Changing the game: Moving to open systems

1. Changing the game: Moving to open systems Case Study Presentation to 2002 BAI Retail Delivery Conference and Expo - 7 November 2002 David Boyles Chief Operations Officer Australia and New Zealand Banking Group Limited

2. Agenda About ANZ ANZ’s Technology program and directions ANZ’s progress to open systems migration - case studies • Next generation switching project • ERP/Common standardised administration systems • Item processing • Payments clearing • Core Banking outside Australia Conclusion

3. About ANZ • ANZ is a leading banking and financial services organisation with about 22,500 FTE employed in 29 countries around the world. • With total assets of USD 100 billion* and market capitalisation of USD 15 billion*, ANZ is also one of the world’s 100 largest banks. • Our overriding philosophy in our interactions with our customers, our shareholders, the community and with each other is that ANZ is the “bank with a human face”. • ANZ is represented in its primary markets of Australia and New Zealand as well as in Asia, the Pacific, Europe and the United States. Exchange Rate 0.55 USD (to AUD) * As at 09.30.02

4. Delivering performance ROE NPAT % $USD m 21.6% EPS & Dividends Cost Income Ratio $US Cents 46% EPS DPS Exchange Rate USD 0.55

5. We have a diversified portfolio of businesses Change from 2001 2002 NPAT USDm 2002 NPAT $USDm Personal Customers Corporate Businesses ANZ Investment Bank Mortgages Small Med Business Consumer Finance Asset Finance Group Treasury 315 290 171 135 86 82 56 68 9% 13% 8% 4% 21% 51% 11% 65% 26 34 13 6 15 28 6 27 2002 NPAT increase 2001 NPAT Exchange Rate USD 0.55

6. ANZ’s Strategy Our targets • Extend specialisation • Grow customer numbers • Increase share of wallet • Drive productivity Organic out-performance • Revenue growth materially higher than expense growth • Take business units to sustainable leadership positions • Build a range of strategic options • Invest in high growth areas • Build specialist capabilities • Exit weak positions • Risk reduction Portfolio reshaping Transformational moves • Step changes in positioning • Creating new growth options • Proactively shaping industry

7. ANZ’s Technology Focus Putting technology to work to: • Provide our customers with a personalised, consistent experience • Empower our customers and our people with real time information access and online applications via web-based technology, anywhere and anytime • Ensure our technology is robust, flexible and cost effective • Aggressively reduce costs, improving productivity, benchmarking, increasing ‘straight-through’ processing, simplifying and automating administrative functions • Provide low-risk, high-efficiency & state-of-the-art payment capabilities

8. Initial Strategy (1998) provided focus to move to next level Customers (BU) People Process Infrastructure 1998: Inward focused, low satisfaction, weak process, complex infrastructure • Little BU focus • Poor understanding of business drivers • Service levels poorly understood • Leadership weaknesses • High staff turnover: 18% • Many cultures • Poor disaster recovery • Inconsistent architectures • Poor project management & methodology • Billing of services incomplete and inaccurate • Inflexible, high cost technology • 15 data networks • 6 core systems • Many different platforms 2002: Customer focused, positive culture, improving process, simpler infrastructure • Explicit business partnership • High Customer satisfaction 7.7 (Sep 02) • Service Level Agreements • Customer Survey/ feedback process • $40m (USD) in benefits from our continuous improvement program • Improved Staff satisfaction to 83% • IT staff turnover below 4% • Training on-line • Leadership Development program • Performance culture • Full DRP in all critical processes • 854 staff through Project Mgt program • New Processes - PiaB, One Team, CMM, Niku, RAD, Phased funding, Outcome Management • Technology costs defined and regularly reported • Technology governance, standards & policies • Detailed billing • Tandem, Unix & AS400 rationalisation • 2 core systems • Single IP Network • Standard Win2000 desktop across Australia • Intranet to all but 800 Int’l staff • Established strategy for standardisation and re-use

9. People - Skilled & committed Management tertiary qualifications policy Breakout cultural transformation workshop pcs@home: heavily subsidised packages for staff to acquire PC’s Online training courses Half yearly staff survey with action teams to address issues raised eVouchers provided free to staff to choose reading materials $$$

