NatWest banking technology failures highlight the growing importance of reliable digital infrastructure as consumers increasingly depend on electronic access to their money. When an IT outage prevents customers from withdrawing cash, making debit or credit card purchases, or accessing online and telephone banking, the consequences extend far beyond temporary inconvenience. For financial institutions, repeated disruptions can quickly become a customer trust and loyalty problem.
The challenge is particularly significant for traditional British banks that are already contending with reputational damage from other industry controversies. With consumers gaining access to a wider range of banking alternatives, technology failures could give dissatisfied customers another reason to move their accounts to smaller institutions or emerging competitors.
A couple of weeks ago, British bank NatWestsuffered an IT crash that prevented customers from withdrawing cashat ATMs, using their debit or credit cards for purchases, andaccessing telephone or Internet banking. Unsurprisingly, angrycustomers vented their frustrations on social media outlets andshared some of the hardships they experienced as a result of thecrash.
Even though NatWest could be excused for a one-time technicalglitch, this most recent crash is just another chapter in a seriesof problems plaguing major traditional British banks. In June 2012,NatWest faced similar technology issues related to softwareupgrades that prevented some customers from accessing their fundsfor up to a week.
Last year also saw Lloyds and HSBC, among others, forced tocompensate customers who were misled to buy payment protectioninsurance, not to mention the LIBOR rigging scandal. Emphasizingthis point, Laura Willoughby of the campaign group Move your Moneysaid to the Guardian newspaper, “This is like groundhog day. CouldRBS (NatWest is part of the RBS group of banks) make things anyworse for their already battered and bruised customers?”
Technology problems in the 21st century banking experience couldhappen at any point. But combine that with other continuous majorissues facing British banks and consumers are no longer justputting up a stiff upper lip and carrying on. They are leaving themajor British banks in large numbers for alternatives.
Although it is too soon to determine the impact of NatWest’s latestproblem, last year’s software issue led to customer leaving foralternatives such as Co-operative Bank, which saw a 25-percentincrease in new accounts. Other smaller and less-known institutionsalso benefitted such as Charity Bank, which donates to charities onits customers’ behalf. It experienced a 200-percent increase indepositors. Ecology Bank, which offers mortgages and savingsaccounts that benefit the environment, had a 266-percent rise inapplications.
Banks losing customers in the aftermath of problems or scandals isnothing new. That extends across the pond here in the UnitedStates. But unless NatWest and other leading high street banks takeserious steps to calm and potentially win back lost customers, itmay be difficult to ever regain their loyalty.
And with new competitors such as Virgin Money attempting to shakeup the status quo, the traditional high street banks are facingcompetition that for years was virtually non-existent in theBritish consumer banking segment. How NatWest and others respond tothis latest IT crash should provide clues to their futurestrategy.
The fallout from NatWest banking technology failures demonstrates how technology reliability has become inseparable from the overall banking relationship. An isolated outage might be forgiven, but repeated problems can undermine confidence—particularly when customers depend on digital systems and payment cards for routine access to their funds.
The competitive environment also means consumers have more options when that confidence disappears. Following previous technology problems, alternative institutions experienced substantial increases in new accounts and applications, suggesting that dissatisfaction with established banks can translate into opportunities for smaller competitors.
For NatWest and other traditional high street banks, preventing future outages is therefore about more than fixing an IT system. Banks must demonstrate that their infrastructure can reliably support the increasingly digital ways customers manage and spend their money. They also need an effective response when failures occur, including clear communication and efforts to rebuild customer confidence. As competitors such as Virgin Money challenge the established banking model, institutions that fail to address recurring technology and trust issues could find that winning back dissatisfied customers is substantially harder than losing them.