Governance, risk & compliance
Dougie Belmore, chief payments officer at
Pay.UK.
But there are downsides to digitisation. “I can now pick up a device or log-on and send money instantly,” says Dougie Belmore, chief payments officer at
Pay.UK, the authority responsible for the country’s retail payments operations. “But with that comes the risk that, if I’ve been scammed, then I’ve got less chance to react. The time it takes to physically go and do something allows me to think ‘oh, is this right?’, ‘does this feel proper?’, or ‘is this a transaction I want to make?’” Equally, and though handling transactions used to require much more manual work on the part of bankers, the very laboriousness of the process encouraged them to check and double-check every detail. No one wanted to risk their effort going to waste. And, if something did go wrong, most payments moved slowly enough to be caught before reaching their destination.
“The immediacy of the technology and the process now is great if you’ve got a family member who’s stranded somewhere and urgently needs £20 to get home,” says Belmore. “You can get money to them in the click of a finger. But similarly, if you send it to the wrong place, it goes to the wrong place in the click of a finger.”
Digital systems can make their own mistakes too. Santander’s got into the festive spirit last Christmas, apparently forgetting the last four letters of the bank’s name in gifting 75,000 people double their usual salary. In March, TSB’s computers managed to do the opposite, taking duplicate payments from an unconfirmed number of customers, many of whom took to social media to complain that they were left unable to afford food or pay their bills. Such mistakes were certainly possible before. But it was far less common for staff not to have noticed and corrected errors before anyone was impacted.
“The immediacy of the technology and the process now is great if you’ve got a family member who’s stranded somewhere and urgently needs £20 to get home. You can get money to them in the click of a finger.”
Mercifully – and largely thanks to the work of bodies like
Pay.UK – these system errors are relatively simple to fix. “One of the things we have put in place is a very clear process to make sure that all the banks operate to the same standards and at the same level, particularly when there’s been a bank related error,” explains Belmore. As such, there is a single set of rules ensuring that when one bank reports a mistake, others across the UK network know how they need to respond
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– whether by reversing or, if necessary, refunding payments. “‘There but for the grace of God go I,’” says Belmore, his decades in the industry shining through. “Tomorrow it could be your bank, so everyone works collaboratively to resolve it.”
Give me convenience or give me debt Of course, most issues are not caused by computers alone. Digitisation would not have swept through the industry so fast if that were true. Instead, the biggest problems arise from the unpredictable ways humans interact with inflexible silicon systems. In 2020, Citibank provided a particularly eye-popping example while sending out interest payments on behalf of US cosmetics giant Revlon, which it was helping to refinance. Instead of distributing the intended $7.8m interest to Revlon’s various creditors, it paid back the entire $894m loan. In line with Citibank’s internal procedures, three people signed off on the transaction – two subcontractors in India and one senior Citibank official in Delaware. None of them realised quite how unintuitively the system they were using had been designed. The easiest, and perhaps only, way to make the interest payments with Citibank’s Flexcube software was to set it up to pay off the full loan, but then to redirect the principal to an internal ‘wash’ account. As far as everyone involved in the transaction could tell, selecting the ‘principal’ box on the Flexcube menu and entering the number of the wash account was enough to make that happen. The overseer in Delaware even signed off on the transaction with: “Looks good, please proceed. Principal is going to wash.” And that would have been correct – had the wash account number also been entered in Flexcube’s ‘front’ and ‘fund’ fields. Although Citibank was able to claw back about $400m, most of Revlon’s creditors decided to keep what they considered to be rightfully theirs. The case has gone to appeal, but, so far, the law has sided with the recipients. In New York, senders of erroneous payments are entitled to get their money back – except when the funds happen to travel from a debtor to a creditor, at which point they can be treated as loan repayments. With the debt trading at around 42 cents on the dollar at the time the case went to court, keeping the funds was the best way for Revlon’s creditors, who were not reported to be on good terms with either Revlon or Citibank, to guarantee they did not lose out themselves. To be fair, this is a bit of an outlier. In fact, in ruling in favour of the creditors who chose to keep the money, Judge Jesse Furman noted that: “To believe that Citibank, one of the most sophisticated financial institutions in the world, had made a mistake that had never happened before, to the tune of nearly $1bn – would have been borderline irrational.”
Future Banking /
www.nsbanking.com
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