Cloud and economics means third party app providers will flourish, says HP Enterprise Services VP
Yorkshire Building Society (YBS) this week announced a shared services alliance that will see the building society’s core mortgage and savings application shift to the cloud, a move which HP Enterprise Services’ vice president of the financial services industry Jeremy Suddards said will become increasingly popular in the financial services sector moving forward.
Yorkshire Building Society, the UK’s second largest building society with assets for more than £45bn, began offering a mortgage and savings IT service to YBS customers which it developed off the back of an overhaul to its core banking system in 2003.
The solution – which automates a number of processes involved with mortgage sales, lending pre and post-completion, and savings account processing – became very successful quite quickly, and under YBS’s subsidiary Yorkshire Key Services began offering this as a managed service to other building societies in the UK.
“It’s been so successful that over the last two or three years we’ve had regular approaches from other financial services organisations, not just in the building society sector but mid-tier banks and new entrants that have been really keen on taking our services and expanding services for them,” said David Henderson, general manager of group change and chief information officer at Yorkshire Building Society. “But honestly, offering IT services is not what our core business is about, and we can never have the economies of scale that the likes of HP can bring to this. So we’ve been declining these from prospective clients because we’ve been too busy with our own growth,” Henderson adds.
Under the shared service alliance, HP will deliver the fully hosted mortgage and savings solution from its virtual private cloud running off its UK Tier 4 datacentre, with HP bringing its scale, reliability and security wraparounds to the table. HP will also manage the service, including taking on responsibility for updates to the platform moving forward. The move will effectively allow HP to offer the application as a white-label service for other financial organisations.
“For us, the alliance brings the opportunity for our software platform to become part of a much broader scalable offering to clients through HP, a much broader service offering than we’ve had the capacity or appetite to do alongside what we’re already doing,” Henderson says.
“It gives not only a scale to those mid-tier organisations, but it also gives them a real sense of security and trust that, given the increased regulation the banking sector is under, the core product they may want to take to market, whether they are an existing or new client, is going to be run in a manner that will allow regulators to stay happy,” says Jeremy Suddards, vice president, Financial Services Industry, HP Enterprise Services (UK & Ireland). “Looking at the application we see this as a foundation for mortgage and savings in the mid-tier market, but it fits very nicely with other services we offer in the sector already,” he added.
“Delivering an application purely as a service on a virtual private cloud, so they’re only paying for the scale of the application means that the cost of entry for a new bank reduces massively. There’s lots of big capital exposure that they would normally have to consider,” Suddards says. “You don’t make core banking changes regularly – if you do them once every 20 years that’s probably quite aggressive – so people want to have a service which gives them the scale to grow but actually has a very predictive cost base.”
Suddards believes that the agreement with YBS marks the beginning of a trend he says will grow considerably over the coming years. That is, as financial services companies in the UK mid-tier market become increasingly reluctant to invest the vast amounts of capital generally required to upgrade their own kit and caboodle to offer these kinds of services, businesses like YBS that have not invested in developing a platform similar to its own will increasingly partner up with cloud service providers like HP to deliver what are effectively white label banking services.
“Just look at the Cooperative Bank or Nationwide – the capital is very scarce, so the offer to move towards this model is proving to be more and more attractive,” Suddards says. ““Here, we’re looking to use YBS’s application as a core component, as a foundation for what we’re loosely calling Banking-as-a-Service, so as people start moving from actually owning and running the systems that provide functionality to all of their clients, they want that functionality but they don’t want to be experts in running it.”
“I think in this market particularly, we’re going to see more third party application providers – whether that’s companies like Teradata or Oracle – it’s difficult for them to get a business case to work just on the functionality or an application upgrade. People now are looking to buy an outcome,” Suddards says.