Are the new online banks less likely to fall down like TSB have?

Murmansk · 25 April 2018 at 10:36AM

The problems TSB are experiencing at the moment have prompted me to wonder how likely such things are to happen to other banks.

From what I have read it seems to me that most of the banks who've been around for years have online facilities that have been built on top of their previous systems (which go back years) so there is more scope for them failing and being potentially insecure both in terms of fraud and in terms of stopping working and nobody being able to fix them.

A large amount of fraud seems to take place and I suspect banks would rather just address those problems as they happen and compensate the affected customers to keep them quiet than invest the millions needed to bring their systems up to modern standards - which as TSB have shown could be fraught with difficulties.

I'm hoping the new banks like Starling are much more robust as they've been designed from the start with modern systems.

I'd be interested to hear what people involved in IT in the banking industry think.

PeacefulWaters · 25 April 2018 at 11:07AM

Time will tell.

eskbanker · 25 April 2018 at 11:30AM

I don't work in banking (despite what some may infer from my 'nom de plume') but would think that there are factors working for and against.

The legacy IT platforms on which many banks rely were originally written many moons ago using appropriate technology for the time, and the banking world itself was massively different back then, so these systems have had to be refined, enhanced and upgraded many times, which isn't good news for how far they've travelled from their original designs. Bolting on web front-ends to old transactional systems originally intended for batch overnight processing of paperwork must be hugely challenging, for example, and all this against a backdrop of ever-tightening regulations and higher customer expectations.

Having said that, systems used for decades will often tend to be relatively stable after having the wrinkles ironed out. As TSB customers will vouch, change by its very nature introduces instability....

Albeit without any sort of inside knowledge, I'd be amazed if banks were choosing to accept high costs of fraud as an alternative to investment in upgrading or replacing systems though!

Murmansk · 25 April 2018 at 11:41AM

eskbanker wrote: »

Albeit without any sort of inside knowledge, I'd be amazed if banks were choosing to accept high costs of fraud as an alternative to investment in upgrading or replacing systems though!

I don't think the costs of fraud are THAT high in proportion to the money banks make - cheaper to absorb it than rebuild your entire IT system

Browntoa · 25 April 2018 at 11:46AM

The banking mergers of a few years ago caused all kinds of problems, rather than merge into one IT system the systems (often incompatible) were cobbled together .

Loads of the people who wrote the programming and had extensive knowledge have been replaced by outsourcing .

Company I know of had a critical system outage , support was offshore , took them 3 days to realise

1) it was a critical system
2) it was a very basic fault , the allocated server partition size was too small and had filled up but nobody had noticed

System · 25 April 2018 at 11:55AM

The single good thing the legacy operators have is they have relatively full control of their systems.

The new operators tend to outsource most of their day to day processes (card issuance, clearing including FPs) so they don't have lots of sunk costs - this means if that if any party has issues, they all do.

eskbanker · 25 April 2018 at 11:59AM

Murmansk wrote: »

I don't think the costs of fraud are THAT high in proportion to the money banks make - cheaper to absorb it than rebuild your entire IT system

I think we're both just speculating without detailed knowledge but I was just picking up on your apparent suggestion that banks would be making decisions based on comparing fraud costs with system redevelopment costs, whereas I'd have thought that they'd be two largely unrelated analyses....

Murmansk wrote: »

A large amount of fraud seems to take place and I suspect banks would rather just address those problems as they happen and compensate the affected customers to keep them quiet than invest the millions needed to bring their systems up to modern standards

colsten · 25 April 2018 at 1:07PM

No bank is immune from disasters, for whatever reason.

It's been clear to me since the Natwest/RBS/Ulster debacle a few years ago that it's very high risk to rely on a single financial institution, and that a second source of funds at a completely different financial organisation is highly desirable. I appreciate this may not be an option for everybody, but those who can should split their funds. The TSB shambles has only reconfirmed this for me.

In a related context, I would also repeat that it is high risk to exceed the £85K FSCS limit, or to entrust your funds to organisations which are not offering FSCS (e.g. those using a non-UK compensation scheme). You might find it al works fine for many years, or even forever. But you might also find it doesn't, and you might lose significant sums of money.

agrinnall · 25 April 2018 at 1:33PM

As anyone who has worked in IT will tell you systems are at their most vulnerable when changes (hardware or software) are being made. Leave them alone and they will tend to tick along nicely not causing any trouble, start fiddling around and things can, and do, go horribly wrong.

The problem is that not making changes is rarely an option: customers want different functionality, management want to do things cheaper, software becomes unsupported, hardware becomes obsolete, etc., etc. And these drivers to change will be factors for all banks, so all are at risk of having failures.

As colsten says, the answer for bank customers is to spread the risk by having money in multiple places if at all possible - and I'd argue that for the majority of people it is perfectly viable to have two or more accounts at different banking groups.

Milarky · 25 April 2018 at 3:05PM

Simply from the customer 'perspective' all online banking appears amatuerish and outdated. If these were not essential services to begin with they would not longer have customers to lose. Thus as I see it, banks reposnd poorly to demands for improvement and overcoming their poor perfomance because they lack the incentive to be any better (lucky devils!)

Tallaght · 25 April 2018 at 3:31PM

Did the Russians hack TSB ?

Are the new online banks less likely to fall down like TSB have?

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