The UK retail banking sector is facing a #1 billion IT gamble on the euro under the Government's new National Changeover Plan announced yesterday, it is claimed.
Changeover timetables unveiled yesterday afternoon by prime minister Tony Blair will leave the sector with little option but to invest half of the total of up to #4 billion required to carry out euro conversion before knowing when or even whether the UK is to join.
At least half of that #2 billion is likely to go on IT spend, according to John Turner, knowledge principal at banking consultancy TCA. Retail banks will need to be ready to handle volume euro business at least a year before the switch to euro cash, he believes.
The changeover plan estimates if entry were taken in 2001, sterling would disappear by 2004. There would also be a 24 to 30 month gap between a referendum and the issue of euro cash. As the banks have estimated a three year conversion period, they will need to start investing 12 to 18 months before the referendum.
"The banks are going to have to take that risk. They cannot wait for the referendum," said Turner, adding: "It's one of those things in business - you have to take a view on the market and sometimes spend money you are not certain to get back."
Neil Jones, head of retail banking at consultancy Mummert + Partner's, said: "The length of time from decision to the withdrawl of Sterling is a maximum of 40 months but it could be significantly less."
Re-iterating calls for more Government action to aid UK business to prepare, he said: "For the retail financial services sector which will be at the forefront of euro preparations and will be likely to suffer the highest costs - possibly over a quarter of a billion pounds for a large bank - there is scant support to embark on the huge and costly programmes that will need to be undertaken to become euro ready."
"This means that more than ever the retail banks and building societies will have to be clever in their planning and flexible in their IT response, possibly using new and more rapidly deployable technologies such as introducing web enabled applications ahead of plan," he added.
Nick Jones, analyst at Gartner Group, believes this will cause a major shift in the way companies deploy applications.
"The business implications of EMU will be a major driver for European IT activity through 2005. The need for fast response to changing business conditions will favor IS organizations with flexible tools and processes, such as rapid application development methodologies and service oriented architectures," he said, in a report.
The changeover plan includes advice across all sectors and claims the UK can learn from continental solutions by plugging into, "a wealth of IT experience of euro conversion."
Larger government departments, such as the Inland Revenue and Social Security, need a total of up to four years to prepare IS/IT systems for the introduction of notes and coins and the government has revealed it is to ask Parliament to approve tens of millions of pounds to be spent on departmental conversion.
To read a full analysis on the euro conversion race, click here
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