“This turned what was a super-hard systems job [into] a clusterfuck in the making.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Customers of UK bank TSB have probably lost track of the number of times the bank has declared its new online system, Proteo4UK, to be operational, only to find that they cannot log on. Even today, seven days after the system was supposed to be up and running and ten days after work to complete the migration began, and six days after we lambasted the banks for this fiasco, many of the customers are still unable to access their online accounts or make payments.
At the end of last week, TSB’s CEO Paul Preston announced he was drafting in a crack unit of IT technicians from IBM to “put things right” once and for all, no doubt at substantial extra cost to the bank. It was a bif snub for TSB’s parent company, Banco Sabadell, which oversaw the platform switch and claims (or at least claimed) to be a wizard in the art of migrating data. Indeed, TSB’s data migration was intended as a showcase to the world of Sabadell’s savoir faire in the IT department.
Initially, the IBM team had until the end of Saturday to fix the IT problems Sabadell helped to create, yet on Monday morning (April 30), the online system appeared to be no less broken than it was on Thursday when Preston succinctly told ITV News that the bank was “on its knees.” On Sunday night a spokesperson for the bank warned customers that Internet banking is still operating at around 50% capacity. “For every 10 customers who try to access our internet banking, five will be able to access this service.” And five won’t.
As each day goes by, the costs, both material and reputational, continue to mount. The fact that the bank chose to execute the data migration at the end of the month, when companies usually pay their workers and suppliers, has merely added to the chaos. Moody’s has warned that the bank’s IT migration difficulties raise the risk of customer defections while increasing costs as management tries to patch up customer relationships.
As part of its damage-limitation charm offensive the lender has pledged to waive overdraft fees and interest charges have been waived for the month of April. It has also raised the interest on its saving account from 3% to 5%. Estimates suggest this could cost the bank an extra £30 million a year. TSB has also announced that it will consider claims from non-TSB customers who suffered losses as a result of banking services being lost.
This is all happening at a bank that is not exactly in the finest fettle. On Thursday it reported first quarter results showing a 39% fall in pre-tax profits to £19.3 million. Much of that was blamed on the extra rental fees TSB’s new parent company, Spain’s Banco Sabadell, had to pay TSB’s former parent company, Lloyds, to use its old IT system, which skyrocketed in 2017 from £92 million to £214 million.
As part of its acquisition of TSB in 2015, Sabadell received a £450 million lump-sum ‘IT dowry’ from Lloyds to help pay for the migration of company data. Nonetheless, with each month that went by without a new system in place Sabadell was having to pay out almost £20 million in fees to Lloyds. And that gave very clear incentives to management at both Sabadell and TSB to hurry the IT upgrade process along, even it meant cutting big corners and taking big risks with customer data.
“The time period to develop the new system and migrate TSB over to it was just 18 months,” one insider has complained to The Guardian. “I thought this was ridiculous. TSB people were saying that Sabadell had done this many times in Spain. But tiny Spanish local banks are not sprawling legacy systems” like Lloyds Banking Group’s.
To compound matters, the Sabadell development team did not have full access to or control of the system they were trying to migrate customer data and systems from, since Lloyds Banking Group was still the supplier. “This turned what was a super-hard systems job [into] a clusterfuck in the making,” the insider said.
If, as the insider alleges, the disastrous roll-out of Proteo4UK at TSB was foreseeable a long time ago, at least to many of the tech workers involved in the project, and yet the management went ahead anyway, adopting a hope-and-pray attitude, TSB, and by extension Sabadell, are likely to pay an even higher price for this epic IT disaster — especially if, as feared, some records are indeed lost or corrupted.
There are also reports that “gremlins” have now hit Lloyd’s IT system, which raises the prospect of contagion spreading from TSB to its much larger former parent company (of which I am a customer).
The UK financial ombudsman and the Financial Conduct Authority have launched investigations into the scandal and executives at TSB and Sabadell are scheduled to be quizzed by the Treasury Committee on Wednesday. The longer the outage lasts, the higher the fines will get, the more damage will be done to TSB’s already tattered reputation, and the more likely it is that the bank’s customers will switch to one of its rivals. In the absolute worst case scenario, TSB’s senior management may even lose their bonuses. By Don Quijones.
But Spanish parent, Banco Sabadell, proclaimed triumphantly to its Spanish audience that the botched IT transition was a resounding success. Read… UK Bank’s Tech Chaos Blocks Customers from Their Funds: Day 5
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