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Can we trust banks to keep our money safe?

Advances in IT have made mobile banking in Sweden a breeze. Most of the time. But do banks have what it takes to keep customers and their money safe from cyberattacks and IT meltdowns?

Can we trust banks to keep our money safe?
Photo: Pixabay

Banking has always been risky business. Once upon a time people judged a bank’s soundness solely on how it managed the money customers deposited there.

But in today’s increasingly digital world, where IT systems are tasked with moving around ever more money to ever more places, rickety IT systems are as much – if not more – of a risk than loan defaults.

“Many banks are stuck in outdated IT environments with old systems,” explains Dimitris Panagio, who heads the Stockholm office of IT service and software provider Seavus.

In recent years, there have been dozens of examples of IT problems leaving customers unable to access their accounts and Sweden’s large banks scrambling.

In June 2016, Handelsbanken alerted customers via Facebook that its card services weren’t functioning properly. In the same month, customers with Nordea and Icabanken couldn’t log into their internet banks.

And in February 2017, Swedbank was forced to shut down several ATM machines in western Sweden after a database error – ironically stemming from efforts to solve a previous IT problem – inadvertently resulted in people being able to withdraw more money than they had in their accounts.

“Banks haven’t kept pace with the modernisation. And unfortunately, there have been several incidents that have caused serious problems for individual customers,” says Panagio.

Cyberattack threats

So far, Sweden’s banks have only had to fix problems of their own making – but Sweden’s security services have also warned about the increasing threat of cyberattacks which could also disrupt the Swedish banking system, characterized as “very vulnerable” in a 2015 report by the country’s Civil Contingencies Agency.

“It’s urgent that IT systems get secured,” Sweden’s enterprise minister, Mikael Damberg, said following Swedbank’s ATM mishap.

Panagio from Seavus shares the minister’s concerns about the potentially disastrous effects of a cyberattack for Sweden’s financial sector, not to mention individual customers.

“During a major cyberattack, information can actually disappear. And it can be hard for the individual customer to prove or show how much money they had in their savings account,” he explains.

“What happens if important bank systems are compromised and it’s impossible to restore or retrieve the information?”

Old systems, new problems

Seavus, which specializes in telecom and banking & finance, works with several financial services companies in the Nordics and central Europe to help them develop and build secure software to work with their current systems or to rebuild entire systems from scratch.

While many larger banks may be tempted to upgrade legacy systems rather than start fresh, that approach can ultimately lead to more problems, according to Panagio.

“No one really understands how all the old systems work or which connections and effects the systems have on each other,” he says.

Moreover, trying to breathe new life into decades-old IT systems can put banks at a competitive disadvantage as more niche lenders and disruptive fintech startups enter the marketplace.

“There are lots of new niche-banks and fintech firms breathing down the necks of traditional banks,” says Panagio.

Stockholm is already recognized as leading fintech hub thanks to innovative companies like Klarna, iZettle, and Trustly, all of which feature cutting edge IT platforms to offer niche financial services, which puts additional pressure on traditional banks to innovate.

‘Step outside the box’

 “These new players understand the opportunities and challenges of technology from a different point of view and with new business models,” says Panagio.

“And they aren’t weighed down by old, sluggish IT systems and the problems that come with them.”

If traditional banks and other financial sector clients want to keep pace, Panagio says they need to simplify their IT systems and services and focus on customer needs.

“Don’t devote the majority of your time maintaining an overly complex environment. Step outside the box and remove whatever is too complicated,” he explains. “Figure out what customers are doing rather than listening to a limited circle of internal experts.”

It remains to be seen whether traditional banks or new niche fintech firms will ultimately win the battle for customers’ trust in the digital age. But either way, consumers will likely benefit, reckons Panagio.

“There will be a lot more exciting services for end consumers – services on mobile, that are connected to social media, and that will actually be fun and interesting to use,” he says.

This article was produced by The Local’s Client Studio and sponsored by Seavus.

BREXIT

Brits in EU risk losing UK bank accounts ‘within weeks’

Some of Britain's biggest banks have begun contacting customers in European Union countries, warning them that their accounts will be closed down within weeks because the cost and complexity of operating without a continuation of pan-European banking rules is too much.

Brits in EU risk losing UK bank accounts 'within weeks'
Lloyds Bank expects to close at least 13,000 accounts. Photo: Lloyds Bank
According to a report in The Times, thousands of Britons who live in Europe face being stripped of their UK bank accounts and credit cards, because of the UK government's failure to agree rules for operating after Brexit. 
 
Each of the EU's 27 member states has different rules for cross-border bank accounts which will start to apply immediately the UK's transition period ends on 31st December 2020. 
 
“In some cases, continuing to serve customers would be incredibly complex, extremely expensive and very time-consuming, and simply would not make economic sense,” a source at one British bank told the newspaper. “This is passporting — this is the reality of Brexit.”
 
 
If a way is not found to continue pan-European banking rules, or passporting, UK banks will br breaking the law if they don't apply for new banking licenses in each European Union Country. 
 
 
Lloyds, Britain’s biggest banking group, began writing to customers in August, warning them that their bank accounts would  close down on December 31.
 
The bank estimates that 13,000 customers, including those based in Holland, Slovakia, Germany, Ireland, Italy and Portugal, would lose their accounts. 
 
“If customers have regular deposits into, or payments out of, their account, they will need to make other arrangements before their account is closed,” the bank said. 
 
Barclays and Coutts have also started contacting customers. 
 
“In light of the UK leaving the EU at the end of 2020, we continue to review the services we offer to customers within the European Economic Area (EEA), and any impacted customers will be contacted directly,” Barclays said in a statement. “The timings for account closure will depend on the type of product that a customer holds, but we will always give notice to customers.”
 
“In the event that no alternative to the European Economic Area passporting regime for financial services is agreed between the UK and EU, we have taken the difficult decision to withdraw from offering our services to clients who reside in the EEA,” Coutts said. 
 
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