Computer glitch will hurt RBS

The fallout from last week's routine software upgrade at Royal Bank of Scotland (RBS) continued into this week. The update caused the retail banking operation's payment processing system to collapse, leaving many RBS and NatWest customers unable to access their bank accounts, withdraw money, or pay suppliers or employees. The original error has been dealt with, but the bank is still working through the resulting backlog.

What the commentators said

Many clients will claim back late payment charges and other indirect costs, said Lex in the FT. Still, proving and settling claims is likely to cost "a small fraction" of the £1.2bn set aside to cover payment protection insurance mis-selling claims.

The reputational damage to RBS looks more significant, however. "Short of a bank running out of money this debacle is about as serious as it gets for any bank," as Robert Peston pointed out on BBC.co.uk. It's a pity, then, said Alex Brummer in the Daily Mail, that in the aftermath of the glitch RBS "has not treated customers, shareholders and the public as grown-ups".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Instead of "a proper explanation" of what went wrong and how many customers and transactions would be affected, we have had only "public relations twaddle of the worst kind". And chief executive Stephen Hester took days to produce a personal apology.

So why did the glitch happen? Popular guesses are that the bank outsourced too much of its IT in a misguided attempt to save costs, while old systems may play a part. RBS doesn't think the latter is an issue, said Peston. But "it is striking" that in the boom years none of the banks thoroughly overhauled their systems perhaps another example of how "they did too little sensible investment when the sun was shining".