10. Average - 1999 Average - 2000 Average - 2001 Detailed billing to Business Units for IT services Customers - Commitment to focus technology on business unit objectives Service level agreements in place for each Business Unit Average SLA for major systems Clear alignment between Technology & Business Units Customer survey/ feedback process on 6 monthly basis. Linked to individuals’ performance measures. Electronic timesheet capture for IT project tracking, reporting & billing

11. Project in a Box • ‘Best of breed’ project management tools • Central repository for all project reporting • Open access to all users • Reengineering in a Box • Standard tools, templates & process for re-design of business processes • Continuous improvement programme • Driving real culture change • Series of workshops for all staff • Resulted in USD $40m benefits to date Process - Commitment to improve execution capability Capability Maturity Model • Significant productivity & quality improvements • CMM level 2 certification – 1st Australian Bank • Bangalore, India - level 4 certification Project management training • Generic training courses tailored with ANZ specific content & latest Project in a Box tools

12. Hogan 2001 2000 CBS OS/2 Win 3.1 Win NT DOS Infrastructure - Commitment to rationalisation & standardisation Core Systems IP network 1998: 6 major systems 1998 Multiple data networks • Single IP Network provides universal connectivity • Simpler systems & platforms reduce cycle times Servers & Desktops Platforms 2002 1998 1998 8+ major platforms 2002 Platform Focus Eg,W2K, UNIX, MVS • Greater ability to leverage new technologies • Lower hardware, software licence fees & support costs • Provide all staff with best tools possible • Low cost of ownership through standard solution

13. Technology Transformation strategy 2002-05 Simplify Platforms Improve Project Delivery Robust Operating Model Takeout Costs Leverage Group Assets Continued drive to simplify the platforms Capability upgrade of project process, business/ IT alignment Next level agility and adaptability, quick ability to up or downscale Next level tools and methods Leverage existing technology through re-use and componentisation Movement to open systems – Key Factors • Open systems environment (eg, Wintel) • Scale out model • Ongoing enhancement to security capabilities • High availability of skills • Good breadth of vendor support • High agility • Vast breadth of tools and technology • Standard commoditised technologies • Efficient development environment • Support re-use & components • High levels of integration - ‘plug and play’ • Customer access through Web enablement

14. ANZ’s move to open systems To • Standards-based modular building blocks • Benefits: • Cost - efficiency & skills availability • Flexibility – speed, scalable, modern infrastructure • Connectedness – ‘plug & play’, ‘ease to innovate’ From • Traditional Core applications based on proprietary systems • Single vendor with limited scale to innovate • Proprietary systems have limited interoperability/ integration • Relatively expensive to run - often long lead times to upgrade system capacity

15. ANZ’s progress in migrating to open systems - Case studies Implemented or underway: • Next generation switching project • ERP/Common standardised administration systems • Item processing • Payments clearing • Branch sales and service platform Next Phase: • Core Banking outside Australia • Telling

16. Next generation switching project - Background • Replacement of existing ATM & EFTPOS Switching functionality • ANZ has approximately 1,500 ATMS and in excess of30,000 MultiPOS terminals • Current environment based on proprietary hardware/platform and software since the early 1980s • Integration with open computing platforms is difficult • Long lead time to upgrade capacity • Necessary support skills/knowledge getting more difficult to source

17. Next generation switching project - Open Systems Challenges • Meet or exceed service levels of existing proprietary solution • No loss of committed data under any circumstances • 24x365 availability • Disaster Recovery • No loss of committed data, failover ~ 1 minute • Performance, throughput and linear scalability

18. Comms Servers Comms Servers Comms Servers Comms Servers Comms Servers Comms Servers Next generation switching project - Solution • Migrate to Windows2000 & OpeN/2 (from S2) • Currently running in-house pilot for ATM’s • Soon to commence migration of customer ATM’s • POS to migrate mid 2003 • Dell 2-way Servers • Win2000 Server • OpeN2 • Dell 8-way servers • Win2000 Datacenter Server • SQL 2000 • EMC Resource PaK • EMC GeoSpan • EMC Connectrix ED-64M • Quantum ATL • EMC Symmetrix 8730 • EMC SRDF Tape Library Active Front-end Processor Comms Servers Auth Servers Database Servers Storage Area Network Comms Servers Comms Servers Comms Servers Storage Sub System Data Centre 1 Active DB Data Centre 2 Storage Sub System Front-end Processor Comms Servers Auth Servers Database Servers Storage Area Network Comms Servers Tape Library Fail-over Fail-over DB • 4 Node MS Cluster Win2000 Datacenter Server Environment

