WFC Wells Fargo and Company

By Rachel Louise Ensign 

At 5 a.m. one day last February, construction work tripped a sophisticated fire-extinguisher system in a Minnesota data center used by Wells Fargo & Co., knocking out power to servers housed in the building.

Customers soon noticed: the bank's online and mobile banking systems were out for hours.

The outage brought into public view the technology failures that have been occurring behind the scenes at Wells Fargo for years. Antiquated systems have made it difficult for the bank to meet the demands of regulators, who are closely scrutinizing the firm after its 2016 fake-account scandal, according to more than a dozen current and former employees.

The firm has struggled with tasks like monitoring employee pay and building a new platform for financial advisers, hampering key businesses.

"We need to be a technology company," Chief Executive Charles Scharf said in his first meeting with employees after taking the job in October. Saul Van Beurden, his head of technology and another relatively new arrival, said in an interview that his top priorities include fixing issues raised by regulators, attracting talent and making sure key systems don't go offline again.

Banking was once a business of ornate branches and large vaults, but the sector now runs on digital systems designed to move money around, keep cybercriminals out and knit the disparate parts of sprawling institutions together. Big banks spend billions on these tools, employ tens of thousands of people to keep them running smoothly and use flashy mobile apps to compete for customers.

Wells Fargo says it was the first U.S. lender to provide online banking in the 1990s, a point of corporate pride. But it fell behind in recent years, current and former employees say.

A spokesman said the bank has made a number of improvements to its technology offerings, including card-free ATMs, contactless debit cards and online mortgage applications.

In late 2015, the year before the fake-account scandal erupted, the bank announced the departure of its chief information officer, who reported to the CEO. The bank didn't replace the tech chief and distributed his direct reports to other executives, including an administrative head later placed on leave after regulators reprimanded her for oversight failures.

The reporting structure at times could be disorganized. Regulators, for instance, expect banks to keep meticulous records of each stage of internal technology projects. In the unit overseeing initiatives like Apple Pay, required documents were often missing and the processes for creating them and checking they were in place were largely manual, said Mark McAllister, a project manager in the unit from 2014 to 2019.

Mr. McAllister said he was fired after raising concerns about the lapses. The bank spokesman said Mr. McAllister wasn't retaliated against, but declined to elaborate further.

By June 2018, regulators had identified problems across Wells Fargo's tech operations, including software vulnerabilities, cybersecurity concerns and risk-management inconsistencies, The Wall Street Journal previously reported.

Last year, the Office of the Comptroller of the Currency told Wells Fargo to improve its human-resources functions, including technology systems. The agency in particular criticized the division's manual processes for overseeing pay and performance for its 260,000 employees, according to a person familiar with the matter.

Legions of tech workers at the bank are toiling to satisfy problems regulators have cited. Some relate to mundane topics like improving systems that control employee building access, according to another person familiar with the matter.

Other problems have affected customers, like the online-and-mobile banking outage in early 2019. Wells Fargo said construction work in a room of important servers tripped the fire system, releasing extinguishing chemicals into the air, according to public records from the local fire department. That triggered a shutdown of power to servers, the bank said.

Issues at a single data center aren't supposed to knock out key bank systems, which are meant to be routed to backups if they fail. Bank employees believe backup systems weren't adequately tested to make sure they would come online quickly if the suburban Minneapolis data center had a problem, according to people familiar with the matter.

Mr. Van Beurden joined Wells Fargo in April from JPMorgan Chase & Co. and reports to Mr. Scharf. He said fixing the laundry list of items cited by regulators is his "first priority." He's also working to attract top software developers and cut down on the time it takes to develop new technology.

Some of his projects were inspired by his former employers, like an automated tool that predicts customer activity each day. That helps the bank ensure that digital systems have the bandwidth to handle busy days.

He said he has also made changes to prevent another outage, like removing that particular type of fire-extinguisher system from data centers. When "the app is down, the bank is down for our customers," he said.

None of this is cheap. Executives have said that spending on technology workers has been one reason expenses have remained higher than the bank would like. Mr. Van Beurden last summer asked outside consultants to refund some of the money the bank has spent.

He has also shelved some long-running projects. In 2015, the bank agreed to buy outside software that would replace old technology used by its financial advisers. The new platform would store wealth-management clients' data, making it easier for employees to analyze.

The cost of the initiative ballooned, according to one person who worked on it. Last year, the bank suspended the project, according to the software provider, which cited the bank's "need to change priorities."

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

January 11, 2020 05:44 ET (10:44 GMT)

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