Yves here. No, not Wells Fargo, but the UK’s TSB. And I have to admit, I was wrong. I was sure TSB would lose many more customers than it did, in part due to the proportion of irate comments on Twitter threatening to do just that.
But what are the reasons for bank customer inertia in the UK? In the US, if you have direct deposit of your paycheck, I am told it takes ungodly long to get switched over. And if you use autodebit for payments (I avoid it), that would be another hassle to get moved over without a hitch. I have a corporate account, and it’s a nuisance to set them up, and I suspect even more so than when I did this one years ago.
By Don Quijones of Spain, the UK, and Mexico, editor at Wolf Street. Originally published at Wolf Street
After months of self-inflicted IT chaos at mid-sized UK lender TSB, caused by botched data migration to a new IT system in April, things were supposed to have returned to some semblance of normality by now. But new problems keep cropping up. And once again, customers are feeling the brunt of the financial pain and inconvenience.
Last Wednesday, TSB’s online banking system crashed again, albeit briefly. Two days later, the bank was forced to issue yet another apology to customers, this time for failing to send outdebit card replacements to about 40,000 account-holders whose cards are due to expire on August 31. TSB has been scrambling to dispatch new cards. But thousands of customers are unsure they will have a usable debit card by Friday.
This week began in ominous fashion, with an announcement from TSB that it was delaying a long-planned transfer of millions of customers from Visa debit cards on to Mastercard. The “big-bang” migration was scheduled to take place later this year, but instead has been pushed back until 2019. A person close to Mastercard toldFT that the debit card delay was likely to have costs for TSB.
TSB’s IT fiasco, now in its 21st week, has already costits parent bank, Spain’s Banco Sabadell, €203 million in losses, which included €40 million from fraud losses and €92 million to cover future customer claims.
This is likely to be just the tip of a very large iceberg. A source close to the matter recently toldWOLF STREET that IBM, the external contractor hired by Sabadell to resolve TSB’s IT problems, had estimated that the cost of rectifying the issues and accounting errors could reach as high as £955 million ($1.16 billion). This excluded fraud-related issues as they are not regarded as being part of IBM’s remit, and are being treated as a normal banking function of fraud prevention.
However much the final bill comes to for Sabadell, one thing that’s clear is that TSB customers are already paying a high price for sticking with the bank. In the immediate wake of the botched data migration, over two million customers were locked out of their online accounts. Some people lost out financially, or experienced severe stress. Business customers were unable to pay bills or make payroll and mortgage payments were missed.
Over 1,300 customers have become victims of fraud attacks. When TSB sent out letters to customers apologizing for the problems it had caused, it managed to mess even that up, by enclosing correspondence intended for other customers, in the process breaking the EU’s new data protection laws.
Even now, 21 weeks after the initial IT “upgrade”, serious data issues abound. As FTAdviser reported, a growing number of customers are discovering that their credit scores have also been hurt by TSB’s failings. One customer said that on contacting her credit agency in August, she was told her credit score had dropped 86 points in one month, pushing it from ‘good’ to ‘fair’.
She was then informed that her current account provider, TSB, had failed to update her status since April, the month the meltdown began. Banks and other credit-linked entities typically update agencies on a customer’s credit status on a monthly basis, but as a result of its IT issues earlier this year, TSB has not updated its customer credit files with credit agencies Equifax, Experian and Call Credit. As a result, customers could find it harder to access credit from other institutions.
Yet most customers continue to stick with TSB regardless. In the direct aftermath of the bank’s IT meltdown some customers did vote with their feet by moving their money elsewhere. Rival lenders reported a sharp rise in the number of customers joining them from TSB, as droves of irked depositors abandoned the beleaguered bank.
But accordingto TSB, in the second quarter — i.e. at the height of the mayhem — it suffered a net loss of just 6,000 customers: some 26,000 customers moved their account away from TSB, but over 20,000 customers opened a new bank account or switched to TSB. In the first quarter, before all the problems began, the net loss of customer accounts, at 5,126, was nearly as large as the net loss during the IT-mayhem second quarter.
The figures for the second quarter may be hard to fathom — in particular the influx of 20,000 new arrivals during peak IT mayhem — they’re not beyond the realms of possibility. After all, if the last ten years of post-crisis hangover have proven anything, it is that bank customers will put up with no end of poor service, abuse and even outright criminality before they even begin to think about moving their accounts.
There are many reasons why dissatisfied customers decide not to switch banks. One is the widely held perception that they’re all as bad as any other. Another is the fear that chaos will ensue, as direct debits are mauled and incoming payments go missing. In reality, the switching service takes on all the hassle and almost 99% of switches in the UK are completed within a week.
In the case of TSB, however, its customers were already facing financial turmoil as their lender of choice (in most cases) struggled to provide even the most basic banking services. As such, one might have assumed, as we didin May, that their unwavering loyalty to that lender might finally snap. But apparently not.
