Few things can make a bank director or CEO lose sleep at night like the prospect of failure of the organisation’s IT system. The meltdown of TSB’s IT system on April 20 laid bare the risks banks take when they decide to upgrade their legacy systems as part of their strategy to offer digital services.
It is an unfortunate reality that the boards of most banks do not have the right IT experience to ensure that IT projects are well monitored and that their IT staff are fully supported in the horrendous task of upgrading IT systems. It is hardly surprising that many bank directors support strategies built on maintaining mainframes that date back decades. Who could blame a chief information officer to put his reputation on the line dealing with a core banking platform migration?
One IT professional quoted by computerweekly.com who worked in IT at Lloyds Bank before, during and after the initial integration of TSB said: “Migrating to a new core banking system is a horrendous task and there are so many thousands of things that have to happen exactly as expected, or disaster can unfold.”
This failure is precisely what seems to have happened at TSB, which was spun off the Lloyds Banking Group as a result of the EU acceptance for taxpayers’ money being used to bail out the bank in 2008. The Lloyds IT system used by TSB was a bodge of many old systems of TSB, Bank of Scotland, Halifax, Cheltenham and Gloucester and other IT systems. At least the legacy system was reliable. TSB paid Lloyds more than €110 million a year for a cloned IT system when TSB left the Lloyds conglomerate.
When the Spanish bank Sabadell acquired TSB in 2015, it said it would move customers to a new banking platform, and a major core system transformation was started. The new system was delayed a few times, but the TSB board and CEO were confident that the new platform was designed for the digital banking that today’s customers want.
The complexity of the project and the consequential meltdown may have never featured on the radars of the bank’s board and CEO even if at the end of the day they are responsible for any major system failure. On April 23, Sabadell announced that Proteo4UK – the name given to the TSB version of the Spanish bank’s IT system – was complete and that 5.4 million customers had been ‘successfully’ migrated over to the new system.
The lessons to be learnt by directors and CEOs of banks, and indeed of all financial services companies that depend heavily on their IT systems, is that they need to spend money on state-of-the-art systems
Hubris seems to afflict many business leaders who believe that they are invincible. Josep Oliu, the chairman of Sabadell, triumphantly said: “With this migration, Sabadell has proven its technical management capacity, not only in national migrations but also on an international scale.”
The team of IT developers celebrated by posting on LinkedIn photos of themselves drinking champagne and describing themselves as ‘champions’ and a ‘hell of a team’. Only hours after this celebration the Proteo4UK system crumbled and almost two million TSB customers who use the internet and mobile banking were locked out.
Twitter made the debacle even worse to swallow. Customers frustrated by the inability to access their accounts or get through the bank’s call centres started to vent their anger. TSB’s CEO Paul Pester’s boasting that the new system had 2,500 man-years in its making and that more than 1,000 people were involved in the upgrade made the customer service disaster even more painful for customers, staff and TSB shareholders. Regulators, like the ECB and the Prudential Regulatory Authority, are now rightly focusing on getting the right processes and structures in place in all banks to manage the IT risks effectively. The lessons to be learnt by directors and CEOs of banks, and indeed of all financial services companies that depend heavily on their IT systems, is that they need to spend money on state-of-the-art systems and make it pay by importing their other operational costs.
Banking leaders also need to support their IT team by ensuring that they have the right competencies to handle major IT systems transformations. Hanging on to bespoke legacy systems is not the long-term solution to IT infrastructure consolidation. Before promising to deliver digital financial services banks need to ensure that their core banking systems are robust, reliable and resilient.
Banking and consumer protection regulators will rightly argue that it simply Is not good enough to expose customers to IT failures, including delays in paying bills and an inability to access their own money.