Security continues to haunt BFSI segment in ’06

By : |January 31, 2006 0



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.

  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

    China


    .


“Security
— always a top industry concern — will permeate business decisions in ways
never before seen,” 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 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:


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

U.K.


, where consumer complacency puts the country at higher risk — will increase.
Calls from regulators in the
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

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. 


 

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.


 

Growth
opportunities continue in emerging markets, especially greater

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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