Sabadell to migrate TSB IT to proprietary banking platform with £450m sweetener

Spanish bank Sabadell will move TSB IT systems to its own in-house core banking platform following its acquisition of the UK bank.

TSB currently uses the IT systems of Lloyds Banking Group, which will contribute hundreds of millions of pounds towards the transfer costs.

Sabadell's plan to migrate TSB to its own proprietary Proteo technology in-house IT platform, once the £1.7bn takeover is complete, will cut costs by £160m annually, the company said. The agreement includes Lloyds Banking Group providing £450m towards IT integration costs.

“Sabadell believes that substantial savings will be derived from IT optimisation benefits. Savings of approximately £160m per annum on a pre-tax basis are anticipated in the third full year after completion of the offer,” it said.

TSB CEO Paul Pester, who will remain in his current role, said TSB’s position as a challenger to the high street giants will be boosted by the takeover. 

“With the support of Sabadell, TSB will benefit from the full capabilities the wider group will have to offer, enabling us to accelerate our competitive capabilities even further,” he said.

When it separated from Lloyds Banking Group (LBG), TSB launched alone with five million customers, eight million accounts, 8,000 staff and 632 branches. But because TSB's systems are run on LBG's IT platform, the Office of Fair Trading (OFT) had concerns over TSB's ability to compete.

“Business and IT services agreements with LBG may impair [TSB’s] ability to compete independently in the market,” said OFT CEO Clive Maxwell in a letter to chancellor George Osborne in September 2013.

Sabadell’s strategy echoes that of another Spanish banking giant – Santander. Santander’s growth strategy saw it acquire UK financial services firms and move them onto its in-house core banking platform, known as Parthenon, which uses in-house middleware called Banksphere.

Santander bought Abbey in 2004 and Alliance & Leicester and Bradford & Bingley in 2008. Santander expected to make £300m cost savings after integrating Abbey with Partenon. It planned to make efficiency savings of between £30m and £50m by integrating Alliance & Leicester with the Partenon core banking system. The bank’s strategy to migrate acquired customers to its Partenon core banking platform gains huge advantages by standardising its operations and creating a single view of customers.

TSB recently announced it is upgrading its branch network, with the planned opening of 30 new branches and refurbishing of 265 existing ones.