Chelsea and Yorkshire building societies enter IT unknown

The finance sector will see further IT integration as the Yorkshire and the Chelsea building societies merge to create £35bn mortgage giant.

The...

The finance sector will see further IT integration as the Yorkshire and the Chelsea building societies merge to create £35bn mortgage giant.

The deal, which is expected to complete in April, will result in an organisation with 2.7 million customers and 178 branches.

The merger aims to save the building societies between £35m and £40m in the first 18 months through increased efficiency and job cuts.

The new organisation will be called the Yorkshire Building Society.

A Yorkshire Building Society spokeswoman said it is too early in the potential merger process to give any specific details about IT. Yorkshire BS is a heavy user of SAP.

Building societies have similar transaction processing systems, so there is likely to be overlap between the two organisations, said financial services analysts.

Analyst Ralph Siva said most building societies have small IT departments that are not used to big mergers, which will make integrating the two organisations a challenge.

However, most building society IT spending is on front office equipment which will be retained even if the companies merge, he said.

"As a percentage, the IT integration is much lower than that of high street banks merging," he said. "There are fewer financial benefits through merging IT but the challenge is also smaller."

Silva said decisions on what systems to keep will be heavily influenced by suppliers. "Because of a shortage of big merger experience, both sets of suppliers will be brought in to bid to win the combined work."

Bob McDowall, analyst at Towergroup, said he thinks the merger is "one of convenience" and he doubts the IT implications have been thought through.

"I think they will run both sets of IT in parallel and then decide which is the best from a tactical point of view."

The government is considering encouraging building societies to share back office functions.

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