Financial Services '06: Dash of the Unusual

Sure, outsourcing and security hogged the news about the sector, but the rise of biometric payments and IBM's prediction of robo-traders by 2015 spiced things up

By Tim Ferguson

Outsourcing, security and compliance once again dominated the financial sector this year. But it was not a year of just the usual. Biometric payments, robo-trading and 'green' workstations spiced up the mix, says Tim Ferguson.

2006 kicked off with a prediction from Accenture that half of IT development and maintenance operations for financial services organisations would be offshored or outsourced within a few years.

The forecast garnered merit as financial services companies continued to shift operations overseas.

Along with the standard deals - this year coming from the likes of bank Lloyds TSB, global asset manager Schroders and life assurance group Pearl - Capgemini moved into India by buying a local services company Kanbay in a £1.25bn deal, boosting Capgemini's headcount on the subcontinent to 12,000 people.

Despite continued investment and trade with India, data security worries have not been solved yet. In June HSBC suffered a high-profile security breach at its offshore data processing unit in Bangalore which led to £233,000 being stolen from the accounts of a small number of UK customers. And in October, data security worries were again raised by a Channel 4 Dispatches programme which revealed the ease with which customer information can be purchased from Indian call centres.

Security was also the focus for online banking. The year began with a government banking watchdog warning banks they must do more to help customers learn safer online banking habits.

Meanwhile customers called out for banks to use stronger authentication methods to allay fears about online banking and fraud.

Financial services organisations attempted to shore up their online security with Alliance & Leicester, Lloyds TSB and NatWest rolling out two-factor authentication for online customers. Barclays even offered customers antivirus software to further reassure them about the safety of banking online.

Phishing remained a big worry in 2006 and analyst Gartner revealed that these days these online scams increasingly target people with higher incomes.

Online payment company PayPal faced its own phishing problems in the form of a flaw on the company's website which left customers open to phishing scams - the flaw was quickly fixed. Otherwise it was a bumper year for PayPal. The number of registered accounts broke the 100 million barrier in February and by November 15 million people in the UK had signed up for a PayPal account. The service also became available on mobile phones in April.

This year the City souped up computerised trading systems and embraced blade technology.

The London Stock Exchange spoke about how it's relying on the strength of its IT to bring about both faster trades and eventually 24/7 trading.

And automation is expected to continue with IBM predicting human traders will become an endangered species by 2015 as 'robo-traders' take their jobs.

This year blade technology became known as a way for financial services companies to replace existing PCs and workstations with more efficient, more secure and even greener systems. Big names to adopt blade tech in the past 12 months include BNP Paribas and Lloyds TSB.

The continuing saga of compliance in financial services played out as deadlines loomed for businesses to adapt to new regulations, laws and standards.

Europe's effort to regulate the investment bank industry through MiFID - or the Markets in Financial Instruments Directive - continued apace. The regulation will go into effect on 1 November 2007 and some predict it will cost the City £1bn to implement the necessary changes.

Another big compliance deadline came and went in July, when non-US companies listed on US exchanges had to meet regulations of one of the most talked-about elements of the infamous Sarbanes-Oxley Act, first introduced in 2002.

2006 saw the 40th anniversary of the credit card in the UK and so we discussed the future of the credit card which looks to include pre-paid and contactless cards.

The big change in payments technology was the shift to chip and PIN in February. Financial services organisations also got in on the hubbub surrounding contactless payments with Barclaycard, TfL and Visa reviving the idea of creating an Oyster card for the London Tube that would also allow commuters to purchase low-cost items such as newspapers or a cup of coffee. MasterCard and RBS jumped on the bandwagon by trialling an RFID-enabled contactless debit card scheme for low value payments at their head office in Edinburgh.

Biometrics were pointed to as the next wave of payment technology with fingerprints and iris scans being used to purchase items in retail locations - though the tech has not yet been proven to be free from abuse and fraud. Looking ahead to 2007, it's only likely that security and outsourcing will continue to dominate the use of IT in financial services - but we must also be prepared to see some unexpected developments from a sector known for its innovative use of technology.