Barclays tech outage highlights legacy banking system risks: GlobalData

British multinational universal bank Barclays faced a severe 48-hour technical outage from 31 January to 2 February, disrupting payments and online banking for millions of UK customers. The incident underscores the persistent vulnerabilities of legacy banking systems, despite substantial ICT investments.

As digital-native challengers redefine industry standards, traditional banks must accelerate transformation or risk losing relevance in an increasingly competitive financial landscape, according to GlobalData, a leading data and analytics company.

GlobalData’s report, “Barclays Plc – Digital Transformation Strategies,” reveals that the UK’s second-largest bank’s ICT budget in 2023 was estimated at over $1 billion. The duration and severity of last weekend’s technical issue will raise questions about the effectiveness of this significant investment.

Jonathan Vaughan Burleigh, Associate Analyst, Banking and Payments at GlobalData, comments, “The severity of this outage highlights the need for real transformation in digital operations. Simply spending over $1 billion per year on ICT is clearly not enough to guarantee reliability in a digital banking platform. Banks must begin to completely overhaul outdated systems to keep up with the consumer expectations in the modern banking landscape.”

Despite the funding allocated for Barclays’ digital transformation, data from GlobalData’s Financial Services Consumer Survey 2024 reveals that the bank’s customers rated their digital satisfaction below the market average. Barclays is not an outlier in this metric. Many of the largest traditional banking providers rank near the bottom, with Lloyds Bank being the only one of the top five largest banks rated above average.

Vaughan Burleigh continues, “Established ‘traditional’ banks are struggling to adapt their digital platforms to keep up with rapidly changing consumer preferences. It is no coincidence that digital-only banks such as Starling and Monzo rank far above the market average, while banks still operating on legacy technology perform poorly in digital satisfaction. Banks that are digitally native are far more agile. They can resolve issues more quickly, respond to customer preferences with new products, and provide a strong digital offering for their growing consumer bases.”

The need for traditional banks to abandon legacy technology and embrace a digital-first approach extends beyond avoiding technical issues and service outages. While this glitch will certainly damage Barclays’ reputation, the more pressing concern is future customer acquisition and retention.

According to GlobalData’s Competitor Benchmarking Analytics 2024, the key determinants of a bank’s NPS in the UK include personalized experiences, competitively priced products and services, the ability to resolve minor issues online, and the omnichannel nature of the bank’s services. Digital-native banks have become market leaders in these areas, developing new capabilities ahead of larger, traditional players.

Vaughan Burleigh concludes, “The banking landscape has shifted significantly since digital challengers gained popularity. Consumers now expect advanced online capabilities, such as personalized insights and financial education, as basic features of bank accounts. If historically dominant players like Barclays fail to revolutionize their online banking offerings immediately, digital only banks will not only capture the young consumers entering the market but also convince more mature users to abandon sluggish providers in favour of innovative and agile competitors.”