Nationwide will invest an extra £1.3bn in technology over the next five years, in an effort to keep up with pressure from new technology-focused entrants and big investment programmes at rival banks.
Joe Garner, Nationwide chief executive, said new technology and changing customer behaviours were causing a “fundamental change” in the financial sector and that the investment was “about putting us in a position where we have the agility and ability to compete”.
The mutually-owned business — the UK’s largest building society — said improvements to its IT systems would allow it to cut an additional £200m from annual costs through increased efficiency by 2023, on top of a previous target of £300m in annual savings. However, the plan will have a significant impact on profits in the short term, with a charge of £200m to £250m this year representing around a quarter of last year’s pre-tax profit.
Mr Garner said the business chose to extend its earlier investment plans while it was “in a position of financial strength with capital levels at an all-time high”.
Friday’s announcement brings Nationwide’s total planned investment across the business over the next five years to £4.1bn.
Earlier this year the company said it hoped to expand into business banking by applying for a share of a £425m fund to boost competition in the sector. Mr Garner said the plan still relied on securing a £50m award, despite its recent strength and the amount of money being earmarked for other investments.
“There’s a difference between just having the money to do it and making a return on our members’ money,” said Mr Garner. “The price of entering the SME market has been prohibitively high so the potential return hasn’t justified the investment — if we are successful in securing [an award], that means the payback becomes attractive and we could justify it to our membership.”
As part of the new investment, Nationwide will open a new “technology hub” and create between 750 and 1,000 new jobs, although Mr Garner said he expected the business’ total headcount would continue to fall overall.
Technology investment has increasingly become a priority for Britain’s big lenders, encouraged both by new fintech challengers and fears that tech giants such as Amazon could expand into financial services.
Lloyds Banking Group announced a £3bn investment plan focusing on technology at the start of the year, while Royal Bank of Scotland announced an additional £1.5bn in restructuring charges over the next two years, much of which will be driven by increased spending on technology. Barclays, meanwhile, has set up a dedicated venture capital-style unit with the aim of adding billions to its annual revenues.
Mr Garner predicted that big tech companies “absolutely will come into financial services, but we shouldn’t assume they will replicate the current offering”.
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