RBS admits decades of IT neglect after systems crash

By Steve Slater and Aashika Jain

LONDON (Reuters) - Royal Bank of Scotland has neglected its technology for decades, the state-backed bank's boss admitted on Tuesday after a system crash left more than 1 million customers unable to withdraw cash or pay for goods.

The problem for three hours on Monday, one of the busiest online shopping days of the year, raised questions about the resilience of RBS's technology, which analysts and banking industry sources regard as outdated and made up of a complex patchwork of systems after dozens of acquisitions.

"For decades, RBS failed to invest properly in its systems," Ross McEwan, who became chief executive in October, said.

"Last night's systems failure was unacceptable ... I'm sorry for the inconvenience we caused our customers," he said, adding he would outline plans in the New Year to improve the bank and increase investment.

The latest crash could cost RBS millions of pounds in compensation and follows a more serious crash in its payments system last year that Britain's regulator is still investigating.

The regulator has been scrutinising the resilience of all banks' technology to address concerns that outdated systems and a lack of investment could cause more crashes.

The technology glitch is another setback for the bank's efforts to recover from the financial crisis when it had to be rescued in a taxpayer-funded bailout. The government still owns 82 percent of RBS.

RBS's cash machines did not work from 1830-2130 GMT on Monday and customers trying to pay for goods with debit cards at supermarkets and petrol stations, buy goods online or use online or mobile banking were also unable to complete transactions.

The bank said the problem had been fixed and it would compensate anyone who had been left out of pocket as a result.

About 250,000 people an hour would typically use RBS's cash machines on a Monday night, and tens of thousands more customers would have used the other affected parts at its RBS, NatWest and Ulster operations. RBS has 24 million customers in the UK.

Twitter lit up with customer complaints.

"RBS a joke of a bank. Card declined last night and almost 1,000 pounds vanished from balance this morning! What is going on?" tweeted David MacLeod from Edinburgh, echoing widely-felt frustration with the bank.

Some people tweeted on Tuesday they were still experiencing problems and accounts were showing incorrect balances.

RUN OF PROBLEMS

Millions of RBS customers were affected in June 2012 by problems with online banking and payments after a software upgrade went wrong.

That cost the bank 175 million pounds ($286 million) in compensation for customers and extra payments to staff after the bank opened branches for longer in response. Stephen Hester, chief executive at the time, waived his 2012 bonus following the problem. Britain's financial watchdog is still investigating and could fine the bank.

The latest crash occurred on so-called Cyber Monday, one of the busiest days for online shopping before Christmas.

RBS said the problem was not related to volume, but gave no details on what had caused the system crash.

McEwan has vowed to improve customer service and has said technology in British banking lags behind Australia, where he previously worked. He has pledged to spend 700 million pounds in the next three years on UK branches, with much of that earmarked for improving systems.

RBS's former CEO Fred Goodwin has been blamed for under-investing in technology and for not building robust enough systems following its takeover of NatWest in 2000.

Andy Haldane, director for financial stability at the Bank of England, told lawmakers last year banks needed to transform their IT because they had not invested enough during the boom years. Haldane said 70-80 percent of big banks' IT spending was on maintaining legacy systems rather than investing in improvements.

"It appears to be another example of the lack of sufficient investment in technology by a bank that is still hurting. They are trying to do it on a shoestring, because they don't have any extra money," said Ralph Silva at research firm SRN.

"They need to do more, they need to allocate a greater portion of their spend to IT."

(Additional reporting by Clare Hutchison and Kylie MacLellan; Editing by Erica Billingham and Jane Merriman)