The Hindu Business Line : `Outsourcing banking work carries a hidden price'

WHILE the business of outsourcing is a common phenomenon, it certainly is a dangerous game, particularly in banking operations, says Captain Raghu Raman, CEO, Mahindra Special Services Group.

Attributing the rising instances of bank frauds in recent times to outsourcing of banking operations, Mr Raman said banks should realise the price they would have to pay for saving costs by outsourcing certain jobs.

He conceded that the banking sector outsourced to save on cost, especially as the cost cutting norms became very stringent.

"But all this comes with a hidden price. Banks are paying heavily to `cover' breaches or frauds and this is rising, year on year. While this is being recovered from the customer, the damage has already been done - the customer is exposed."

"Though bound by customer information security clause, the loan or credit card defaulter details are freely available today. You have agencies that provide personal and financial details of any individual. Then again, local teams develop applications to suit their nuances. Countless hours of backend data entry is done every day across branches to get the MIS's out. And at the end of the day - everyone knows that data integrity is at best `average'. It's a classical case of penny wise and pound idiotic," he told Business Line.

According to him, the three basic threats that bankers should address would be in rectifying -

(a) a structurally flawed framework that would allow opportunities of fraud to present themselves. "This is quite common in many banks including larger banks. Take the tele-banking verification facility. Bank uses the caller's ability to give details of any two transactions on a bank account as a verification mechanism in their tele-banking facility. It has not struck them that a `hacker' can deposit money into the account of the victim two times and use those two transactions to get access through tele-banking. The process needs to be modified to use only outbound transactions as a verification mechanism - not any two";

(b) an unmonitored environment that would allow those opportunities to be exploited. "It's a cliché for most bankers to say that no matter how much you spend you can never achieve 100 per cent security. And there is some truth in the statement for, securing an environment would be of no use until the detection processes are more mature than the defence mechanisms. Look at the departmental stores. To detect shoplifters, they have started to use electronic tagging and closed circuit TV. The same logic would hold good for banking security"; and

c) the belief that bankers can build good security. "They can't, for their core competence is in deployment of assets, not in protecting it."

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