Even with new regulations making it much easier to move accounts between lenders, there has been no mass exodus of TSB customers. For TSB — and by extension, Sabadell — the unbridled loyalty (or chronic apathy) of its customer base is manna from heaven. But if the current problems affecting the bank are not resolved soon, that loyalty could come at a very high price for its customers.
Banks are curtailing “cash services.” But why? Read… Why Are ATMs Disappearing at an Alarming Rate after a Wave of Branch Closures?
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If you have an overdraft on your account which you can’t afford to pay off straight away (and if you’re overdrawing, that’s probably not an option as you’re in some degree of financial distress; carrying a hardcore overdraft is just about the worst way to borrow outside of payday lending) you have to find another bank who’ll offer the same overdraft limit.
If you’ve anything less than perfect credit, this will not necessarily be easy or even possible at all.
You’re probably a hostage to TSB.
So if TSB has not updated their customer’s credit scores the past five months, then going by your comment on credit, this would be serving as barring the doors on their customers leaving TSB until all is back in order again.
Same with mortgage. Basically, the only customers that could afford to move were the ones who had a credit balance with TSB, which is likely few.
I want to change bank in the UK but its too complex, there was a law floated a year or two ago that would let you take your accountnumber & sortcode with you to a new bank. This was shot down by the big banks as they knew it would make it too easy to move.
Moving all my payments, mortgages, business payments etc is too complex. I would struggle to manage if I had 2 accounts whilst moving things. The service banks offer to move things for you does have problems, I’ve seen other people lose payments for weeks on it. (anecdotal I know but I would kick myself to walking into the same hole I’ve seen someone else walk into).
Also banks are now reticent to open a free account for you, if they know you have one elsewhere they will refuse. They do everything they can for you to have an account you pay for each month.
My daughter recently switched from Natwest (RBS) to Nationwide. All that was required was a short Q&A session with Nationwide and they did all the rest. It was seamless and quick – no problems at all. She had both checking (current) and savings accounts.
“It’s too hard to quit using a company who’s motto is fraud.”
Branding, familiarity, computational networks for transactions that have lead loss headache attributes and initial time loss for switching due to complexity enabled by algo – AI driven service.
Did I mention fear…. of ones financial life… if it glitches for a second…
Hah! As is said around here with regularity: If you have a life based on a bank’s platform, you don’t have a life.
reading through the comments, the difference between myself(I fired the Big Bank that screwed me over, mid 90’s…went unbanked for years…then got a zero minimum savings acct(!?–it’s got $2 in it right now) at a small bank out here)—and everybody else…is having no money.
Ergo, if you are very poor, it’s quite easy to fire one’s bank and move on.
I’ve often pondered the headline question…especially as everything was tanking 10 years ago…how do these behemoths stay in bidness at all? Why didn’t every one abandon them/burn them to the ground?
My accidentally uncomplicated financial life has apparently blinded me to the (now) obvious answer: anything more than the most basic “cash check/spend it” personal financial regime is soon ossified by the bank, itself.
This merely confirms my almost lifelong distrust of banks(and insurance companies).
the Fog of Hypercomplexity masks the numerous hands in your pocket.
Fie. Fie!
I wonder though if people have switched, TSB just haven’t noticed yet. The last time I moved bank I didn’t shift everything at once – I just opened a new account moving money to it by standing order, and gradually moved debits and standing orders when it was convenient to me, only shifting my salary and mortgage as the final step (as I knew that would take a lot of time) about a year after I opened it. I kept the old account open for several years as a backup.
I work in the marketing analytics department for an FI and only about 50% of our churning checking customers actually close their accounts. The other 50% just stop using them and eventual an inactive customer process closes everything out, but that’s after a whole year of zero activity on any account. If you have other outstanding loan accounts I’d suspect it take the process even longer to catch up.
We have a winner!
I agree with this observation, I did the exact same thing. It took a while, SS and retirement payors just don’t switch your account over night. It takes months. The accounts at the old bank are still open, I just do not use them. I believe a whole lot more people at TSB have switched to a new bank but just have not closed the old one. It would be interesting to find out from the other banks in the UK how much growth in depositors they have been experiencing over the long term. They might not want to share that information though.
The only Issue I can see with this to prevent switching is the overdraft one, although banks can often match that too.
The idea that banks don’t offer free accounts is an odd one to me, banks are still in some cases paying people to move, See First Direct or Nationwide. Or Santander where you get cashbank on all debits. To say that there aren’t alternatives to free banking is simply not true. And if you signup online, you can also mostly avoid the up-sell.
Regarding the switching of sort codes, this was shot down as for the most part the clearing networks etc simply cannot handle the idea that a sort code is not the definitive bank endpoint for a payment. They use them to route payments, like a postal code. If you moved the address but kept your postal code you would need to lookup where that postal code is each time. That was a suggestion that made little or no sense.
