Banking glitches a growing trend globally

Yesterday’s hottest breaking news was the “internal data processing error” of the country’s oldest bank, the Bank of Philippine Island (BPI), where some of its account holders not just saw their balance statements ending more than double (P600 to P600,000) or to a preposterously high level of P12 billion.

That was the surprise “fun” part, especially for those who saw their balances change for the “better.” But for those that saw their account balances bottom out or even change to negative, it definitely was horrific. And with social media at its best behavior nowadays, BPI’s internal glitch turned out to be an overnight sensation.

By the time readers are glued in to this column, the crisis will hopefully be over for BPI. As of press time, they had promised a return of online transactions by noon at the earliest of Wednesday (that’s yesterday) after “correcting some mis-postings.”

Hopefully, BPI’s internal faux pas will be short-lived in the annals of social media, and even all news outlets — resolved because of a mistake some personnel may have made or a weakness in internal protocols. But this is something that the Bangko Sentral ng Pilipinas will have to look into.

In the meantime, netizens and BPI account holders should just calm down especially about fears of any hacking, something that ultimately results in robbing a bank of its own funds, just like what happened with the celebrated Bangladesh Central Bank heist.

Growing incidents of glitches

Still, a cursory check of banking news shows what could be an alarming trend of glitches on banking systems. They may perhaps be totally unrelated to the BPI case, but it gives us some interesting information on what is happening to the industry that most of us almost cannot live without.

One of the earlier celebrated incidents happened in 2012 involving Royal Bank of Scotland (RBS) where customers were unable to access their accounts for days. The glitch ended with 12 million customer accounts being frozen for a week or more as the bank manually updated all account balances.

The following year, in December 2013, on the busiest shopping day of the year, RBS encountered once again IT problems and stopped customers making online and card payments.

More recently, Germany’s state-owned development bank KfW erroneously transferred more than $5.4 billion to four banks because of a technical glitch that repeated single payments many times.

While the problem was immediately acknowledged by the bank, together with an issuance of a statement that “The mistake was rapidly identified and eliminated, and the amounts overpaid were successfully demanded back.”

Interestingly, this is KfW’s second celebrated incident, the first when it erroneously transferred hundreds of millions of dollars to Lehman Brothers Holdings Inc. in September of 2008 on the day when the US firm filed for bankruptcy.

Two years ago, in June 2015, Deutsche Bank AG’s foreign exchange unit mistakenly sent $6 billion to a hedge fund client, but was able to recover the amount the following day.

In a less controversial incident, but still related to internal glitches, BNY Mellon Corp. (BK.N) highlighted a number of problems that involved its work of moving trillions of dollars around the global banking system.

Known as a trust bank, BNY Mellon safeguards and keeps track of nearly $26 trillion in assets for clients that include the largest asset managers, pension plans and corporations around the globe. This was BK.N’s second major technology glitch within the past 18 months.

The first happened in August of 2015 when the mutual fund accounting system that the bank relied on broke down and delayed the valuation of billions of dollars in assets. This led to the bank paying $3 million by way of settling for the damages related to the system breakdown.

Last week, BNY Mellon reported having problems about processing clients’ payment instructions, but blamed the problems on its connection to SWIFT, a global financial messaging system that banks use for money transfer instructions. It is still unclear what happened.

Cyber attacks on the rise

Together with other recent cyber attacks incidents on banks, such categorized “internal” glitches do not paint a reassuring picture of how much safer the banking industry is now, especially with all the move to go online and contactless.

Aside from the Bangladesh Central Bank incident, at least eight other monetary banks, including the Dutch Central Bank, the Bank of Greece, and the Bank of Mexico, were supposedly hacked last year by a group that called itself “Anonymous.” This January, Lloyds Banking Group Plc was reportedly hit by a cyber attack that disrupted online services for customers.

 Patch-up work on legacy systems

Watchdogs in the banking industry are saying that the errors, either internally generated or instigated by cyber criminals, reflect a broader security risk that banks face: outdated technology and the existing legacy system.

Many of the world’s oldest banks started with building core processing systems for deposit accounts and payments through the last century. Over the decades, modification and enhancements were introduced and built on the old platforms.

A lot of money had been spent on strengthening these that nobody really thought about introducing radical changes — even when electronic banking started to become an imminent game-changer for the industry. This was turning out to becoming the oldest patch-up work in the world, but not exactly the most reliable.

Enhanced obsolete legacy IT 

What is clear is that banks that relying on obsolete legacy IT systems, albeit enhanced by technology-driven and newer systems to give consumers the impression that these have become fit for the new world of internet and smartphone banking may be misleading customers.

With banking regulators more aware of the risks that banks face, we may be seeing new changes. Or could competition from small, more aggressive banks that have recently installed more modern banking processes do the trick?

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