Coordinated, industrialised fraud attacks will continue to rise: Unisys study

ID fraud, privacy and compliance with security-related regulations have shaken up financial institutions and they will be looking at creative ways to secure their business operations and regain the eroding consumer trust in 2006, experts at Unisys Corporation said.

"Security, always a top concern of the industry, will permeate business decisions in ways never seen before," says Mukul Agrawal, country manager, Unisys India.

"Greater challenges will mount on the regulatory front, and executives will grapple to understand the true value of customer trust to their bottom line. Securing customer trust with service enhancements is vital across the enterprise, from more obvious actions like preventing ID fraud, to other less tangible areas like streamlining operations, improving acquisition strategies or embracing new technologies," he added.

On Unisys predictions for 2006 the financial services industry, Agrawal said, "Coordinated, industrialised fraud attacks will continue to rise inviting more government intervention and pushing financial institutions to work together on common standards to fight increasingly sophisticated cyber criminals."

Unisys predicts that 2006 will not only see more enterprise security breaches involving lost or stolen tapes containing sensitive customer information, but will also see that there will be one or two broad industrialised fraud schemes, targetting unprepared banks and their customers.

Markets like UK are ripe for fraud as consumer complacency puts the country at higher risk.

Calls from regulators in the US, Europe, Asia and Latin America for mandates for two-factor authentication in online services will force the industry to act as a group to find common ways to fight fraud and build better security systems.

Banks will join a trusted third party to develop fraud protection industry standards that they can market to customers to regain eroding trust.

He added that industry consolidation will continue but challenges will mount in cross-border deals as financial institutions confront the challenge of intelligently integrating systems built for local economic and regulatory compliance issues.

"Banks and insurers will continue on the M&A path of the last few years but 2006 will see cross-border deals more difficult to implement as a result of growing regulatory challenges and reporting requirements. Core systems built around local economies bring challenges for seamless integration and consolidation. Financial institutions, particularly in Europe and Asia Pacific, are learning the hard way on growing globally, and future cross-border expansions will slow down until banks effectively develop a more coordinated, intelligent integration strategy," Agrawal noted.

Unisys also said that advances in service-oriented architecture (SOA) and other component-based technology will enable cost-effective, flexible and more intelligent infrastructures, providing a smarter approach for financial institutions to upgrade core systems.

"Both Tier 1 and Tier 2 banks and insurers will undertake more studies and increase investments in core system upgrades in 2006. Financial institutions will move away from the earlier rip-and-replace approaches, where potential costs and complexities scared off many companies in the past, to a greater emergence and acceptance of SOA and componentised solutions," Agrawal added.

Such strategies for intelligent infrastructure, in which business rules govern how IT infrastructure responds to specific customer demands, make core system upgrades less risky, and more manageable, effective and secure. These flexible solutions allow financial institutions to replace systems over time based on individual business needs.

Unisys further said that open source and web-based IT solutions will rise and banks also will look to open source solutions as a cost-effective way of tailoring services to new markets.

"With worldwide moves to embrace web technology, financial institutions will more and more see the merits of open source IT solutions. As with any substantial IT introduction, if not properly managed, it can be an expensive and disruptive implementation," the survey noted.

In addition to this, Unisys said that open source offers a cost-effective way for banks to explore more creative business models for new markets like unbanked immigrants whose economic impact is growing faster than those of other demographic groups.

To attract upwardly mobile immigrant populations, financial institutions need customised strategies like kiosks and other correspondent relationships with retailers, real estate investment services and offerings that acknowledge the unique finance and spending habits of this population. Advances in open source solutions make developing these new strategies more cost-efficient.

"Achieving secure business operations for financial institutions means not only strengthening physical security and improving customer trust, but also increasing efficiencies in core banking, insurance policy administration and other operations to provide new secure services more easily. It also means having the agility to adapt quickly to the changing market needs," Agrawal said.

"Banks and insurers also need greater visibility into their operations to navigate compliance challenges more easily and compete more effectively in a global marketplace."

FIs to work together on common standards to fight increasingly sophisticated cyber criminals

Industry consolidation will continue but challenges mount in cross-border deals

Advances in service-oriented architecture (SOA) will enable easy upgrade of core systems

Open source IT solutions will make progress

Growth opportunities in insurance and banking will continue in emerging markets

Open source offers a cost-effective way for banks to explore more creative business models