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Outage or outrage? Why some banks stop working

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One of the many side-benefits of upgrading legacy technology with SaaS providers is, of course, fewer outages. And when a disruption to service does occur – usually from a different area of the bank or third-party provider – SaaS engineers can quickly detect it and prevent damage. As engineers ourselves, we’ve halted many bank-wide outages as part of our work. And along the way, we’ve helped global banks dodge headline-grabbing shut-downs.

So, what causes these outages? And should we be outraged by the reasons?

The technology debt continues

As engineers we’re hardly surprised when outages strike. The 80s mainframes and patchy quick fixes that support many organizations were never designed to process such heavy and complicated transactions. Outages are to be expected.

The banks hit hardest by outages and system disruptions are those that invest the least in technology. This exacerbates what engineers refer to as “tech debt” in financial services. Like other forms of debt, such as credit cards or payday loans, if you do the bare minimum, the situation gets worse.

For decades, IT has been seen as a headache for banks, as a tin can to be kicked down the road. To be frank, many organizations have done the bare minimum and it’s showing. Technical issues which may have been straightforward to solve some years ago have now been compounded into a mighty beast.

It’s a shame because banks are losing their competitive advantage by spending all their IT budget on maintenance, rather than on improvements. Overwhelmingly, incumbent banks tend to wait for something to go wrong – like an outage – before they look at fixing the problems. Even then, the solutions tend to be single-use work-arounds, rather than an investment in a whole new system.

The time to build better banks is now

More spaghetti than an Italian diner

Piecemeal upgrades and fixes are expensive, and they don’t even get to the root of the problem. In engineering, we call these band-aid approaches “spaghetti code” because they loop, twist, and turn all over the place. Spaghetti code is a nightmare for banks. In 2019, a reported 17% of all bank incidents were due to faults with these patchwork technological changes.

Spaghetti code approaches have been the norm in banking for far too long. They cause a lot of issues and customers are feeling the impact. In 2019, the number of outage incidents reported to the FCA shot up by a hair-raising 187% from the previous year.

Record numbers of banks suffer from tech disruptions, with a study in the UK finding that major banks typically experience more than one outage per month. In August 2019, customers of Nationwide and NatWest Group (formerly RBS) were unable to access certain payment services over two working days. In the same year, Barclays reported 41 outages over a nine-month period, with Lloyds following closely behind with 37 outages.

Why we need to upgrade the world’s banking now

How do outages impact customers?

In addition to frequent glitches, outages, and the challenges of maintenance, legacy systems offer cyber-criminals opportunities to attack, putting customers at risk. What’s more, even without attacks, incidents like this mean that confidential data could become lost or compromised as legacy systems buckle under the strain.

An expensive problem that hurts customers is when they are left unable to pay their bills on time and suffer late fees. But the problem doesn’t end there. Delays affect customers’ credit scores and ignite feelings of frustration. There have been high-profile cases where major banks have had to publicly apologize to customers for outages in service. The reputational damage alone that this can cause is difficult to calculate.

Customers have reported feelings of distress, which the Treasury and FCA have highlighted as unacceptable. “I would not class them [the outages] as inconvenience[s]; people really did suffer,” commented Alison Barker, Director of Specialist Supervision at the FCA. In many cases, customers will simply throw in the towel and leave the bank altogether.

Discover the importance of feelings in finance

Regulators are moving in

It’s safe to say that regulators are not impressed. Before COVID-19 hit the UK and priorities changed, the Treasury published a damning report on the situation. “Operational incidents in the financial services sector are increasing in frequency,” it read. “…The impact of IT incidents can range from inconvenience to customers through to customer harm, and on to matters of a firm’s viability or financial stability.”

As well as grave outrage over the failed connectivity, the paper also expressed unease over the opaqueness of outage reporting. “The lack of consistent and accurate recording of data is concerning,” the document continues. “The regulators should conduct an exercise.”

Before lockdown, this was an increasingly heated topic, and action was on the radar. “FCA flags regulatory gaps and IT outages as key area of focus” was the headline of one Finextra article in February 2020.

Now that the lockdowns seem to have (touch wood) passed, politicians and regulators may revisit the topic. This is yet another reason why banks may wish to upgrade to a team of round-the-clock SaaS engineers sooner rather than later.

Discover our predictions for upcoming banking regulations

What now?

Spaghetti code and legacy technology is a losing battle. Among many other things, it can trigger disruptions leading to disastrous financial, security, and reputational consequences. But despite this, many banks have still not upgraded their systems… and customers are losing patience.

Expectations around digital experience are rising rapidly, and when customers feel let down, they will make their feelings known. Just look at the reaction after Canada’s financial powerhouses suffered an outage that lasted hours. Tens of thousands of customers across some of Canada’s leading banks took to social media to complain… or offer conspiracy theories. Many advocated withdrawing large sums of cash once the system was up again. Some made snap decisions to invest in crypto rather than to rely on the established institutions. And others blamed their government’s expropriation order which had passed only hours before. This small snapshot shows how damaging it can be to society when banks break and people lose confidence.

Bringing on a SaaS team of engineers is an easy way to help avoid these problems and to fix the mounting tech-debt. After all, can banks really afford not to?

How to escape the threat of inertia and create a truly digital banking experience