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RBS-NatWest proves that technology IS the bank

The big news at the end of last week is that the Royal Bank of Scotland (RBS) had a computer crash, affecting all of the UK bank including NatWest and Ulster Bank.

It caught headlines worldwide:

… and about 1600 other headlines so far.

It even made the front page of the newspapers:

Metro natwest

… and most news channels …

The issue was caused by an upgrade to the core payments processing engine and a file became corrupted, although it’s interesting how people blamed it on legacy systems.

It’s not legacy systems that cause bank crashes, it’s legacy upgrades.

This is why banks don’t change core systems, because it can create issues and it just goes to show how important resilience and reliability of systems are in banking.

I’ve heard many illustrations of this, but the two best comparisons is that banks are like racing cars where the business is the driver but the technology is the engine, or that banks are like aircraft and charging the engines at 40,000 feet above the ground is hard.

I write about this often myself http://thefinanser.co.uk/fsclub/2011/05/how-the-new-bank-will-win.html:

Wholesale replacement of core systems is difficult you see. Everyone refers to it as being like changing the engines on an aircraft whilst flying at 40,000 feet, and they’re right. This is amply demonstrated by the migration of Abbey and Alliance & Leicester to Santander’s core systems over the past few years, and by the Australian bank debacle of NAB and others who are in migration mode as we speak.

And yet, some seem to achieve these upgrades without hitting the headlines.

For example, Lloyds migrated HBOS to their core system over the summer and Nationwide Building Society has been busy migrating al their systems over to SAP for the past few years.

Yes, they have issues – for a month many business customers of HBOS were unable to use online banking – but it doesn’t get the headlines like a total blackout vis-à-vis the RBS-NatWest issue this week.

This is because the migration is typically carried out over a weekend, as was the RBS upgrade, but during a quieter period – over a bank holiday or during the deep summer holiday – something that RBS could not wait for.

Even though the bank opened branches through the weekend and late into the evenings, and publicly apologised for the mess, the reputational hit is huge and this is where it really matters.

If banks are technology firms, which they are, then they have to realise that five 9’s availability isn’t enough.  

It has to be 99.999999999% fault tolerant (or 100% in the ideal world).

Although tough to achieve, any bank that lets its systems fail for even a half a day is subject to ridicule in this world of high tech reliability.

Finally, it demonstrates how banking is different to telecoms and other industries.

If you let a call fail on the mobile network, it doesn’t matter.

The customer will just redial.

If you let a payment fail on the bank network, it always matter.

It brings me back to airlines as the best example of the RBS-NatWest challenge is that if a payment fails once, the customer will stay.  A little like if a plane crashes, customers will still fly … they will just be a bit more cautious.

However, if a payment fails twice, three times or on a regular basis, customers leave.

Similarly, if an airline operates planes that regularly crash, customers stop flying.

And that’s the reason why we don’t change the engines on an aircraft at 40,000 feet above ground.

 

 

 

 

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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2 comments

  1. Too many cowboys and not enough Indians.
    We are know Indian call centres are rubbish, what made the senior management think that outsourcing their core banking system for retail was a smart idea?
    Several years ago I banked with Royal Bank of Canada private banking. Bank charges were 50% higher than the high streetb banks but it was the best money I ever spent.
    They were like valet airport parking compared to the Long Term Car Park at Heathrow on a foggy day with traffic on the M25.
    I’m still good friends with my personal account manager which shows how well they look after you.

  2. When you talk about availability and five nines, et all, the thought train in my opinion goes to the wrong direction. Infrastructure. Though this too is a huge area with a lot of cost involved, those legacy upgrades and business system replacements have much more to do with the implementation of business logic, and often the logic if business itself. Business processes have been implemented over the years across myriad of systems and very often nobody really knows what are the dependencies. Hence the very costly and long term projects. In essence, banks have often lost understanding of how their business actually, in detail, works.

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