of the transaction. Databank’s history consequently moved from cooperative national infrastructure to commercial outsourcing asset, reflecting the broader transformation of banking, telecommunications, and information technology in New Zealand.

• 1994

  Sold to Electronic Data Systems

  [1]Databank Systemsen.wikipedia.org

  EDS acquired Databank Systems and Databank Investments Ltd for an undisclosed price.

• 1992

  Managed wind-down begins

  [1]Databank Systemsen.wikipedia.org

  Major new banking-systems development was halted, projects were closed, and staff associated with those activities were retrenched.

• 1989

  GST ruling undermines consortium economics

  [1]Databank Systemsen.wikipedia.org

  A legal decision applying Goods and Services Tax to inter-company transactions increased the perceived cost and risk of Databank’s operating model.

• 1988

  Founding CEO leaves after early retirement

  [1]Databank Systemsen.wikipedia.org

  Gordon Hogg was required by the Databank board to take early retirement after leading the company from its formation.

• 1984

  Deregulation changes the infrastructure environment

  [1]Databank Systemsen.wikipedia.org

  New Zealand’s economic reforms and banking deregulation required Databank-operated clearing arrangements to accommodate new market entrants.

• 1979

  Largest non-government data processor in the Southern Hemisphere

  [1]Databank Systemsen.wikipedia.org

  After twelve years of growth, Databank was described as the Southern Hemisphere’s largest non-government data-processing organization and served more than 1,200 banking offices.

• 1974

  Expanded savings-bank processing

  [1]Databank Systemsen.wikipedia.org

  Databank supported the introduction of cheque accounts for the Post Office Savings Bank and trustee savings banks during 1974–1975.

• 1969

  Processing Agreement and Money Transfer Services

  [1]Databank Systemsen.wikipedia.org

  The consortium formalized Databank’s obligations in a Processing Agreement, introduced Money Transfer Services in February, and completed branch conversion to computer processing by November.

• 1968

  Full banking consortium formed

  [1]Databank Systemsen.wikipedia.org

  Three additional trading banks joined the original BNZ–NBNZ arrangement.

• 1967

  Databank Systems incorporated

  [1]Databank Systemsen.wikipedia.org

  Databank Systems Limited was incorporated in Wellington as a shared computing organization for New Zealand trading banks.

• 1966

  BNZ and NBNZ begin cooperation

  [1]Databank Systemsen.wikipedia.org

  The Bank of New Zealand and National Bank of New Zealand began cooperating on the acquisition and use of computer systems for banking automation.

A neutral, bank-owned shared-services and computing organization designed to give New Zealand trading banks access to scarce large-scale information technology while preserving the banks’ separate commercial identities and ownership of their own applications.

• Banking transaction processing · 1969

  Money Transfer Services

  Introduced in February 1969, Money Transfer Services formed part of Databank’s early computerized transaction-processing capability. The service supported the movement and accounting of funds across the participating banks’ branch networks and helped replace manual processing with centralized overnight computer operations.

• Shared banking infrastructure · 1969

  National computerized banking network

  Databank operated a nationwide computer network for the New Zealand trading banks. Initially based on IBM System/360 Model 40 computers and overnight processing, the network handled banking transactions and customer-account information for a large branch estate, eventually serving more than 1,200 banking offices.

• Computer education service

  Portran

  Portran, short for Portable Fortran, was an educational service operated by Databank that introduced school students to computer programming through punch-card exercises. It represented one of the company’s non-banking uses of its computing expertise.

• 1994

  Sell Databank Systems to EDSM&A

  Background

  After the consortium had separated out the common payments function and reduced development activity, it decided to dispose of the remaining company.

  Action taken

  Electronic Data Systems Corporation acquired Databank Systems and its subsidiary Databank Investments Ltd for an undisclosed price.

  Aftermath

  EDS obtained a New Zealand base for potential Asia-Pacific expansion and for offering information-technology services beyond banking. Databank employed approximately 950 people at the time of the acquisition.

  Source

• 1992

  Wind down major banking-systems developmentStrategy

  Background

  The shareholder banks increasingly regarded Databank as an expensive operating structure and questioned whether it continued to deliver sufficient value.

  Action taken

  Databank stopped major new banking-systems development, closed projects, retrenched associated personnel, and began preparing the company for sale.

  Aftermath

  The wind-down culminated in the sale of Databank and Databank Investments to EDS in 1994.

  Source

• 1989

  Separate common payments processing from DatabankStrategy

  Background

  Banking deregulation and a legal decision applying Goods and Services Tax to transactions between Databank and its shareholder banks weakened the original consortium model.

  Action taken

  The banks moved core common payments-system processing into Interchange and Settlement Ltd, an all-bank forum known as ISL.

  Aftermath

  Databank lost its central infrastructure role and was subsequently prepared for disposal.

  Source

1. 1Databank Systemsen.wikipedia.org