19. Next generation switching project - Outcomes • After full implementation operating costs are estimated at 50% of previous environment • Trials have demonstrated that equivalent functionality can be developed in half the time • Lower annual development cost • Ability to quickly upscale capacity • OpeN2 (S2) allows ATMs and EFTPOS to be integrated with existing web channels and CRM • Eliminates the requirement for proprietary architectures and associated skills • Lowers the overall diversity of platforms, with longer term cost reductions • Reuse with telling platform Cost Flexible Connected

20. ERP/Common administration system - Background • Our ERP systems were fragmented and outdated • General Ledger was no longer supported • Payroll system was old and inflexible • Very limited HR MIS

21. ERP/Common administration system - Challenges • Need for a common, standardised administration system • PeopleSoft met all our mandatory selection criteria • HR functionality was tailored to Australian regulatory environment • General ledger structure is a good fit to our operations • Technology fits well with our architectural standards • ANZ’s PeopleSoft implementation is the largest on MS Windows 2000 and MS SQL 2000 in the world • Implementation approach critical to success, trade off between package customisation and our current processes

22. ERP/Common administration system - Solution/Approach • We adopted a ‘vanilla’ implementation, thus our processes were changed to fit the software • Focused on people impact – change management & training • Staged approach to deploy major modules: - Procurement & Accounts Payable • Human Resources • Fixed Assets - Finance (General Ledger) • Payroll • Pushing the time / cost boundaries

23. ERP/Common administration system - Solution/Approach

24. ERP/Common administration system -Outcomes • Reduction in HR, finance administration and procurement expenditure and greater control of fixed assets • Faster, easier and more cost effective way of working • Straight-through automation • Easier capture and use of business information • Consistent business platform across ANZ • Delivery of web-based information anytime, anywhere, any place • Transformation of culture – delivery of web-based information anytime, anywhere, any place • Reduction in operational risk Cost Flexible Connected

25. Item processing - Background • ANZ used the same equipment to process cheques for almost 18 years at five State-based Transaction Processing Centres • Large logistics exercise to achieve same-day value processing of all cheques/deposits across 900 Australian branches • This process had a number of disadvantages • Aged Proof of Deposit platform and 5 major voucher processing sites • Costly & inefficient physical storage, access & retrieval of cheques from paper archive warehouses for 7 years • Geographic dependency on paper • Day-2 functions (eg exceptions, returns) all required paper handling and records management actions

26. Item processing - Challenge • To develop a best practice document processing environment to enable efficient and timely capture of customer and internal paper based financial transactions • The strategy comprised five parts: • Implement an Image POD System to further increase productivity and reduce the cost/item of processing • Utilize the more efficient and flexible Image POD System to integrate with the aging Retail Lock-box System • Create an Image Archive over 7 years to replace paper storage and provide rapid access across the enterprise • Image enable back office processes and centralize those functions which would result in major FTE savings • Interface into the bank’s Internet System to provide ‘self-service’ archive access to ANZ customers

27. Item processing - Solution Two Pass Capture, Balance and Encode PASS ONE PASS TWO Conventional Solution CASHLETTERS Receive CAR/ICR MICRREPAIR IMAGEBALANCE HIGHSPEEDCHECKCAPTUREPASS HIGHSPEEDCHECKENCODEPASS &SORT CAPTUREIN -CLEARINGS 2 Pass Proof of Deposit RE-HANDLEPASSES WORKPREP POSTDDA PAPERREJECTRE-ENTRY IMAGEDATAENTRY PAPERBALANCE LASTEXCHANGE SPECIALISED FUNCTIONS One Pass Capture, Key, Balance, Encode, Image Capture and Sort System ANZ Solution BATCH PREPAMOUNT KEYMICR/OCR READMICR REPAIRAUDIT PRINTENDORSEMICR ENCODEIMAGE CAPTURESORT CASHLETTERS ReceiveWorkbyCourierfromBranches One Pass Image Proof of Deposit Systems POSTDDA IMAGE CAPTUREIN - CLEARINGS LASTEXCHANGE ONE-PASS TRANSPORTS 1 OPERATOR PER MACHINE ONE-PASS TRANSPORTS 1 OPERATOR PER 3 MACHINES

