Mobile banking from a personal BlackBerry (News - Alert) or iPhone poses new threats to financial institutions as criminals try to hide their fraud or money laundering crimes behind the relative anonymity of handheld devices.

 

“Rapid changes in the payments industry - moving from cash and checks to electronic payments and now to mobile banking - not only provide increased convenience and value for consumers but also present new elements of risk and fraud,” said Steve Solberg, senior product manager for Fraud at Fortent.

 

The mobile banking channel is projected to explode in the next five years, from 1.1 million U.S. customers in 2007 to 42.3 million in 2012, according to TowerGroup. Mobile initiatives have been even quicker to take off in other countries, such as South Korea, Hong Kong, and Brazil, with companies starting to offer everything from payments to stock trading through mobile devices.

 

“Banks want to be able to attract and retain the customers demanding this channel,” said Solberg. "But they need to have the safeguards in place to ward off criminals trying to creep into the system. The real risk for banks is that we don't know exactly the extent to which financial criminals are going to exploit mobile banking. There isn't a track record of realized risk."

 

Mobile banking is still in its infancy. While there haven't been major incidents yet of huge losses from the mobile banking channel, banks are gearing up to protect themselves and their customers. The potentially devastating results of a major fraud loss make it incumbent on banks to prepare adequately against any new threat.

 

A 2007 Federal Reserve Payments Study reported that since 2003 the number of electronic payments in the United States has increased at an annual rate of 12.4 percent, while the number of paper checks paid is decreasing at an annual rate of 6.4 percent. Mobile banking, along with debit and credit cards, wires, and online bill payments, present some of the greatest emerging electronic payment threats to banks.

 

While mobile banking presents a unique set of challenges due to security issues surrounding these devices (which often lack the security of PCs), banks have faced this kind of challenge before. When institutions began to offer online banking, there was a similar urgency to protect that channel, and banks have become very sophisticated with their online controls and monitoring.

 

While banks are eager to capitalize on its growth, they must also shore up their defenses with appropriate technological and program controls to make sure they can offer these services effectively and safely.