Cloud makes inroads into UK mid-tier as Leeds Building Society joins HP alliance

Leeds Building Society will use HP’s cloud platform to keep up with changing consumer demands

Leeds Building Society has joined the shared services alliance founded by HP Enterprise Services and the Yorkshire Building Society in September, in a deal that will see the society move its core application for mortgages and savings to the cloud. The deal also marks a growing recognition among the UK’s mid-tier institutions of the power of cloud to help them move with the times.

The Leeds Building Society is the fifth largest of its kind in the UK, with assets of £10 billion. Founded in 1875, the society has approximately 703,000 customers and 65 branches in the UK, with 29 in Yorkshire and a branch each in Dublin and Gibraltar.

Ostensibly, Leeds Building Society is in direct competition with Yorkshire Building Society. However, the Leeds Building Society is based in West Yorkshire, while the Yorkshire Building Society is based in North Yorkshire and covers the whole area, including the East Riding and South Yorkshire. Yorkshire Building Society is the second largest building society in the UK.

HP’s original deal with the Yorkshire Building Society involved shifting the building society’s core mortgage and savings application to the cloud. That in turn enabled the Yorkshire to effectively offer its automated mortgage sales, lending and savings account processing product as a white labelled solution to other financial institutions (which it had been doing for years), through HP. Leeds Building Society is more interested in moving its core savings and lending business onto a private cloud platform so that it can better respond to changing customer needs.

“This was not a quick decision for us – it was a thoroughly considered choice,” said Karen Wint, operations director at Leeds Building Society. “Our business model is based on customers depositing their savings with us, while others take on lending for their mortgages. It’s a simple model and it’s worked for many years. But today our customers range from young newcomers to our oldest member who is 100 years of age. People want a personal touch but they also want to be able to bank across multiple channels.”

“Some of them may never want to use a branch,” she continued. “Some of them may want to do some banking online, and over the phone. Others may prefer a mix of mobile and face to face banking. The way our systems were set up made it hard to make that seamless. This private cloud service brings us much closer to the 24/7 access to information model that customers expect today, and it also gives us a very compelling and cost-effective way to provide for changing customer needs.”

Both Yorkshire and Leeds building societies will use the HP private cloud running on 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.

“HP has aligned with Yorkshire Building Society and other mid-tier institutions because they face a set of challenges – capital requirements, regulatory requirements – that have become markedly more onerous even within the last year,” said Jeremy Suddards, vice president FSI at HP Enterprise Services UK and Ireland. “We have data centres in the UK and we are running payment systems for the UK government, so it was a strategic move to support the mid-tier building societies. We can ensure compliance and we can help them to provide access to mobile, access to data and robust security to ensure they meet the needs of customers and the FCA and PRA over the next ten years.”

The idea of a building society such as Yorkshire Building Society offering its products as a white labelled service is not entirely new. Newcastle Building Society has a Solutions business that provides services to third parties – including banks. This involves a white label client account solution used for managing client funds, financial systems including full IT system support, and savings management services, which means account administration. The building society also offers to manage existing portfolios for institutions that are looking to control their costs.

“We provide an outsourced savings management service for organisations bigger than ourselves,” said Steve Urwin, sales and marketing executive at Newcastle Building Society. “It’s an important part of our diversification strategy since 2007, which draws on the core competencies that we have had for 150 years.”

However, according to Suddards at HP, there is no equivalent offering to the HP deal with Leeds and Yorkshire in the UK market, because other deals involve aligning with IT providers and may not necessarily provide the same level of data management, compliance and control. Instead, he believes that the agreement with YBS marks the beginning of a trend he says will grow considerably over the coming years. 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 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,” he said. “Here, we’re looking to use the building society’s application as a core component, as a foundation for what we’re loosely calling Banking-as-a-Service. In this market particularly, we’re going to see more third party application providers. It’s difficult to get a business case to work just on the functionality or an application upgrade. People now are looking to buy an outcome.”