Spiralling IT costs to hit TSB's profit this year despite stellar 2016

Shruti Tripathi Chopra
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TSB rents its IT platform from Lloyds Banking Group (Source: Getty)

High street bank TSB is expecting a challenging 2017 despite its annual pre-tax profits growing by 169 per cent to £182m last year.

The bank, which was spun out of Lloyds in 2013, expects “significant reduction” in profits this year due to the cost of using its former parent's IT platform.

"At the moment, we rent our IT platform from Lloyds. The outsourcing fees will increase to £200m this year which will impact us. However, we expect profits to improve by 2018," Paul Pester, chief executive, TSB, told City A.M.

"We plan to boost our offering this year by moving to a new banking platform from the existing one provided by Lloyds Banking Group. This will help us offer our customers even better service and respond to their banking requirements."

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TSB is going to pay staff a collective £28m in awards following the lender's profit boost. While the amount of money deposited by customers rose over 13 per cent to £29.4bbn, the bank made a record £6.6bn of new mortgage advances in the last year, up 36.5 per cent from the previous year.

Pester added the the banking market is not working in the interests of consumers.

"There is a lack of transparency around what consumers are actually paying for their day-to-day banking. This is exacerbated by the myth that banking is 'free'," Pester told City A.M.

"Consumers don’t have the tools to easily compare and contrast the true costs and benefits of different banking services, meaning that many see little benefit in switching accounts.

"The switching service does not work for all UK consumers, particularly overdraft users. This means overdraft users, who often have the most to gain from moving banks, are effectively “locked-in” to their current bank."

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He also suggested creating a "credit passport" to ensure overdraft users can switch providers easily.

"The credit passport would contain 9-12 months of the customer’s transaction data enabling a responsible lending decision to be made at the point of switching accounts."

The TSB boss added that the government need to take action to make banking market more transparent and competitive.

"No bank tells customers the true cost of their banking", he said and suggested creating a "monthly bill" delivered in the same format by every bank.

"The bill will enable consumers to understand the true cost of their banking. The standardised bill would also be easily comparable across providers, enabling consumers to be clear on whether they could get a better deal elsewhere."

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