28. Item processing - Outcomes • Streamlined processes • Lowest unit costs from ‘one pass’ data and image capture • Efficient and timely capture of customer and internal paper based financial transactions • Improved customer service through faster retrieval or self service • A platform that can grow or contract with our imaging requirements • Increased scalability and ease of integration • In-sourcing opportunities - such as credit card services or white labelling • Sales potential to off-shore banks Cost Flexible Connected

29. Manual Re-Keying Automated Interface International Payments Clearing - Background Inherent risks due to complex & disparate payment systems/processes • Batch operations moving to real time • High processing costs • Non-standard processes and product sets across the network • Fragmented systems and interfaces • Significant levels of operating risk • Difficulty in providing support and development High Complexity within a proprietary environment ANZ High Value Payment and Messaging Systems (as of July 1999) Telex ANZ NZ CorporateCustomers Branches Accounts AVP/SCP KITS Corporate Customers Branches Treasury Treasury ANZ India (CBS) Treasury Asian Branches (only) Accounts Trade NZD Accounts Telex Trade Operations Corporate Customers Vostro Limits Branches Telex ANZ London Office RTGS Telex Treasury Trade Treasury CorporateCustomers Fedwire AUD Accounts Correspondent Database Vostro/Nostro CHIPS Nostro Rec ANZ Aust ANZ NY Office

30. International Payments Clearing - Challenge • Multiple delivery channels to customers • High visibility of system to customers/regulators • ANZ highest market share in Correspondent & Corporate/ Institutional Banking in Australia • ANZ ranked 50th bank in global SWIFT traffic volumes • Multiple functions - inward/outward payment processing, reconciliations clearing & settlement systems • High availability requirements especially for high value RTGS clearances and CLS requirements • Interlinking batch-processing legacy systems with real-time web-based customer systems

31. International Payments Clearing - Solution • Single platform that processes international and domestic high-value electronic payments • Redundant hardware and software, with cross-site data replication (recovery within 30 minutes) • Farms of servers, load balanced across multiple sites • Hardened server and network environment with Intrusion monitoring • COM+ business logic tier • IBM MQ series used for integration to all external systems • Thin browser client or full function rich client

32. International Payments Clearing - Outcomes • Reduced staff in operations area • Reduced technical staff in platform support and development • Reduced hardware maintenance/support costs • Increased STP rate for MT100/103/200 message types from 30% to 60+%. At same time business volumes have increased • High availability • Standardised platform in Aust/NZ • Increased revenue streams and enhanced product development • Improved operating risk management and better risk management tools • Real time counterparty risk management Cost Flexible Connected

33. Next Project - Core Banking System outside Australia • Currently support seven off-shore sites in Pacific & Asia on core system. All support and services provided from Melbourne /India team • A further three countries will be added to the core platform, increasing scale and lowering unit costs across all countries. • Opportunities for improved cost effectiveness • Completed proof of concept to migrate banking platform to Intel/W2000 with SQL Server database Indicative Benefits • W2K platform more cost effective – lower annual maintenance costs – about 30% savings; 40% reduction in hardware costs • Faster processing – giving bigger support or online window • The W2000 / SQL server skills are easier to resource within ANZ

34. Historically, financial institutions have built a myriad of fragmented proprietary point solutions that are difficult to integrate ANZ is focussed on moving to open systems to simplify its environment, enabling: componentisation and re-use of solutions lower costs improved cycle times and business functionality But, this is not easy - it requires clear vision, unrelenting drive and constant innovation Conclusion

35. Copy of presentation available on www.anz.com

36. The material in this presentation is general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate. For further information visit www.anz.com or contact Philip Gentry Head of Investor Relations ph: (613) 9273 4185 fax: (613) 9273 4091 e-mail: gentryp@anz.com