What Banks Can Learn From TSB’s £105.4 Million Outage

Highly publicized service outages are one of the worst fears for any bank or financial services organization; these disruptions have the potential to cause significant reputational and financial damage.

Last year, the UK's TSB Bank lost £105.4 million (pounds, not dollars) as a result of a major IT meltdown that locked customers out of their accounts for several weeks. In addition to the lost revenue and hard costs associated with the outage, TSB and parent company Banco de Sabadell suffered significant brand damage and lost shareholder value.  

Just before the TSB problems hit in April of 2018, Banco de Sabadell shares were trading at €1.74 (Euros).  One year later, in March 2019, the shares trade at .96 Euros.  Effectively, the bank has lost 45% of its market capitalization since the outage.  

According to Gartner, the average cost of IT downtime is $5,600 per minute, which is unfortunate given that outages seem to be happening all too frequently for banks. For example, TD Bank, Ulster Bank and Wells Fargo have all experienced highly publicized outages within the past year.  

Consumers want convenience in all aspects of their lives, and they demand always-on capabilities from all financial service providers, especially their banks. They expect to be able to access their bank accounts anytime, anywhere and have become very unforgiving when it comes to accessing their money. With the power of the Internet and social media, any company can take a significant hit to its brand in the time it takes to type out a simple tweet.  After the 2018 outage at TSB, around 80,000 customers left the bank and switched their accounts to another institution.

In addition to lost shareholder value and eroding customer loyalty, system failures also lead to increased scrutiny from regulators and can open the door for fraudsters.While it’s impossible to prevent all outages and disruptions, there are steps banks can take to better protect and defend their systems. 

The best defense is a good offense 

Unfortunately, banks are too often guilty of neglecting to dedicate sufficient resources to software maintenance and testing. It’s easy to have the ‘it won’t happen to me’ mentality; however, this casual approach puts institutions at risk for major damage when the inevitable disruption occurs. And at that point, it’s too late – as banks such as TSB are currently discovering. 

Many banks still rely on dated and disjointed tools and processes for monitoring, testing and maintaining their critical systems. Manual testing is simply too inefficient, costly and cannot provide the appropriate level of test coverage, leaving too much to chance and putting organizations’ reputations at risk.  All financial institutions should look to modernize their testing capabilities and incorporate automation and virtualization strategies in order to improve efficiency and accuracy, while expanding test coverage. 

While it’s tempting to prioritize revenue-generating initiatives above more mundane expenditures like proactive system maintenance and modern test tools, doing socarries significant risk. Taking shortcuts on maintenance and skipping tests may be a way to save money in the short-term, but history shows that this approach will fail in the long run. And, the employee time required to conduct legacy manual tests plus the potential for human error compared to automating the tests in a cloud environment adds up to an ultimately greater expense over time. The benefits of implementing automated, virtualized testing and maintenance capabilities far outweigh the pain points.

Consumers will continue to demand 24 x 7 access to their money and will hold their banks accountable for anything less than perfect service.  Any unplanned outage will be costly and can lead to irreversible brand damage. The size and complexity of current financial systems means that we simply cannot prevent all issues from occurring.  However, savvy banks will do everything they can to protect themselves by implementing a proactive strategy for system maintenance and software testing. Banks that take the appropriate steps now will be well positioned to better protect both their customers and their brands today and into the future.