Security, Payments Top Issues for Banks in 2008

Payment systems and fraud prevention are two of the major issues that financial institutions will focus on in 2008, according to a new report from TowerGroup.

Retail lenders, driven by the subprime crisis, will be in a reactive mode during the year as they reallocate resources from loan production to risk management and foreclosure processes, according to the report’s authors Robert Hunt, research director, retail banking; and Kathleen Khirallah, managing director and practice leader.

The authors expect some banks to offer their customers identity theft protection services in addition to traditional banking products and services. Other banks will use outside risk management providers. Additionally, the authors expect vendors to offer new software that will report on attempts at accessing or distributing restricted data.

“Although banks have implemented processes to limit fraud losses, emerging technologies such as imaged-based deposits and mobile banking will require continued efforts to prevent them,” according to Hunt and Khirallah.

Wireless communications are less secure than wired communications, increasing the security threat for banks as they expand wireless-oriented services. The negative is a need to invest in more security programs, while the positive is offering customers more opportunity to use electronic payments rather than traditional payments.

That suggests electronic payments volume will continue to increase, so retail financial institutions will need to consolidate payment systems, rather than having them in different silos (e.g., one for credit cards, one for mortgages, etc.), the authors report. While some financial institutions have started to combine ACH and check operation areas, this approach needs to be extended to encompass the overall payments architecture.