Payment Systems Regulator opens formal investigation into Nationwide IT outage

The Payment Systems Regulator has launched a formal investigation into Nationwide Building Society following a major IT outage that left millions of customers across Britain unable to make payments for several days in June.

The regulator announced the probe on 19 June, stating it will examine whether Nationwide met its obligations on operational resilience, incident response and customer redress during and after the disruption that began on 14 June and continued intermittently over the weekend.

Payment chaos hits wages and benefits

The outage blocked faster payments and some card transactions, preventing wages, benefits and standing orders from reaching accounts on time. Customers found themselves unable to complete essential transactions during what Nationwide described as a 'systems issue' following an overnight software update.

The disruption particularly affected Friday payroll runs, with employers reporting delays in salary payments reaching employee accounts. Housing associations and landlords experienced problems processing rent collections, while small businesses struggled to pay suppliers through their usual banking channels. Government benefit payments, typically processed through the faster payments network, were also caught up in the technical failure.

The building society has apologised for the disruption and committed to reimbursing affected customers for any direct financial losses incurred during the outage period. Customer service centres reported unprecedented call volumes as frustrated members sought updates on when normal service would resume.

Regulator signals potential sanctions

The PSR warned it could impose fines or other sanctions if its investigation uncovers serious failings in Nationwide's handling of the incident. The regulator's powers include issuing financial penalties of up to 10% of annual turnover and requiring operational improvements to prevent future disruptions.

Industry sources suggest the investigation will focus heavily on Nationwide's incident response procedures and whether the building society adequately communicated with customers during the crisis. The PSR has previously criticised financial institutions for poor customer communication during system failures, viewing clear information as essential for maintaining public confidence.

Beyond the immediate investigation, the PSR signalled it may widen its scrutiny to examine other UK payment providers that have experienced repeated outages, suggesting a broader crackdown on operational resilience across the financial services sector. This follows similar disruptions at major banks including TSB, NatWest and Barclays over recent years.

Vulnerability of core banking infrastructure

The Nationwide incident highlights the fragility of Britain's payment infrastructure, with millions of customers left stranded when a single institution's systems fail. The disruption affected not just individual transactions but critical payments including salaries and government benefits, demonstrating how deeply embedded these systems have become in daily economic life.

For Scottish customers, the outage underscored their dependence on England-based financial institutions, with Nationwide serving as a major provider of mortgages and savings accounts north of the border. The building society's mutual structure, owned by its members rather than shareholders, had previously been seen as offering greater stability than traditional banks.

The incident follows a pattern of high-profile IT failures across British financial services, raising questions about whether institutions are investing sufficiently in robust systems capable of handling the volume and complexity of modern digital payments. Banking technology experts have warned that legacy systems, some dating back decades, struggle to cope with the demands of real-time payment processing.

Consumer groups have called for mandatory compensation schemes similar to those covering flight delays, arguing that customers should not bear the cost of institutional IT failures. The current voluntary approach relies on individual institutions to determine appropriate redress levels.

What happens next

The PSR investigation will examine Nationwide's compliance with operational resilience requirements introduced following previous banking IT disasters. These rules mandate that firms must be able to remain within impact tolerances for important business services, even when facing severe operational disruption.

The regulator will scrutinise Nationwide's backup systems, testing procedures and staff training programmes to determine whether the building society had adequate safeguards in place. Particular attention will focus on the decision to proceed with the software update that triggered the initial failure and whether sufficient rollback procedures existed.

Nationwide faces potential enforcement action if the regulator finds the building society failed to meet these standards or adequately protect customers during the outage. Financial penalties could reach tens of millions of pounds based on the scale of customer impact and any regulatory breaches identified.

The investigation timeline remains unclear, though similar probes have typically taken six to twelve months to complete. The PSR has indicated it will publish its findings and any enforcement decisions once the investigation concludes.

The regulator's broader review of payment system resilience could lead to stricter requirements for backup systems and incident response procedures across the industry, according to the BBC report on the investigation's launch. This may include mandatory stress testing of critical systems and enhanced reporting requirements for operational incidents.

Meanwhile, affected Nationwide customers await details of the compensation process, with the building society yet to specify how it will calculate and distribute reimbursements for losses caused by the payment disruption. The regulator has made clear that adequate customer redress will form a key part of its assessment.