Many customers of Lloyds, TSB and HBOS were unable to use their debit cards for a three-hour period yesterday when a major IT glitch hit Lloyds Banking Group.
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Customers were unable to make payments using debit cards and about 7000 ATMs were offline in the latest in a series of retail banking IT problems.
Lloyds said there was a problem with one of its servers and that it is looking into the root of the problem. One source recently told Computer weekly that almost all UK banks have the same problems with IT. When commenting on recent problems at RBS, Jean-Louis Bravard, director at Burnt-Oak Partners and former CIO at JP Morgan, said "Bank IT in the UK is not OK.”
He said it is unlikely that RBS is alone among banks “in relying on obsolete legacy IT surrounded by an ever-increasing plethora of newer systems to give consumers the impression that the banking systems are fit for purpose in our internet and smartphone world”.
RBS suffered problems in December 2013 – on the busiest shopping day of the year – which stopped customers making online and card payments.
RBS has since admitted its IT systems need an overhaul after decades of under-investment. The FCA is currently investigating the cause of the RBS problems.
The problems at Lloyds affected Lloyds, TSB and HBOS customers.
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Lloyds said: “Although the majority of transactions were unaffected, we are very sorry for the inconvenience that this will have caused. At the same time, some customers encountered problems at approximately half of our 7000 ATMs. This was resolved by 7.30pm, and all of our ATMs are now working,” said a Lloyds Banking Group statement.
Chris Skinner, chairman at the Financial services Group, said the diversity of of the Lloyds Banking Group is probably part of the problem.
The bank has merged with HBOS, itself a merger between Halifax and bank of Scotland. It also merged with TSB in 1995 and now under European law is having to split TSB from the group.
TSB was formed when a set of branches under the codename Project Verde separated from Lloyds Banking Group. It will see TSB launch alone with five million customers, eight million accounts, 8,000 staff and 632 branches. But because TSB's systems are run on LBG's IT platform, the OFT has concerns over TSB's ability to compete.
“The process of merging and splitting is quite complicated and likely to be one of the reasons for the problems.”
With the recently introduced rules that simplify and speed up the process of changing bank accounts, from 30 days to seven days, banks need to keep their digital services up 100% of the time, or risk customers leaving.
Online and mobile banking downtime is quickly apparent, and with the spread of news on social media it does not take long for the world to know when digital banking channels are down.
Skinner said core bank systems are “creaking at the seams and, in some cases, falling apart”.
“Most UK banks are stuck on legacy systems, built in the last century, that work. As a result, most banks add middleware and front-end systems to their core systems, rather than replace the core.”
Replacing legacy systems at banks is often described as being akin to changing the engine on a Jumbo Jet while in flight. Additionally, banks are often reluctant to change systems that are working. But with the digitisation of banking, and consumers and regulators becoming more demanding, banks are beginning to accept the inevitable.
“Most are working on it and have been for years. The issue, however, is that they shoot for the lowest common denominator," added Skinner.
"Take the HBOS integration with Lloyds. To ensure the lowest risk path, Lloyds migrated HBOS to their core system, rather than take the risk of replacing a core system. The result was that they have a very reliable, lo-tech processing unit built in the last century servicing both banks.”
Sam Woods, a director in the Bank of England's Prudential Regulation Authority, recently told an investigation into banking IT disasters that UK bank IT systems are far from robust.
“I feel we are a very long away from being able to sit here with confidence and say the UK banks' IT systems are robust,” Woods told the committee at a Northern Ireland Affairs Committee at Westminster.