Lloyds to cut costs with Thought Machine platform move
Job losses could be on the way as Lloyds is planning to save hundreds of millions of pounds in annual technology costs by switching its computer systems to a new platform.
According to an internal company presentation seen by the Financial Times (FT), the bank has started discussions with regulators about transferring data on about 500,000 customers of its old Intelligent Finance brand to test a new core banking system built by Thought Machine,
Intelligent Finance is a sunsetted business so it just services existing customers, not new ones.
To keep a long story brief, back in 2014 the firm – which is owned by Lloyds – asked its savings customers to think about moving their accounts to TSB. Lloyds was asked to close Intelligent Finance to new business by the European Commission to reduce its market share.
As FinTech Futures reported back in November 2018, Lloyds partnered with and invested in Thought Machine, a UK-based banking tech company, to accelerate the digital transformation of the bank’s business.
Lloyds’s £11 million investment represents a 10% stake, part of its Series A £18 million round. The fintech firm has developed Vault, its cloud-native core banking technology.
In the latest development, the FT says if the platform move is successful, Lloyds could carry out a similar transfer across all of its businesses over the next few years.
Lloyds has cut more than 30,000 jobs and closed almost a third of its branches in the past eight years. Like other banks it’s trying to adapt digitally to cope with the competition.
As you’d expect, there are concerns about job cuts.
Mark Brown, general secretary of BTU union (formerly Banking Trade Union), says: “The bank knows when and where jobs will be lost as a result of the implementation of Thought Machine’s core banking platform and it should publish that information immediately.”
In that Lloyds’ presentation, it says “incremental improvements” to existing IT infrastructure “can only go so far”.
The FT explains that Lloyds spends about £2.2 billion a year on IT running and improvement, meaning the estimated 35% to 40% reduction in costs from using Vault would save it more than £750 million annually.
Lloyds is aiming to go from spending close to £47 of every £100 in revenue it earns on day-to-day operations to the “low 40s” by the end of 2020.
The Thought Machine project is designed to match digital banks such as N26 and OakNorth, which can operate at cost-income ratios of less than 30%.
The presentation noted that “rationalisation” of its existing systems would affect employee numbers, triggering alarm among trade unions – such as BTU above.
Lloyds has previously pledged to retrain as many staff as possible to avoid compulsory redundancies as part of its investments in new technology.
A person close to Lloyds stressed to the FT that any moves to a new platform would go ahead at a “cautious” pace.