Nationwide IT infrastructure poised to absorb Virgin Money

Nationwide’s proposed takeover of Virgin Money could see a company that has gone through multiple technology integrations in recent years integrated into a well-established digital strategy.

Nationwide plotted its future technology in 2008, when it announced an initial £1bn investment in IT to create a foundation for the future. Over the same period, Virgin Money has been through two major acquisitions – with the associated integration projects.

The proposed £2.9bn acquisition of Virgin Money, the biggest banking takeover since 2008, will see Nationwide take on over 7,000 staff, and create the UK’s second-biggest mortgage and savings company. It will also see the Virgin Money brand disappear over time.

Nationwide chairman Kevin Parry said there is no guarantee a firm offer will be made or that Virgin Money shareholders would accept it, but added: “If the acquisition proceeds, it will accelerate our strategy, and create a stronger and more diverse business that is better placed to deliver financial value to our members, both now and in the future.”

But what are the tech challenges and advantages ahead?

Virgin began life as a basic financial service with Norwich Union, but has since acquired Northern Rock for £747m in 2011, and was acquired by Clydesdale and Yorkshire Bank Group for £1.7bn in 2018. It could soon be a part of Nationwide Building Society, which has been on its own long tech investment journey.

When most financial services firms were slashing spending due to the global financial crash of 2008, Nationwide was investing heavily in IT. It embarked on a £1bn project to transform its technology, following years of under-investment. This created the foundations for the company to adopt the latest technology when it emerges. Today, it’s using fintech to transform the business. Its latest major project, for example, has seen it begin to move all of its payments onto a cloud-based platform in what it described as “generational tech transformation”.

Fintech expert Chris Skinner said the big issue for Nationwide is Virgin’s “origins and structure”.

“I’m pretty sure that the IT systems [at Virgin Money] are a complete mess behind the scenes because of this, and rationalising those systems to be open, platform-based and competitive with the likes of Monzo, Starling and Revolut will be a massive challenge for Nationwide,” he said.

Nationwide CEO Debbie Crosbie is unlikely to shy away from IT challenges. She has experience helping TSB – where she joined Nationwide from in 2022 – recover after an IT migration project that went wrong.

Vittorio D’Orazio, financial services analyst at Gartner, said it’s too early to say what Nationwide’s plans are for the business and its IT, but that integrating Virgin Money into its IT systems is more likely.

“If I want to spin off a digital bank then it is one story; being aggressive on innovation and not even touching existing systems, just focusing on the new bank’s systems,” he said. “But maintaining and proliferating a different system is quite inefficient and will cost more.

“The other option is if you are going to merge the two organisations,” said D’Orazio. “I believe metrics supporting this approach will talk in a few years. When we have seen finance organisations such as banks acquiring others and not consolidating technology platforms, we have seen in the long run a greater waste of money.”

He added that technology is so embedded in banking that if you don’t optimise it, you will lose money on its operations. “Some large banks went on merger and acquisition journeys and did not do the consolidation, and ended up with many different systems, which is not convenient with overlap and the need to maintain them,” said D’Orazio.