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What cost a system outage?

A month ago, I blogged about the problems at TSB when implementing the change-over of their core systems. Yes, core systems replacements are challenging, but they’re not risky when done right. Unfortunately, TSB’s change-over shows all the marks of how to get it wrong. Not only has it been highly public, with the CEO Paul Pester appearing in front of the Government’s Select Committee to explain the mess, but it’s incredibly prolonged. Unbelievably, for example, a month later we’re still seeing customers in the media saying that they have an issue. This has also led to criminals and phishers targeting TSB customers, as they’re easy pickings.

This was covered extensively in last Friday’s BBC Radio 4’s You and Yours programme (the last ten minutes feature yours truly), and the BBC website gave further details of one specific customer who was compromised:

A TSB customer has described how he watched thousands of pounds in wedding savings being stolen from his internet account as he waited for four-and-a-half hours on hold for the bank’s fraud department.

Ben Alford from Weymouth in Dorset said it took more than four and a half hours to get through to TSB, by which time most of the money had gone. He is one of many affected by fraud who have struggled to contact the bank. Ben called TSB after he noticed a £9,000 loan with another company had been taken out in his name without his knowledge. The money had been paid into the TSB joint bank account he shares with his girlfriend, Francesca Cuff. Ben said a £1,000 overdraft had also been set up without their permission.

‘Robbed in broad daylight’

He says he was logged into internet banking and waiting for someone at TSB to answer his telephone call, when he noticed that money had begun to be stolen.

“There was initially £5,000 taken out of that account followed by another amount of £4,000, he told BBC Radio 4’s You & Yours programme. “Had they answered their fraud line promptly, none of this money would have been taken because it could have been stopped. I literally watched the money go out of our account”.

Among the money stolen was more than £7,000 the couple had put aside for their- wedding.

“I just felt helpless. It was like being robbed in broad daylight”, said Ben.

A spokesperson for TSB said it was “really sorry” about what happened to Ben and Francesca and “the distress and inconvenience this caused them”. “While our systems are safe and secure unfortunately fraudsters are increasingly sophisticated and looking to take advantage of situations like these. If customers have been a victim of fraud as a direct result of our recent IT issues they won’t be left out of pocket,” the spokesperson added.

Ben is adamant that he has not handed over sensitive information by responding to any dubious texts, emails or telephone calls. Instead it seems the criminals already knew enough about him to raid his bank account, and they even had control of his mobile phone number. Ben says someone had called his mobile phone network pretending to be him. They had closed his account and got his mobile number transferred onto their own phone. It meant they would receive any text messages sent by TSB containing the passcodes needed to authorise changes to Ben’s bank account.

There are many other examples of coverage, particularly by the BBC:

And, outside the BBC, there’s just as much coverage in all other media:

Other issues being reported are claims that customers have died, when they’re alive and well; a small business that now has to run its finances on a spreadsheet as their bank account is broken; and several who have lost their life savings.

Interestingly, Paul Pester has lost his annual bonus over this and equally is trying to defend the bank. In a heated exchange with MP Nicky Morgan, as reported by Sky News, the dialogue gets interesting about how may customers TSB has lost due to this crisis:

He had earlier admitted that the problems, which have left up to 1.9 million digital banking customers without access to their accounts, had sparked 40,000 complaints (in 10 days) – a 13-fold increase on usual levels. He also confirmed he would give up a bonus, worth £2m, linked to the completion of the migration of customer data from old servers belonging to previous TSB owner, Lloyds.

But Mr Pester was pressed on the issue of reputational damage by Mrs Morgan, who told him: “People are not going to be switching to TSB after this. How many customers, in the last 10 days, have asked to leave TSB?”

He responded: “I don’t have that number and I don’t agree with your assertions that customers will not be switching to TSB.”

Mr Pester explained that was because he had thousands of staff working to grow the challenger bank – and switching would save customers money in a system dominated by five major players.

Mrs Morgan wasn’t buying that and suggested that he checked his twitter feed. The dialogue finished with questions about when this would be fixed.

“Clearly I’ve misled you if you think that I’ve said that this bank is fixed. I can’t give you a fixed date. If I give you a fixed date it is likely to be unfair to our customers. We are working hard on fixing the middleware issues we have described. We expect to see the service improve but I can’t give you a date because I don’t want to mislead our customers.”

Obviously not, as they’ve still got massive issues a month later. So how are they trying to solve it? They’ve given IBM a blank cheque (check).

Whatever happens, TSB looks like a total mess. Bad news for Banco Sabadell, their owner, and bad news for their long-term prospects as who would switch to a bank that is down for over a month and dismisses customer problems with four-and-a-half hour queuing on their call centres?

All in all, my biggest question is what does this mean for their reputation overall? What is the reputational damage of a long-term system outage? We don’t know the answer to that, as TSB aren’t saying, but what we do know is that this is going to cost. According to City AM, analysts have estimated the fiasco will cost TSB £16 million in regulatory fines after around 2 million people were locked out of their accounts. This is in addition to an estimated £18 million in waived overdraft fees. Hiring IT consultants to fix the botched upgrade is likely to cost TSB millions more.

In fact, all in all, it means that 3 million customers weren’t digital, so they’re unaffected. The near 2 million who are digital, in my view, will see at least a quarter considering a switch. So, 500,000 lost accounts, or one in ten. Add on to that the loss of face, and the narrowing of new business due to the headlines, as in major bank avoidance, and I’d estimate the reputational damage of a major systems outage is about a third of your total business, when you add on the fee waivers and fines.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.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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