The Switching service has had a bad rap and there are a few people who have had issues, no system is infallible, but having shopped about and moved accounts multiple times in order to get better deals, I think the issue is more of a general inertia brought about by the reputation of the banks. Yes, I could leave TSB, but they’ve fixed that problem now, right? If I go to Santander, they might have a flaw next week or mess something up. At least with TSB I know this particular flaw is over.
As it happens I was at TSB this morning. I was due to re-mortgage as the carnage erupted and only now has this pipeline been made functional on their internal system. TSB have promised to compensate us for the time we have spent on the SVR waiting for them to get up and running. What was interesting was that the mortgage system was still only basically functional with lots of glitches and errors. It crashed while processing our application. It kept asking for data that was already in the system, as if it didn’t recognise our data imported from the old system.
All I can access online as of today is the mortgage balance, not statements or make payments. I was told this is low priority because I presume they are prioritising problems which hurt the bottom line. Fixing everything will clearly take years, so IBMs cost estimates sound plausible.
I would move to another bank but we have part of the mortgage on one of the magic financial crisis stimulus mortgage deals which lasts the lifetime of the loan.
We just had to just open a new account in our current bank due to missing checks (stolen from neighborhood mailboxes). Even opening a new account and closing the old one in bank where you have an account for 25 years is a royal pain.
I wonder why anybody would use any of the banks that collapse in 2008 for personnel accounts. Unless you’re counting on these blood sucking vampires to be bailed out again. I’m not sure if TBS falls into the TBTF category or if it’s just a lower level blood sucking vampire with a large dollop of IT incompetence. But I digress…
I am rather dense about banking so I have used nothing but credit unions for the last 35 years (and forced my wife to close her BOA account after too many unexplained overdrafts). Do they have credit unions in the UK?
More likely executives not it. most of these decisions come from there. and even if it had said dont do this yet. betting cost of staying with the previous system was too much
course i do wonder how the bank know how many new accounts were opened? if they cant keep the system up long
Quite!
My gut reaction is that, if you are a globe-trotting neoliberal, you’re looking for a globetrotting bank. “These people” move every few years, as they climb the corporate ladder…New York, San Francisco, Singapore, London, Berlin…and they don’t want to deal with a bank that can’t follow them around easily.
I currently have accounts with two small banks, both of which I love and are (relatively speaking, at least) very fair to customers, but neither one has offices outside of Pennsylvania. Yeah, I can get cash from an ATM with a $4 surcharge two or three times a year, if I’m travelling for work…but if I completely moved away I wouldn’t be able to effectively stay with these banks.
I’m more or less pleased with my little bank, too.
and, yes, it wouldn’t work if i lived even the next county over.
I suspise the regs prevent such little banks from snatching disgruntled customers from the Big Boys, too…maybe limits on “telebanking” or something.
I ran into the bank prez at the beer store around the time when the Lehman nonsense was spreading all around.
I asked him if we would be effected. He said that they are super conservative(small c), want to stay relatively small and local, and have nothing to do with the Big Boys.
Called them “The Casino”,lol.
I have no clue how all that is interconnected(federal reserve system, fdic, clearinghouses, etc etc), save in the broadest theoretical terms.
As you say, many folks need geographical spread with their banking…because apparently most folks move way more than I have.
But I remain suspicious of overly complex institutions.
I just don’t have any confidence that the situation would be better with another bank. I mean, they’re all built on top of towering piles of rotting code and crumbling mainframes right?
The new system isnt likely to be running on a mf is it? kind of shows bad design, code and poor planning will reach havoc on any system:course large banks do run on the old mf, because it doesnt break as easily. after all, if you have or have had a pc, you put up with the blue screen of death for how long?
It’s funny that you open up the prologue by mentioning Wells Fargo, as even though I pulled my bank accounts out of the ol’ TBTF and into a credit union, the credit card is still Wells Fargo. I don’t close it out because it’s the one CC I’ve had since I was 18, so a lot of my credit history and ergo score, is tied to that card. Effectively, I’m stuck with it for life unless I want to take a huge hit to my credit rating. I suspect the same is true for a good number of TSB customers.
Well CC are a different thing. after all, you dont deposit money with them. And we did the same from a bank to a CU but kept our CC. didnt make any sense to change
It’s easy to switch banks.
It’s easy to close your big bank account and open one with a local credit union instead.
It’s also easy to use duckduckgo instead of google when you search the internet.
Yet for some reason…
“they’re all as bad as any other” – well said Yves. And I am broadly confident that the reason they cannot provide a reliable service is size. They are not only too big to fail; they are too big to work properly.
I am cleaving to the belief that the future for reliable, constructive and useful banking is the community bank, staffed by 10-12 people, thoroughly transparent in its operations, easily regulated, and hopefully issuing its own paper secured on a local source of government funds i.e. sovereign currency. There is plenty of historical information in UK and even more in Germany that such banks enjoy the trust and confidence of their customers far beyond the existing arrangement.