Sainsbury's Bank IT system problems a warning to new banks

Sainsbury's Bank has experienced IT problems that left customers unable to use their credit cards for a day

Customer cards were declined at checkouts and customers were advised to contact the bank.

But when they contacted Sainsbury's Bank, they were greeted with a message saying they would have to remain on hold for 10 minutes. 

The recorded message said: “Due to recent systems issues there is a higher volume of calls at the moment.”

Sainsbury's Bank said the problems have now been fixed.

The bank did not give any details of the IT problems, but in 2013 it began a three-and-a-half year project to move its customers off the systems of Lloyds Banking Group and onto an off-the-shelf banking system from FIS. This followed Sainsbury's £248m acquisition of the Lloyds’ 50% shareholding.

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Sainsbury’s Bank is one of a new breed of financial services firms from non-banking backgrounds. One of the perceived advantages for these new banks is IT. 

Traditional banks have legacy systems that date back to the 1970s in some cases. These systems were not designed to work in today’s banking environment, where technology has changed behaviour. 

Mobile and contactless payments are examples of how technology is putting more pressure on underlying systems.

Legacy systems blamed for failures

Legacy systems – and their unsuitability for modern banking – are usually blamed for technical issues at traditional banks. 

RBS was heavily criticised and fined by regulators when its customers were unable to use their accounts for more than week in 2012 following a systems outage.

New banks need to ensure they avoid IT problems if they are to win customers from the traditional banks. 

A recent survey of 2,000 people by banking software supplier Fiserve showed 80% of people would trust a bank if it had the right technology in place. More than half (56%) said a new bank would have an advantage over rivals if its IT was reliable.

There is no shortage of challenger banks, so problems like the one suffered by Sainsbury's Bank customers could make consumers look elsewhere. 

Germany’s Fidor Bank – which is social media-based and built on Web 2.0 technology – recently announced its imminent UK launch. Meanwhile, online banking startup Charter Savings Bank has just launched.

In 2011, Tesco Bank delayed migration to its core banking system as a result of technical problems experienced when it was moving its savings and loan products in-house from the Royal Bank of Scotland's systems.

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