Case Studies / Bendigo Bank

Cutting costs and boosting profits at Bendigo Bank

GFG's combination of products and industry expertise have cut Bendigo Bank's backoffice costs and helped make its Mastercard, Visa and merchant acquiring business move into profit.

GFG's relationship with Bendigo began in 2003, soon after the bank had moved to become a full participant in the Australian credit card business, hard on the heels of a successful national expansion. Merchant acquisition had grown during the year from 5000 to 7,500.

Bendigo needed a merchant acquiring system to support its rapid growth in the marketplace - without requiring it to ramp up its internal expertise. The bank was looking for vendors to help it realise these ambitious plans without damaging its reputation for excellent customer service.

GFG's launch project for Bendigo, in early 2003, was back-office credit card clearing and settlement for the bank's MasterCard product launch. MasterCard itself did not offer a full, standalone product suitable for smaller operations.

"Mastercard offered an internet-based solution that required the member to provide additional applications to manage the flow of daily interchange files delivered across the internet," says Greg Devlin, Chief Manager Card Division, Bendigo Bank.

"What GFG had was effectively an off-the-shelf product, and this was key in us being able to participate in MasterCard. There are very strong compliance issues surrounding Visa and Mastercard, with regular release schedules which are partly to do with security and partly to do with efficiency and functionality additions," he points out. "But it's very costly for smaller organisations that don't have the luxury of having specific people to deal with the credit card companies."

"We found it a big advantage that GFG had already deployed
the system with another bank, and we were able to draw on
their expertise and experience. The result is that we now have
a very profitable business."
Greg Devlin, Chief Manager Card Division, Bendigo Bank.

Bendigo Bank was able to harness GFG's product-specific knowledge and have them take care of the compliance issues on their behalf. The bank was able to stay release-current, did not have to bring onboard expensive, additional expertise and reaped benefits that could not be gained from inhouse or 'generalist' service providers.

In a second project in mid 2003, GFG helped Bendigo with its Visa card back-office and settlement system. Historically, these had been processed on their behalf by CashCard. "GFG's capabilities assisted Bendigo Bank in bringing Visa inhouse," says Devlin. "This gave us self-reliance, and reduced the huge expense from the other vendor. GFG played a key role our broader strategy to become an acquirer of transactions in our own right. Today, we're a fully-fledged merchant acquirer."

Merchant cost-effectiveness

Using Cadencie's merchant subsystem, in late 2003 GFG also brought in-house Bendigo's extensive and growing merchant settlement system in-house. Until then, it had been processed on their behalf by St George Bank. The bank needed a cost-effective merchant management system with a high level of control to provide a premier service to its customers.

Bendigo Bank undertook formal competitor analysis of outsourced services and inhouse applications, followed by requests for proposals. "We looked at two outsourced and two insourced merchant systems," Devlin says, "and Cadencie won hands down."

The merchant management system GFG offered Bendigo met most of the bank's needs. "The pricing was right, which was very important. It was a good solution for smaller organisations like this. Most of them are mainframe systems with big support and maintenance overheads. GFG had the track record and, importantly, was locally available. Having a team we knew we could get to in our own time zone was important to us."

When it came to deciding between an outsourced service and an inhouse application, Devlin had reservations about the shortlisted outsourcing vendors' accountability, and whether they could provide the kind of service the bank was depending on. Whereas the shortlisted vendors were assuming the traditional vendor role, Bendigo was looking for more of an alliance partnership.

"We got it down to two fairly good outsourced solutions that we'd whittled-down from six or seven responses, but there were a number of issues. Both had very good features, but they were way too expensive. And there were some concerns about support and how that would work, given our very hands-on, personalised approach - we weren't comfortable that we were going to get the best results."

Devlin had no such concerns about GFG's Cadencie. "GFG's merchant module was up and running at a New Zealand site, ASB Bank, and I was very familiar with ASB's operations. I knew they ran a good shop and that Cadencie was the engine driving it. We found it was a big advantage that GFG had already deployed the system with another bank, and we were able to draw on their expertise and experience. The result is that we now have a very profitable business."

Measuring success

Bendigo's third-party merchant settlement arrangement had been running somewhere between break-even and a loss. However, Devlin's decision to bring merchant settlement inhouse and to choose GFG as the provider produced some startling results.

"I put forward a three-year business case to our executive team which projected payback within the first year. In reality, we paid for the project within 12 weeks of going live."

Not only that, but GFG was able to deliver each of its projects well within Bendigo's demanding timeframes. "We delivered the whole inhouse solution in about three months. They all came in on time - the MasterCard project we did in two months, the Visa project and the merchant settlement project each took around three months. They were aggressive timeframes, but it all worked out well, and a lot of that is thanks to GFG."

A future-facing alliance

Devlin says the biggest challenge for banks implementing transactional systems is the requirement for ever shorter response times out to the marketplace. "When you're a smaller player, nimbleness is important to you, because that's your competitive advantage over the big guys."

In GFG Group, Devlin believes, Bendigo Bank has found the alliance partnership it was looking for. The relationship the bank has cemented with GFG will enable it to become even more agile and proactive in its future growth - and GFG's rapid response gives Bendigo an edge over the bigger industry players.

"You need to have a very close, personalised working relationship with these kinds of vendors," says Devlin. "We've certainly found GFG to be very responsive to work with, and that's very important to us."