PUNE: As an aftermath of the alleged stealing of $350,000 from one of the largest US financial services institutions by Mphasis BFL's BPO employees, the Indian BPO industry will suffer a major setback, predicts Forrester Research.

Msource's three employees along with nine others were arrested after it was reported that they had allegedly stolen the money from the accounts of four customers of their BPO client.

According to press reports, the BPO customer was Citibank.

This, coupled with skyrocketing call center attrition rates, will severely dampen BPO growth rates, especially in the call center customer service space in the next 18 months, says Forrester analyst, John C. McCarthy.

The Msource staff members acquired the passwords to end customer accounts and transferred the money to their own accounts. The fraud occurred from the end of February until this past week.

The misdeeds came to light when the customers noticed the missing funds. Citibank then tracked the activity to Mphasis' Pune customer service center.

Forrester believes that the incident will undermine call center expansion by as much as 30% as security concerns, regulatory pressure, and end customer backlash lengthen sales cycles, impede the ramping up of larger projects, or drive firms to take the captive route.

The event says the report in all probabilities will call for more regulation of BPO activities in the US and Europe, as well as in India.

Citibank is one of Msource's largest customers, and if the bank cuts back its work, it will be a major setback for the company.

Mphasis claims that it will more closely monitor calls in the future to ensure that staff members do not solicit customers for account pass codes/PINs.

Forrester expects that the rising attrition rates in the call center space - 50% to 100% - undermine suppliers' ability to adhere to processes and sufficiently check backgrounds.

The report states that clients should not be complacent by the various list of certifications or process changes that suppliers roll out, but will have to implement their own aggressive requirements, such as eliminating writing instruments in their offshore centers and auditing bimonthly to ensure that the vendor is following mandated processes.

India will also have to tighten its data protection and privacy laws.

Forrester also urges NASSCOM India's IT industry association to begin lobbying the government on issues like tightening Cyber Law.

The research firm states that all IT vendors should brace for an onslaught of audits and reviews as CIOs and business executives look to reassure senior management that their IT work is not at risk as well. While this may lengthen sales cycles and slow project ramp-ups, it will not have as broad an impact on IT services as it does on BPO.

*Source: Forrester Research, Inc. Content extracted from Account Theft Undermines Indian BPO by John C. McCarthy. The article was published on April 7, 2005.