The CBS news report above is an incredible testament to the central role that mobile phones are beginning to take in our financial lives. According to the report, smartphones is on the way to revolutionizing the way we conduct our banking.
The report says that financial analysts concur that "smart phones will be the key to making mobile banking accessible to the masses, and when that happens, banking as we know it today could be history." I found the segment about Near Field Communication (NFC) particularly fascinating. As the analyst says, entities beyond the bank are going to completely change their infrastructure and technology to accommodate mobile banking. People will be able to purchase their coffee in the morning with a quick swipe of their phone.
These predictions are not totally surprising, as mobile banking has evolved dramatically over the last five years. One increasingly influential innovation is the usage of "apps" for mobile banking. In fact, "Virtually every large bank and many regional banks and credit unions have rolled out applications that allow their clients to use a mobile phone for fund transfers, bill payments and even check deposits."
The person-to person payment system, in which instantaneous transactions could occur at the tip of one's fingers is also fascinating. However, this reminded me of some of Alice Liu's comments in class on Tuesday. She said that often, mobile banking in not well-tracked and there are many ways for "elicit transactions to happen." After doing some research, I found that the implications of this emerging system are also frightening. A whole "new generation of phishing scams" could occur as a result of this new system. Senior analyst at Aite firm Nick Holland explains that fraudulent applications may be even more difficult to detect than fraudulent websites, because buying them from an "app store" gives them the appearance of credibility.
The following is a link to an insightful YouTube video about the dangers of applications in mobile banking:
The report describes how mobile banking brings new threats to your money and your security. The news anchor even states that mobile banking fraud is currently such a sensitive issue that all major banks declined an interview with Channel 4 Action news.
These incidents are not just originating from teenage hackers, or college age students looking to start trouble. An article in the American Banker describes how in a recent incident, "gangsters were trading not just bank account details and card security codes, but mobile phone numbers, as well as e-mail addresses, PIN numbers, passwords and dates of birth of unsuspecting members of the public." The article goes on to describe how "Mobile banking touch points are easier for criminals to gain access to, as they don't have the security layers that Internet sites do." These attacks are giving birth to new detection software, called Client Device Identification (CDI) that accesses data beyond passwords and login information to detect criminal activity at the device level.
Fraud through mobile banking also has severe implications for developing nations, where mobile banking has been so successful. One of the reasons "mobile banking has quickly penetrated developing countries such as Kenya and the Philippines is because the formal financial sector has failed to tap into a huge market composed of the unbanked population." However, the dependency on mobile banking is wrought with danger of fraud here as well because of the dilemma that mobile banking companies face. Alice Liu described this problem as "regulation versus business."
Banks can either strictly regulate through "Know Your Customer" procedures to prevent fraudulent behavior, but this may reduce their ability to amass as many people in the mobile banking system as possible. Illegal activities occur in a higher rate in these developing countries because banks usually sacrifice security for business. Alice Liu informed us that in many developing countries, "if you can't transact at the time you sign up, people are less likely to use the service." Due to this eagerness to gain customers or lose them, banks allow nearly anyone to open a mobile banking account, without thought to credibility or background checks.
Alice Liu mentioned corruption in the "Hawala" system in Afghanistan, which I find to be one of the most illustrative examples of criminal activity in mobile banking in the Third World. In A Banking System Built for Terror, Meenakshi Ganguly of Time Magazine describes how the Hawala system enables terrorists to launder money through mobile phones without leaving a paper trail. Ganguly explains that with Hawala "Not only is there no paper trail, Ali's system avoids bank charges, transmission delays and foreign exchange regulations. All that hawala requires is trust. And that, ironically, is why it thrives in the underworld."
These businesses, with all their benefits, are also detrimental not only for individuals who have their information hacked and money stolen. Loosely regulated banking, like Hawala, harms the economies of developing countries, which need foreign exchange deposits, as the mobile system is often used to defraud trade regulations. The only way this problem can be fixed? Banks must commit to placing security above profit.
After reading the blog post I was aware not only of the potential benefits that this new age is creating but also the potential harm it may cause. This post was concerned about the risks associated with mobile banking and I agree that there are risks but the proposed solution I cannot agree completely with. The proposal was that to solve these problems banks need to be concerned with security rather than profits and I agree that would solve the problems however, in a world where risk is rampant, there are some who are more risk-averse than others. Based on how I value risk, I can choose to purchase the car with the better safety record at a higher cost or to buy the cheap one with a lesser safety record. I feel the same can apply in this situation. Some banks need to make security their priority while others make profit their priority. This will then provide options for all kinds of risk-averse investors. In my opinion, the freedom to choose is always important.
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