The report by Slaughter & May into last April’s failure of TSB’s IT system in April last year is damning about the bank, and not much of an advert for the so-called ‘challenger banks’ set up to provide fresh competition for the big banks in the aftermath of the 2008/09 financial crisis. Two million of the TSB’s customers found themselves locked out of their accounts after the bank attempted to shift 5.2 customer accounts from the old Lloyds Bank IT system to the system of its new Spanish parent company, Sabadell, over the course of a weekend.
But it ought to be held up as a warning of what we will increasingly face in future if we are driven to go cashless. Buying with a card, a mobile phone or some other electronic device is all very well while the IT system behind it is functioning well. If it fails, you are very quickly going to find yourself unable to pay bills, go shopping travel on a train and much else besides. It is not as if the TSB failure is a one-off. These failures keep on happening – often on a scale even larger than the TSB debacle. In 2012 10 millions account holders with the Royal Bank of Scotland, NatWest and Ulster Bank found themselves unable to make payments after a computer systems failed. The failure was traced back to a simple error by a technician in Hyderabad. Lloyds and Barclays have also seen their systems fail, as has the supermarket Asda.
There is a very simple defence against these failures: always to carry some notes and coins, and to keep an emergency supply of cash somewhere in your home. But somehow that argument fails to get through. We seem to have a faith in IT systems which is not borne out by the record. True, many people have more than one bank account, and it is easy to carry around more than one card – although it would easy not to realise, for example, that a NatWest debit card and an RBS debit card rely on the same IT system. But then cards themselves are being pushed out by mobile phone-based payment systems. In some places, for example, the only way to pay for parking is via a mobile app. For these to work, users are reliant not just on their own bank’s IT system, they are relying on the receiving bank’s IT system as well as their phone operator’s network.
The more we become dependent on electronic payments, the bigger the consequences of IT failures will become. Has anyone estimated the cost to the economy of an IT failure which took down the systems of all main banks for several days – and where cash and cheques did not exist? I would love to see such as estimate.
Electronic payment systems are, it goes without saying, one of the great innovations of our time. They allow us to make payments across countries, across continents, instantly and efficiently. Few would want to go back to a time when all we had available were cash and cheques – the latter of which took days to process. But we don’t need to be forced to use e-commerce; where it is the most convenient option we will use it anyway. This is not enough, however, for many of the commercial interests who have been lobbying governments to work towards the total abolition of cash. They are doing so for their own self-interest – electronic payments offer the chance to raise fees and capture data on our shopping habits. Cash transactions are free and anonymous; electronic payments rather less so.
The TSB failure should serve as a warning: electronic payments should be seen as an alternative to cash, not as a replacement. There are many arguments against compulsory cashlessness – that it makes live difficult for the poor and elderly, who might find it difficult to open bank accounts or operate electronic devices, that it would enable Central Banks effectively to steal our savings by imposing negative interest rates, knowing we had no option to withdraw those savings in cash, and that it could further encourage online fraud. But the financial resilience argument is one which has been given too little attention.