Sainsbury’s Bank is to take full control of its own operation buying out Lloyds Banking Group’s 50% share in the supermarket’s UK retail banking joint venture for£248m, and is simultaneously appointing FIS as its future technology partner.
FIS will provide real-time core banking and back-office processing support to Sainsbury’s Bank as it goes it alone on an outsourced basis, with the deal mirroring somewhat Metro Bank’s technology Software-as-a-Service (SaaS) provision with Temenos when it set up in the UK in 2010 as a newcomer bank with hardly any internal IT staff, instead relying on technology firms to run its retail banking services.
Shifting over from the legacy IT estate at Sainsbury’s Bank shared with Lloyds Banking Group to this new model will not be so easy, however, and the bank estimates the switchover will take 42 months in a phrased rollout and slow replacement operation that is designed to cause minimum customer impact. Running two such IT estates is however expensive with any profits expected to be lost over the next two years, and the bank expects to pay £90m in capital expenditure and to lose £170m in revenue as it transfers over towards the new FIS banking solution.
The struggles that rival supermarket bank, Tesco, had in establishing its own IT estate after its split from its former joint venture partner RBS in 2008, illustrate the difficulties of breaking away from shared siloed legacy systems towards new IT estates.
Launched in 1997, Sainsbury’s Bank made £59m this year, processes 23m transactions per week and has attracted millions of UK customers to its credit cards, loan and financing products. But making the move towards a fully licensed standalone oeprational bank, as it has now done, is never easy. With this latest jv buyout and technology move, however, Sainsbury’s is signalling a clear intention to keep progressing and the firm obviously believes it can cash in on consumer dissatisfaction with the established ‘big four’ High Street banks in the UK, consisting of RBS, Lloyds Banking Group, Barclays and HSBC, to win new business and grow. It is still though refraining from launching deposit holding consumer bank accounts, unlike its rival Tesco Bank, whoch announced years ago that it wanted to become a full deposit-holding bank and not just rely on the valuable 'low hanging fruit' of loans, cards and insurance. Tesco Bank still hasn't managed to achieve this with next year its latest planned target for hitting the ambition. The delay and expense of making this move is perhaps why Sainsbury's Bank is also wary.
The Technology Platform
FIS will provide a fully integrated real-time core processing and back office IT solution to Sainsbury's Bank under the technology refresh deal, and deliver transition support as the bank moves its back office services over from Lloyds Banking Group. FIS’ integrated solutions will support the bank’s deposit, savings, loan and credit cards accounts, and deliver seamless channel integration to enable customers to access their accounts through telephone, internet and mobile devices. The entire operation will be hosted and run by FIS in the UK in the future, with strong service level agreements (SLAs) likely to be in place. Sainsbury’s own staff will run the call centre and customer-facing elements of its operation and FIS’ technology assistance should also mean that it easier for the bank to launch new products and services more quickly in future with newer, more flexible solutions.
Commenting on the announcement, Peter Griffiths, chief executive officer (CEO) of Sainsbury’s Bank, and formerly of NatWest and the Principality Building Society, said: “Introducing our new technology partner is a major step forward in our evolution as we become a wholly owned Bank. We are delighted to be working with FIS. We are very pleased with their domain expertise and the extensive functionality delivered by their banking and payments solutions.”
According to Mark Davey, executive vice president of international operations at FIS: “Sainsbury’s plans to extend their banking services will increase competition by introducing a new and exciting player to the UK banking market. FIS has experience in core banking and financial technology outsourcing and is qualified to help them achieve their growth ambitions.”