Three large U.K. banks have suffered recent payment glitches, including temporary outages at HSBC, Natwest and Royal Bank of Scotland—suggesting existing bank payment systems are challenged to process digital transactions.
The latest incident happened Monday, when RBS's Natwest brand suffered a multi-hour outage that prevented some customers from being able to transfer funds. "Yesterday morning, some customers experienced issues with online and mobile banking for a short period. This is now resolved. We apologize to our customers for any inconvenience this caused," said Sean Palmer, RBS media relations manager, on Tuesday. "We are currently investigating the cause of the issue so there is nothing further I can say at this stage."
Two months ago, RBS suffered "another IT error that delayed around 600,000 payments for several days," reported The Telegraph newspaper.
And on Friday (Aug. 28), HSBC's UK operations couldn't process some payments. According to HSBC communications manager David Matthews, that incident was caused by an employee mistake, rather than an IT glitch. "It's definitely not a systems issue. It was human error," Matthews said. Specifically, a keystroke error with BACS (Bankers' Automated Clearing Services) batch processing was to blame, the bank reported.
"We made an error in one of the files being submitted and it caused one of the files to be rejected," Matthews said, adding that the file impacted 275,000 recipients and an unknown number of transactions. "It was a really regrettable incident." He added that the very nature of batch processing means that a single typo can impact a huge number of customers, something he said that HSBC is examining.
Overall, though, these incidents could be the latest examples of an antiquated payments systems succumbing to the demands of modern transactions, said Andrew Copeman, a U.K.-based Aite Group analyst who tracks European payments.
"At a fundamental level, we have problems with legacy systems. We are operating with antiquated core payments systems," Copeman said. "The cost to update and modernize is in the billions of pounds."
But even beyond the huge money cost of fixing these systems, there is the substantial hurdle of making these changes while the systems are running. "It's like trying to change the wheel of a car while you're driving. These very large banks have highly-customized tailored systems," he said. "You can't reliably go to an external third-party system. On top of that, we have these new systems put in place to handle modern payments systems—such as mobile—and they have sort of been worked into the system, which isn't very modular."
It's those modern payments updates that are potentially taxing the system more than it can handle. "This is a case of more complexity, of new channels being added, new transaction types, a faster payment system, migration away from cash," Copeman said. "They are not retiring any systems, just adding new ones. That's the more fundamental problem. A lot of these issues have been building back to the 1990s. The problems of systems architecture and the attitude that we can 'delay the inevitable.' Change has to come."
Another issue that weighs down on antiquated systems are mobile and online charges that decrease friction and, therefore, increase transaction volume while decreasing transaction value, said Thad Peterson, an analyst at Aite Group..
"When you go to Target (in-store), you are more likely to have a list and make eight purchases," Peterson said. "When you go to Amazon, you buy one thing but you do it eight times."
The volume increases are going to hit payments technology hard, said Scott Strumello, a payments analyst with the Auriemma Consulting Group.Banks and processors "are being asked to shoulder the burden, even though they don't have control over what is being piped their way. They are being asked to deal with the burdens, fraud and that kind of stuff," he said. "A lot more is being thrown into the payments system."