Are you fed up with banking breakdowns?

As NatWest and Nationwide reveal more IT glitches, we ask what's wrong with Britain's banks.

Thanks to IT problems, this summer has not been a good one for customers of British banks. 

Six weeks ago ago, Royal Bank of Scotland (RBS) caused havoc when a software upgrade went awry. This upgrade became a dreadful downgrade, as it locked millions of customers out of their accounts with RBS, NatWest and Northern Ireland-based Ulster Bank. In total, up to 17 million people were affected. 

Computer says no

Unbelievably, NatWest has now had yet another computer meltdown, as we revealed yesterday in Double IT trouble from NatWest and Nationwide BS. As complaints poured into Twitter and Facebook, NatWest admitted that it was having problems processing payments by debit card and with online banking. 

What's more, Nationwide BS also experienced IT problems yesterday. The UK's biggest building society double-debited a swathe of card transactions. The mutual dipped twice into customers' current accounts, with payments made on Tuesday duplicated on Wednesday. According to reports, close to 705,000 customers were affected by this double trouble. 

Too big to function?

Of course, this isn't the first time that UK banks have fouled up. Indeed, every large British bank has had its fair share of software slip-ups. 

For instance, a couple of years ago, Abbey debited payments twice after an IT worker accidentally fed the same tape through its system a second time. Similarly, Barclays' online-banking system crashed twice in two weeks, leaving customers unable to log into their accounts. 

Then again, recent banking blunders have been particularly severe -- leading some to ask whether there is a growing defect or instability in the British banking system. In the banking collapse of late 2008, we worried that some banks were TBTF: 'Too Big To Fail'. Today, I wonder whether UK banks are still TBTF, but this is now short for 'Too Big To Function'? 

What could be causing these widespread problems? Having worked in financial services for 25 years and studied computing at degree level, here are my thoughts: 

Concentration: The Big Four banks (Barclays, HSBC, Lloyds and RBS) control about five-sixths (85%) of all retail-banking customers. Clearly, this concentration of customers creates complexity and, probably, instability.

Cost cutbacks: Since the UK's credit-fuelled boom ended five years ago, tens of thousands of bank workers have lost their jobs. Perhaps our banks have gone beyond 'lean and mean' and are now 'skinny and hacked off'?

Offshoring: To cut back on costs, large UK corporations outsource customer services and IT functions to low-cost labour markets in English-speaking countries such as India and the Philippines. While this income is of huge benefit to developing countries, UK customers repeatedly complain of falling standards.

Staff stresses: Staff cutbacks place ever-greater strain on bank workers, leading to intense pressure on the remaining employees and contributing to high staff turnover.

Lack of training: As older bank employees leave or retire, their valuable experience is lost as they are replaced by younger, lower paid and less experienced workers.

Poorly planned upgrades: New software should never be tested in a live environment, as the consequences are often disastrous. It seems that in their rush to return to profit, banks are upgrading and revamping their systems without proper prior testing.

Human error: Lastly, we should never forget one of the main causes of corporate cock-ups: old-fashioned human error! 

Monitor your money

Given all the problems of the last few years, we should all keep a closer eye on our accounts. 

For example, checking your monthly statements against your receipts and regular bills is a simple way to monitor your money. 

A more high-tech approach is to sign up for online banking and download transaction data for regular reviews. Similarly, mobile banking with warning text messages can be very useful. 

One thing you shouldn't do is be complacent. As soon as you see an unfamiliar, odd or suspicious transaction on your account, contact your bank straight away. It may be nothing more than an oversight or a one-off glitch, but could be the start of a much bigger problem, such as a wider IT crash or targeted fraud. 

The itch to switch

Given recent banking bungles, it's no surprise that some customers have had enough and are ditching and switching banks. Unfortunately, all major UK banks have suffered similar snags at some point in time, with no bank immune from these howlers. 

As a financial writer of 10 years' standing, I can't think of a single bank that has generated no complaints from readers. That said, I can personally vouch for first direct, which I've banked with for over two decades and recommend highly. This widely admired division of HSBC will even give you £100 to join it! 

Other banks with good reputations for customer service include The Co-operative Bank and its online bank, Smile. At the other end of this scale, Santander and Bank of Scotland tend to do poorly in Which? magazine's yearly satisfaction ratings. 

Finally, if you're fed up and looking to switch banks, then read Alternatives to current accounts with the big banks and OFT launches new current account review before making a move. 

Good luck with finding a better bank! 

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