The botched IT migration is still dogging customers of the UK lender.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After months of self-inflicted IT chaos at mid-sized UK lender TSB, caused by botched data migration to a new IT system in April, things were supposed to have returned to some semblance of normality by now. But new problems keep cropping up. And once again, customers are feeling the brunt of the financial pain and inconvenience.
Last Wednesday, TSB’s online banking system crashed again, albeit briefly. Two days later, the bank was forced to issue yet another apology to customers, this time for failing to send out debit card replacements to about 40,000 account-holders whose cards are due to expire on August 31. TSB has been scrambling to dispatch new cards. But thousands of customers are unsure they will have a usable debit card by Friday.
This week began in ominous fashion, with an announcement from TSB that it was delaying a long-planned transfer of millions of customers from Visa debit cards on to Mastercard. The “big-bang” migration was scheduled to take place later this year, but instead has been pushed back until 2019. A person close to Mastercard told FT that the debit card delay was likely to have costs for TSB.
TSB’s IT fiasco, now in its 21st week, has already cost its parent bank, Spain’s Banco Sabadell, €203 million in losses, which included €40 million from fraud losses and €92 million to cover future customer claims.
This is likely to be just the tip of a very large iceberg. A source close to the matter recently told WOLF STREET that IBM, the external contractor hired by Sabadell to resolve TSB’s IT problems, had estimated that the cost of rectifying the issues and accounting errors could reach as high as £955 million ($1.16 billion). This excluded fraud-related issues as they are not regarded as being part of IBM’s remit, and are being treated as a normal banking function of fraud prevention.
However much the final bill comes to for Sabadell, one thing that’s clear is that TSB customers are already paying a high price for sticking with the bank. In the immediate wake of the botched data migration, over two million customers were locked out of their online accounts. Some people lost out financially, or experienced severe stress. Business customers were unable to pay bills or make payroll and mortgage payments were missed.
Over 1,300 customers have become victims of fraud attacks. When TSB sent out letters to customers apologizing for the problems it had caused, it managed to mess even that up, by enclosing correspondence intended for other customers, in the process breaking the EU’s new data protection laws.
Even now, 21 weeks after the initial IT “upgrade”, serious data issues abound. As FTAdviser reported, a growing number of customers are discovering that their credit scores have also been hurt by TSB’s failings. One customer said that on contacting her credit agency in August, she was told her credit score had dropped 86 points in one month, pushing it from ‘good’ to ‘fair’.
She was then informed that her current account provider, TSB, had failed to update her status since April, the month the meltdown began. Banks and other credit-linked entities typically update agencies on a customer’s credit status on a monthly basis, but as a result of its IT issues earlier this year, TSB has not updated its customer credit files with credit agencies Equifax, Experian and Call Credit. As a result, customers could find it harder to access credit from other institutions.
Yet most customers continue to stick with TSB regardless. In the direct aftermath of the bank’s IT meltdown some customers did vote with their feet by moving their money elsewhere. Rival lenders reported a sharp rise in the number of customers joining them from TSB, as droves of irked depositors abandoned the beleaguered bank.
But according to TSB, in the second quarter — i.e. at the height of the mayhem — it suffered a net loss of just 6,000 customers: some 26,000 customers moved their account away from TSB, but over 20,000 customers opened a new bank account or switched to TSB. In the first quarter, before all the problems began, the net loss of customer accounts, at 5,126, was nearly as large as the net loss during the IT-mayhem second quarter.
The figures for the second quarter may be hard to fathom — in particular the influx of 20,000 new arrivals during peak IT mayhem — they’re not beyond the realms of possibility. After all, if the last ten years of post-crisis hangover have proven anything, it is that bank customers will put up with no end of poor service, abuse and even outright criminality before they even begin to think about moving their accounts.
There are many reasons why dissatisfied customers decide not to switch banks. One is the widely held perception that they’re all as bad as any other. Another is the fear that chaos will ensue, as direct debits are mauled and incoming payments go missing. In reality, the switching service takes on all the hassle and almost 99% of switches in the UK are completed within a week.
In the case of TSB, however, its customers were already facing financial turmoil as their lender of choice (in most cases) struggled to provide even the most basic banking services. As such, one might have assumed, as we did in May, that their unwavering loyalty to that lender might finally snap. But apparently not.
Even with new regulations making it much easier to move accounts between lenders, there has been no mass exodus of TSB customers. For TSB — and by extension, Sabadell — the unbridled loyalty (or chronic apathy) of its customer base is manna from heaven. But if the current problems affecting the bank are not resolved soon, that loyalty could come at a very high price for its customers. By Don Quijones.
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