TowerGroup report: Fraud control a growth industry

NEEDHAM, Mass. – Risk comes in all shapes and sizes, and the global financial services industry is spending big bucks to deal with it, using both old techniques and cutting-edge technology. And that in itself is a growth industry. The banking industry worldwide will spend about $600 million on technology-based solutions for payment-systems risk in 2002, a figure expected to grow to about $860 million by 2005, according to a new TowerGroup study titled “Automating the Crystal Ball: Risk Technology in the New Millennium.” The think firm’s analysts cited operational and fraud risk as the largest category of concern and investment, primarily because of the “enormous amounts of money transferred among financial institutions worldwide and the psychological need on the part of customers to feel their payments are being handled with safety, security and confidentiality.” Employing new and old methods continues to be key, the TowerGroup analysts added. “Addressing fraud risk may require employing some of the most sophisticated technology used by the financial services industry, including advanced techniques for access control, electronic message encryption/decryption, and user authentication, as well as analytic software for detecting behaviors typical of fraudulent activity,” the report said. “Conventional and simple methods, however, are still critical weapons in the fight against payment fraud,” it added. “These range from visual examination of an item for signature verification to prevent check fraud to validating customer information at account origination to deter creation of fraudulent accounts.” The analysts concluded: “Most financial services technology spending on payment risk occurs in the area of fraud risk, because it is the area most easily addressable through technology-based solutions.” -