Sainsbury's Bank to outsource entire banking system in £90 million migration project

Sainsbury’s Bank will outsource its entire retail banking operations to solutions provider FIS, as it moves away from Lloyds Banking Group’s legacy systems to a new banking platform in a £90 million migration project.

Sainsbury’s announced today that it is to pay £248 million to take over the rest of remaining 50 percent of Sainsbury’s Bank, ending its joint ownership with Lloyds.  As part of the deal, Sainsbury’s Bank will begin the transition of support and back office services away from Lloyds banking Group over a 42 month period, earmarking a transition capital expenditure of £90 million in order to build and migrate onto the new banking platform.

In a statement Sainsbury’s said that it has been working with both Lloyds and FIS on the migration plans for a number of months, developing a strategy for moving away from a legacy banking platform to FIS’ modern systems.

“The transition will involve the transfer of data from legacy Lloyds Banking Group systems to the latest generation banking platform,” Sainsbury’s said. “This platform will allow a greater degree of flexibility, enabling new product launches and facilitating a much improved digital offer to customers.”

Sainsbury’s Bank, established in 1997, has around 1.5 million active accounts for retail customers only.  The bank offers a range of banking products such as credit cards, savings and personal loans, and also operates a network of ATMs.

Under the terms of a multi-year arrangement, FIS will now provide real-time core banking and back office processing support to Sainsbury’s Bank. This will involve FIS supporting the bank’s deposit, savings, loan and credit cards account systems, as well as supporting the delivery of a multi-channel strategy to the customers through telephone internet and mobile banking. The entire operation will be hosted by FIS in the UK, aside from call centre services which will be provided by Sainsbury Bank itself.

“Sainsbury’s plans to extend their banking services will increase competition by introducing a new and exciting player to the UK banking market,” said Mark Davey, EVP, International, FIS.

“FIS has unrivalled experience in core banking and financial technology outsourcing and is uniquely qualified to help them achieve their growth ambitions."

Sainsbury’s said that taking full control of the bank will enable it to expand its existing business, and will also allow services to be more fully integrated across its bank and traditional retail business.  This will involve leveraging Nectar card data to “drive sales uplifts in both financial services and the core supermarket business”, the firm said.

Sainsbury's bank will look to appoint a non-executive direct with responsibility for IT operations to join the board.  The bank also recently appointed Steve Burke as chief operating officer, joining in March from Tata Consultancy Services subsidiary Diligenta, where he was responsible for operations including IT transformation and outsourcing programmes.

Commenting on the announcement, Peter Griffiths, CEO for Sainsbury’s Bank, 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, who are experts in their field.”

FIS claims to have relationships with 40 of the 50 top banks in the world, and, alongside rival Fiserv, has had its ‘service bureau’ model widely adopted in the US, particularly among lower tier banks.

However in Europe, where there are relatively few banks in each national market, there has traditionally been a strong preference for on-premise software, maintained by bank staff rather than outsourced to third parties. One notable exception is Metro Bank in the UK, which has its core banking delivered as a service.

Rik Turner, financial services analyst at Ovum, said that the deal to outsource operations to FIS is likely to provide a solid IT infrastructure for its banking services.

“It all comes down to how tight a service level agreement Sainsbury’s has negotiated with FIS and how actively it monitors it,” he told Computerworld UK. “I would suspect that this should be good for operations because FIS has extensive experience in such delivery of functionality and it will be particularly keen to do a good job here to prove the concept of outsourcing core banking systems and indeed all IT functionality to a trusted provider, which is still not the norm in the UK.”

Copyright © 2013 IDG Communications, Inc.

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