TSB system outage cost rises to £330m

13 March 2019

The cost of last year’s disruptive system outage at TSB continues to rise, as the UK bank has fought to retain customers.

TSB’s financial performance in 2018 was heavily impacted by the problematic IT platform migration in April, which was intended to transfer some five million customers and 1.3 billion records over to an in-house online banking system.

Following the switch-over, however, customers reported months of disruption and limited access to banking services.

Costs

The problematic IT platform migration cost the bank and its parent Banco Sabadell dearly. The incident caused TSB to post a GBP 105.4 million pre-tax loss in 2018, versus a profit of GBP 162.7 million in 2017.

The bank reported additional costs and loss of income associated with the platform migration totalling GBP 330.2 million in 2018, almost double the cost reported in the immediate aftermath. 

In the second quarter of 2018, TSB said the cost of dealing with the problematic migration totalled GBP 176.4 million, pushing the UK bank into a half-year loss and its Spanish bank owner Sabadell into the red.

The GBP 330.2 million bill includes; the cost of additional resource and advisory at GBP 122.4 million, as well as customer redress of GBP 125.2 million and GBP 49.1 million from fraud and operational losses. 

Loss of income totalled GBP 33.5 million, primarily from waived fees and charges, as a result of the service disruption.

Putting things right

Ten months on and TSB says that it has made good progress on resolving the issues, although some functionality is still limited. All critical and urgent IT fixes have now been applied, and the majority of products are available across all channels, it says.

In the weeks after the failed platform migration, TSB brought in external consultants from IBM to help resolve the problem. It also hired 1,800 people and moved 700 existing staffers into customer-facing roles. In September, TSB’s chief executive Paul Pester stepped down.

TSB says it has resolved around 90% of the 204,000 customer complaints received since the migration. New complaints continue to be received, but are significantly lower in volume and closer to pre-migration levels, with the majority no longer connected to migration issues, it says.

 Sign up to our latest  news & insights Sign up to our latest  news & insights

Contractual Liability 

TSB says it was able to recover almost half (some GBP 153 million) of the cost of the IT platform migration failure from Sabis, an in-house IT provider owned by TSB’s parent Sabadell. 

The reliance on in-house IT providers can give rise to potential coverage issues for clients looking to recover losses from their own subsidiary Tech and E&O policies.

The TSB case also raises questions around outsourcing of IT services vs in-house provisions. While many organisations are cautious of cloud services, outsourcing could provide an avenue for recovery when things go wrong. 

Where there is a liability cap in the outsourcing contract, this can be matched up with expected losses, with residual exposure potentially covered by insurance.

Sarah Stephens

Talk to an expert

For further information, please contact Sarah Stephens, Head of Cyber /Technology E&O on +44 (0)20 3394 0486

Download cyber decoder

YOU MAY ALSO BE INTERESTED IN