Capita will acquire the mortgage processing operations of the Co-operative Bank as part of an outsourcing contract worth up to £325m over 10 years.
The contract, which is not quite finalised, will see Capita take over the operations that support 250,000 mortgage customers of the Co-op and Britannia. It is expected to begin at the start of 2015.
As part of the deal, Capita will buy the bank’s existing mortgage processing operations, including Western Mortgage Services Limited – previously a subsidiary of Britannia, which merged with the Co-op in 2009. A total of 660 workers will transfer from the finance firm to Capita.
CEO at the bank Niall Booker said the Co-op's aim is to become a more efficient bank, better placed to serve its individual and small-and-medium-sized enterprise (SME) customers, with values and ethics at the heart of everything it does.
“Developing our core retail mortgage business is a key part of this strategy,” he said.
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According to Booker, the deal will free up resources so the company can compete better while meeting industry regulations.
“It is vital we improve our processes, consolidate, utilise up-to-date mortgage systems and, as a smaller bank, ensure we can respond nimbly in a competitive market, mindful of the impact of increased regulation to our cost base," he said.
"These proposals, to partner with Capita, would support our plans for substantial growth in retail mortgages and would enable us to continue to deliver high standards of service to our customers and brokers.”
The bank has identified IT as in need of improvement and outsourcing to an expert will give it confidence in the system while it maintains focus on IT modernisation through digital developments. A failed IT project was partly blamed for the bank’s £1.5bn losses in 2013.
In September 2014, the bank ditched its plan to migrate its core banking system to an off-the-shelf system from Infosys, amid huge losses. A report commissioned by the Co-operative Group revealed how the planned migration – or re-platforming – was a contributor to the bank's losses. The report, which was carried out by Sir Christopher Kelly, revealed numerous failures in a project to replace core banking systems and described the difficulties faced by UK retail banks in modernising their IT.
In 2013, the Co-op bank identified major IT transformation as a priority and proposed four main areas for investment: remediation, digital catch-up, simplification and strategic optimisation.
At the time, the bank said: “The primary focus for 2014 and 2015 will be remediation of the existing system issues to ensure the bank can meet its ongoing commitments to regulators and customers, as well as the creation of an IT platform that allows the bank to provide new digital channel applications to enable appropriate online products – specifically web-based and mobile banking, and functionality for its customers.”