September saw an interesting case of multiple UK bank platforms and payment system failures. Information Technology (IT) disruptions affected several banks, providing evidence to the claim that the cause was not a random glitch, but a systemic issue.
A SERIES OF FINTECH FAILURES FOR UK BANKS
The series of troubles started on 20 September, with the UK’s largest bank Barclays, as frustrated customers started reporting a crash of the bank’s online payment system. Allegedly, ATMs were affected as well. After several hours the IT glitch, as the bank called the issue, was resolved.
On Friday, 21st September, millions of users of The Royal Bank of Scotland banking group suddenly experienced the inability to view their balance or make online payments. The disruption affected three banks simultaneously – The Royal Bank of Scotland, Ulster Bank and Natwest. Customers also reported inability to access their money at ATMs, although the banks did not acknowledge this issue in their official report on the matter. A technical glitch was given as an explanation after several hours of outage.
Another UK financial institution experiencing similar troubles was the fintech firm Cashplus, which offers prepaid credit cards. Again, customers were unable to send funds or access their accounts. This problem came to the attention of the chair of the Treasury Select Committee, who published a letter asking Cashplus how customers will be compensated and what measures will be taken to prevent another incident.
We can only speculate on the exact cause of the outages, but one interesting possibility can be attributed to the RBS’s intention to slash their IT manpower and outsource it to India. In times when IT provides the competitive edge to fintech business and the impact of outsourcing is being questioned, it is a puzzling move to cut back on such a vital department. Banks justify closures of their branch offices with the explanation that they provide high-speed, flawless online and mobile services, but the move to reduce IT operations comes without a clear explanation. At any rate, it is rather unlikely that this outsourcing is being done across the board, and therefore unlikely to be the main reason behind the recent system crashes.
THE (NOT SO) IMPOSSIBLE TRIANGLE OF CRYPTOCURRENCIES
Users expect payment systems to be secure and fast. And decentralized, if you ask a blockchain enthusiast. It is here that we encounter the so-called impossible triangle of cryptocurrencies; a triangle connecting three essential and desirable features: safety, speed and decentralization. But, as experience so far tells us, you can only have two of these features in a given system. The systemic failures mentioned above are good examples that safety and speed cannot be taken for granted in centralized systems.
However, this impossible triangle does not seem to be preventing blockchain adoption by other big companies. The Irish branch of Mastercard, the second largest payments company globally, is ready for some exploratory work on blockchain and AI solutions. Their R&D headquarters are in the process of expansion, and they are hiring blockchain specialists among other technical cadre.
It is difficult to imagine that an international payment provider would want to switch to a decentralized network where transactions are orders of magnitude slower and possess far less scalability, which implies that these industries expect major breakthroughs in scalability and speed of the blockchain technologies. One of the latest pioneers in these areas is the Red Belly Blockchain, managed by Australia’s national science agency, CSIRO. The project claims that their new generation blockchain operating on Amazon Web Services’ cloud infrastructure can reach cross-border speeds of 30.000 transactions, with an average latency of three seconds.
It is this promise of global enterprise scalability that attracts traditional finance to join and keep an eye on projects such as Hyperledger. This project houses collaborative efforts to develop blockchain-based ledgers. Members include large banks like Deutsche Bank, Wells Fargo and J.P. Morgan, with FedEx and Honeywell recently joining in September. These conglomerates utilize massive supply chains, and expect blockchain technologies to simplify their logistics and transportation operations.
Processing transactions automatically without significantly lower fees would be a big step forward in terms of reducing costs and increasing efficiency. Global Blockchain solutions could also do away with disjointed individual payment processing systems that belong to individual supply chains and instead provide a common way within each industry of handling data in a more effective way.