The Fragility of Digital Banking
A recent post on Naked Capitalism had me thinking about how tightly interconnected the global banking system is, and the problem that can arise. The article discusses a recent IT outage at Barclays Bank, one of the UK's largest and most systemically important banks, which left customers unable to access banking services for nearly 48 hours. Banking failures are so common place at this point in time that I hadn't even heard about this particular failure.
The outage occurred at a critical time—Payday and the deadline for self-assessment tax returns—causing significant disruption. Customers reported issues with payments, incorrect balances, and being locked out of their accounts. Barclays' crisis management was criticized for being inadequate, with suggestions to seek help from charities when customers were left without access to funds.
The article highlights a broader trend of increasing IT outages in the UK banking sector, exacerbated by banks pushing customers toward digital services while closing physical branches. Since 2015, over 6,000 bank branches have closed in the UK, and ATMs have significantly decreased. This shift has made it harder for customers to access cash, despite digital platforms proving unreliable. The Financial Conduct Authority has expressed concern over the rising number of IT failures, but little improvement has been seen.
The piece also references past IT failures in the banking sector, such as the 2018 TSB crisis, which cost millions and led to customer losses. Recent outages at other major banks, including Lloyds and HSBC, further illustrate the fragility of the digital banking infrastructure. The article argues that banks are prioritizing cost-cutting over system resilience, leaving customers vulnerable.
Financial technology expert Chris Skinner warns that the interconnected nature of modern banking systems creates a "house of cards" effect, where one failure can cascade across the entire system. This issue is not unique to the UK, as similar outages have occurred globally, including at Bank of America and Singapore’s DBS.
The fully article is worth a read, and you can find it here: https://www.nakedcapitalism.com/2025/02/what-just-happened-to-online-banking-services-in-the-uk-and-what-could-it-mean-for-the-wider-world.html
There are also two other interesting world events that are rapidly converging on this topic, and they are; AI and Elon Musk's DOGE. I'll say more about that in the coming weeks.