FFIEC News

Telephone Banking Exposed as the Major Channel Vulnerability in U.S. Financial Institutions

(March 20, 2007) -- New findings from a report released today address some very common vulnerabilities in the surprisingly still-popular telephone banking channel. Extensive funds-movement capabilities are found in phone banking systems, yet security design and consumer practices may be deficient in comparison to other channels.

In an important key finding by Javelin Strategy & Research, 35% of online consumers used their bank's automated telephone system within the last month to perform banking functions such as checking account balances or paying bills. With the current level of emphasis placed in online banking, many observers have speculated that the Internet would phase out phone banking. Javelin data, however, indicates otherwise.

Despite strict regulatory guidelines over the past year which assert that authentication requirements cover all electronic banking activities, not just the Internet, weak authentication measures continue to be utilized for phone banking. Javelin Founder and President James Van Dyke states, "Javelin data shows that a majority of top 23 US financial institutions need to strengthen authentication methods for the phone, with over 1 in 4 still asking for a full Social Security number, and only 8% requiring a password or answer to challenge questions."

According to Javelin, there are a number of reasons that will eventually lead fraudsters to increased theft attempts via the telephone channel. Javelin Risk and Fraud Analyst Rachel Kim goes on to say, "The face and methods of fraud are constantly evolving and FIs should always be adapting. Now that FIs have helped increase awareness of 'phishing,' new fraud variations labeled 'vishing' & 'pretexting' rear their ugly head."

The new Javelin report titled, "Telephone Banking Authentication: Securing a Popular yet Vulnerable Channel," offers valuable insight into matching consumer telephone banking preferences with FFIEC guidelines and technology offerings that can help curb the risks associated with the channel.

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