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Security continues to haunt BFSI segment in '06

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CIOL Bureau
Updated On
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NEW

DELHI:
As

ID fraud, privacy and compliance with security-related regulations continue to

shake the mind set of how financial institutions think about securing their

business operations, experts at Unisys Corporation foresee the following five

trends that will help banks and insurers rebuild eroding customer trust, and

maintain a competitive edge in 2006 and beyond.

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  1. Coordinated,

    “industrialized” fraud attacks will continue to rise causing more

    government intervention and pushing financial institutions to work together

    on common standards to fight increasingly sophisticated cyber criminals.



  2.  Industry

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

    financial institutions confront how to intelligently integrate systems built

    for local economic and regulatory compliance issues.



  3.  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.

  4. Open

    source IT solutions will rise, spurred in part by growing use of extensible

    business reporting language (XBRL) and other web-based technology. Banks

    also will look to open source solutions as a cost-effective way to tailor

    services to new markets, such as capturing a share of the rising wealth of

    “unbanked” immigrant populations.



  5. Growth

    opportunities in insurance and banking will continue in emerging markets,

    especially greater

    w:st="on">

    China



    .




“Security

— always a top industry concern — will permeate business decisions in ways

never before seen,” says
Mukul

Agrawal, Country Manager, Unisys

w:st="on">

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 entire enterprise: from more obvious actions

like preventing ID fraud, to other less tangible areas such as streamlining

operations, improving acquisition strategies or embracing new technologies,”





 

Some of the other predictions

for the financial services industry:



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Coordinated, “industrialized” fraud attacks will continue to rise



Unisys

predicts not only that 2006 will see more enterprise security breaches involving

lost or stolen tapes containing sensitive customer information, but also that

there will be one or two broad industrialized fraud schemes, targeting

unprepared banks and their customers. Attacks in new markets ripe for fraud —

such as the w:st="on">



U.K.




, where consumer complacency puts the country at higher risk — will increase.

Calls from regulators in the w:st="on">

U.S.

, 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 together with a trusted third party to develop

fraud protection industry standards that they can market to customers to regain

eroding trust.







Industry

consolidation will continue but challenges mount on intelligently integrating

systems



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Banks

and insurers will continue on the merger-and-acquisition 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.





Greater emergence and acceptance of SOA



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

from prior 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 componentized solutions. 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. 



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Open

source IT solutions will rise,



With

calls from a number of U.S. regulators for reports filed in XBRL, as well as

other worldwide moves to embrace web technology, FIs will more and more see the

merits of open source IT solutions. For XBRL and related technologies to truly

make an industry impact, banks and insurers must also adopt them for internal

operations as well as a reporting format. As with any substantial IT

introduction, if not properly managed, it can be an expensive and disruptive

implementation. Financial institutions will undertake more studies and pilots of

open source in 2006 to help simplify implementation and control costs of data

conversion.





In

addition, open source offers a cost-effective way for banks to explore more

creative business models for new markets such as “unbanked” immigrants whose

economic impact is growing at faster rates than those of other demographic

groups. To attract upwardly mobile immigrant populations, where views of

financial security differ from more traditional investments and banking

services, financial institutions need customized strategies such as kiosks and

other correspondent relationships with retailers, real estate investment

services, and other new 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.



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Growth

opportunities continue in emerging markets, especially greater w:st="on">



China




.



The

pending Citigroup-Guandong Development Bank deal is the just the first of a

number new foreign investments as other financial institutions try to catch up

and take advantage as the market continues to open. Insurers also will see

expansion, though growth rates will slow as the Chinese market continues to

mature in 2006; competition increases yet opportunities continue in this

fledging insurance industry which has tripled in size since 2000. The challenge

for banks and insurers is keeping up with demand for new services in a labor

pool that is better prepared for manufacturing. Outsourcing IT functions will

allow companies to focus more on training for necessary service improvements.



“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 changing market needs,” Mukul says.

“Banks and insurers also need greater visibility into their operations to

navigate compliance challenges more easily and compete more effectively in a

global marketplace.”



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