IBM’s €473m managed services contract with Nordea reflects an increasing trend among Nordic banks to outsource more of their IT.
Increasing competition from tech-led organisations is forcing banks to tap the skills and resources of IT service providers.
Nordea’s rival financial groups Swedbank and Handelsbanken are also moving in the same direction, driven by a lack of in-house capability and the huge costs associated with implementing IT-projects with internal teams.
At its core, the multi-year agreement reached between Nordea and IBM in January will outsource the bulk of the bank’s IBM Z mainframe operations in five countries. This deal deepens a relationship that dates back to 2003.
For Nordea, the expanded alliance with IBM ensures the bank will have access to the most advanced technologies such as AI and customer-service robotics.
It will, for example, support Nordea’s focus on cognitive technology and robotics. This has seen the bank invest in automated and interactive virtual customer service solutions such as Nora and Nova. Nora has become the bank’s leading 24/7 robot investment and savings plans advisor across its Nordic market platforms. Nova functions as a chatbot and is programmed to assist online customers with rudimentary tasks, such as ordering statements.
The challenge of increased competition from a more diverse array of financial actors is driving this, said Gunnar Berger, the head of open banking at Nordea.
These new players have been buoyed by rules around open banking. Open banking is being driven in Europe by the PSD2 regulation. This came into effect last year, and meant banks have to make customer data available to third parties through application programming interfaces (APIs), if approved by the customer.
Nordea’s Open Banking Instant Reporting service is an example of a service instigated by PSD2. It allows corporate customers to access their own accounts and integrate real-time data with their own systems and processes.
“Instant Reporting gives corporates the ability to directly access their real-time data,” said Berger. “This will have a big impact on the way they organise their businesses, freeing up valuable time and resources.”
The launch of Instant Reporting, coupled with Nordea’s next-generation technologies deal with IBM, underlines the nature of the challenge facing Nordic banks in a more tech-driven competitive operating environment where innovation will continue to dictate the banking strategies and realities of tomorrow.
The Nordea-IBM deal delivers a range of services and expertise that the bank, in its present configuration, simply could not match in-house. It will result in 117 Nordea workers, who mainly work at the bank’s IT-units in Copenhagen and Stockholm, transferring to IBM. The eventual number, and terms of relocation, are currently the subject of negotiations with IT sector trade unions in Sweden and Denmark.
“A total of 117 employees are affected. Some 38 are located in Sweden. All of these personnel have been offered new positions at IBM under guaranteed contracts to work with the Nordea account for the first 12 months,” said a Nordea statement.
The IBM relationship is not just about accessing innovation, but rather part of a wider effort to reduce costs in Nordea’s IT and operations transformation projects. This will be achieved through a higher degree of centralisation and nearshoring/outsourcing and shared platforms, as well as an expanded use of automation software and robotics. Nordea expects to save around €900m.
Accelerated outsourcing services
The outsourcing of services by Nordic banks to major global IT-suppliers has visibly accelerated since 2014. Swedbank, a bank with 16,000 employees and over nine million private and corporate customers, contracted Fujitsu to provide an internal help desk in support of its Nordic-Baltic branch network, telephone and online banking platforms.
In 2016, Swedbank outsourced the establishment of a new lending IT platform to Capgemini. The agreement is linked to a group-wide Swedbank project to digitise the bank’s loan processes.
Meanwhile, three banks in Finland have come together to create a shared core banking platform.
Savings Banks Group, Oma Savings Bank and POP Bank have outsourced the building and operation of the platform, which will manage 10% of total deposits and loans in Finland.
The deal to transform digitally saw the IT supplier selected for the contract, Cognizant, acquire an IT supplier owned by a group of banks.