IBS Journal June 2018


Paul Pester: the TSB CEO has endured a difficult couple of months

institutions are beginning to look over their shoulders at the rickety systems at the core of their business. If a (comparatively) small bank like TSB faces massive losses and potentially irreparable reputation damage, what would happen to a Tier 1 global bank, like HSBC?

“Although TSB is currently facing the wrath of angry customers and a hostile media, the long-term impact is likely to be minimal,” says Daoud Fakhri, principal analyst at GlobalData. “In 2012, RBS Group suffered a catastrophic IT failure, far more serious than that experienced by TSB, which left customers of RBS, NatWest and Ulster Bank without their salaries and unable to make or receive payments for several days. However, despite the major inconvenience suffered, RBS Group did not see a significant number of customers defect to rival banks, and the incident eventually passed into history with little lasting impact upon its reputation.

‘‘TSB can therefore take comfort from knowing that only a few of its customers will ultimately switch providers, and that once the migration issues are finally resolved, it will be better placed than before to offer improved online and mobile services to its customers. This is definitely a case of short-term pain, long-term gain.’’

Ripples in the market

The effects of the meltdown have been felt across the industry. While the daily news might move on to more interesting topics, consumers are still feeling nervous about what happened at the UK bank.

Research of 500 small and medium business owners, commissioned

by Prepaid International Forum (PIF), the not-for-profit trade body representing the prepaid financial services sector, found that just under a fifth (18%) are actively considering financial products and services from a new wave of providers using prepaid platforms.

With current usage of such services running at 13%, this could potentially see their uptake more than double as a result of dwindling trust and confidence in banks. The growth of such services is also being helped by the launch of Open Banking, new legislation that allows customers (including business customers) to tell banks to provide their financial data to properly regulated third parties.

“Small business customers have reached a nadir in their relationship with traditional banking partners. Branch closures and the move of services online have meant that few now receive any active guidance or support from their bank in helping to grow their business,” said Alastair Graham, a spokesperson from PIF.

“At the same time, many feel that even basic banking services aren’t meeting their expectations. Even without issues such as the recent TSB banking crisis, businesses would like improvements to be made. Whether that is quicker account opening processes, simple lending or transparent and fair charges, the demand for alternatives is growing.”

While the TSB meltdown may be forgotten by the national news media in the UK, the failure will have left irrecoverable scars on the architecture of one of the nation’s fastest-growing challengers. It’s a lesson learned that no matter the cost, no matter the preparation time, no one is safe from the perils of a core banking switch.

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