More than any other industry, banking suffers from Kunsler’s psychology of previous investment. Nowhere is this more true than in the UK banks.
According to Kat Hall at The Register, British bank computer systems contain a third more “legacy code” than competitors overseas:
“Another major banking outage similar to the RBS disaster back in 2012 is likely to happen again in the UK.”
These computer glitches cause considerable disruption to customers; and oblige the banks to pay yet more compensation. Unless something is done, the entire system could be at risk:
“The UK’s banking sector has seen a spate of outages caused by IT cock-ups over the last five years. Most notorious was the 2012 RBS and NatWest outage which affected at least 6.5 million customers in the UK and lasted for weeks. In 2014 the banks were slapped with a £56m fine by regulators, who warned that the disaster could have threatened the stability of the entire financial system.”
However, the legacy banks – those that the government considers to be “too big to fail” – have no incentive to act. It is easy for them to simply patch up – and add to the complexity of – old computer systems that date back to the 1980s.
In a genuinely competitive industry, bankruptcy is the reward for a company that insists on doing business using out of date infrastructure. This may eventually happen in banking, if the so-called challenger banks are able to develop their own up-to-date systems. But it is a measure of just how much of a monopoly the legacy banks currently have that they are able to get away with it – and get the governments to bail them out when they mess up.