TSB pins £330m cost on IT meltdown as it posts £115m annual loss

Botched IT platform migration costs included compensation, fraud, additional resources - and the job of CEO Paul Pester

TSB's IT meltdown in spring last year cost £330.2 million in total, according to the bank's 2018 annual results, contributing to a £101 million annual net loss.

The losses would have been higher were they not offset by a compensation payment of £153 million from IT provider Sabis, which is owned by TSB's parent company, Banco Sabadell.

The figures were revealed in the bank's annual report for 2018, released on Friday.

As a result of the botched migration, some two million account holders were locked out, the bank was targeted by fraudsters, 204,000 customer complaints were received - around four times the normal level - and, in the aftermath, 80,000 customers switched their accounts.

TSB's CEO, Paul Pester, was also ousted in September as the IT problems persisted. He will be replaced in the spring by Debbie Crosbie, from the CYBG banking group that owns Clydesdale Bank, Yorkshire Bank and Virgin Money.

But the bank's report today reveals not only the cost of the meltdown, but provides more details about how and why it happened.

The report reveals that following the meltdown, the bank spent £125 million on compensation to customer, £49.1 million was lost to fraud, it spent £122 million on hiring or redeploying staff just to handle the wave of complaints, and lost £33.5 million in fees and charges that it had to waive in order to hold on to disgruntled customers.

TSB claims, however, that it has now resolved 90 per cent of the 204,000 complaints that it received following the IT migration meltdown.

Although largely fixed, the bank is still tackling IT problems arising as a result of the IT platform migration. "We still see occasional IT issues and interruptions, the number of these incidents has reduced significantly since the immediate post migration period and IT services are now stable and within the range of industry performance," claimed the report.

The IT platform migration was intended to transfer the bank's customers from IT systems belonging to its former parent, Lloyds Banking Group, over to the banking platform run by Banco Sabadell, which acquired TSB in 2015.

While the project had been planned for three years, the critical phase came down to the migration of eight million customer records over to the new platform on the weekend of 21-22 April 2018.

"However, at migration a number of infrastructure components did not perform to TSB's expectations. Thus, the migration event led to unexpected problems for customers in accessing their accounts through internet banking and the mobile app, in the initial period after migration," according to the report.

"TSB's two other customer facing channels, telephony and branch, also experienced challenges with platform instability, which was exacerbated by the significantly higher levels of customer demand resulting from the problems with the digital channels and the additional publicity," it added.

It continued: "These events, coupled with the large amount of publicity, also precipitated fraudsters to switch their activity from other banks towards TSB's customers. While our fraud-prevention defences remained up and running, the systems issues created circumstances in which fraudsters were more easily able to confuse and entrap customers."

Despite the problems, the core record keeping functions of the new platform "continued to operate predominantly as designed", although the report does not detail in what ways it didn't continue to operate as designed. Debit cards, credit cards, regular payments and ATMs all continued to work as normal.

"Primarily, the underlying issues related to aspects of three key inter-connected areas - the initial configuration and the capacity of the infrastructure, and also some aspects of coding."

When it was clear that the migration had gone awry, the bank invoked its disaster recovery procedures, which included incident management protocols, ‘war rooms', triaging of problems and fixes identified and implemented by Sabis.

"As the scale of the issues became apparent, steps, including the appointment of IBM to help identify and resolve performance issues in the platform, were taken to enhance the IT change management processes.

"Further to the 500 additional staff taken on in advance of, and to assist with, migration the Bank hired another 2,100 individuals and redeployed 700 Partners to manage the emerging issues and help put things right for customers," notes the report.

The TSB claims that customers are now benefiting from the bank running on a single, modern banking platform. These benefits include faster processing times, quicker mortgage processing and the ability to offer more financial services to customers. The bank was also able to join the Faster Payments and BACS payment schemes.

In addition, new current account openings are now back to pre-migration levels, but with 90 per cent fewer calls from customers requiring assistance.

However, the disaster has left its mark on perceptions and satisfaction levels that will take some time to clean up.