New Study: Business, Bank Relationship Threatened by Fraud

Recent ACH fraud schemes aren't just siphoning money from business banking accounts - they're eroding the trust relationship between small-to-midsize businesses and their banking institutions.

This is the main finding of the new 2010 Business Banking Trust Study conducted by Guardian Analytics and the Ponemon Institute.

In an exclusive interview, Terry Austin, CEO of Guardian Analytics, discusses:

Headlines from the new study;
The message from businesses to banks;
How banking institutions should respond.

Prior to joining Guardian Analytics, Austin served as CEO and president of MarketLive, a leading provider of eCommerce platform solutions, where he created a scalable business strategy, assembled a world-class executive team and led successful fundraising efforts. He was previously president of worldwide marketing and sales at Good Technology, a provider of mobile computing solutions, where he spearheaded the company's rapid growth from 10,000 to over 500,000 subscribers and facilitated its acquisition by Motorola in January 2007. Austin has also served as president of EMEA and executive vice president for Manugistics, a market leading provider of enterprise software. He started his career at Accenture, where he ultimately led an $80 million consulting practice as a lead partner.

TOM FIELD: What is the state of banking trust when it comes to businesses?

Hi, this is Tom Field, Editorial Director with Information Security Media Group. There is a new study out, The Business Banking Trust Study, and we are talking today with Terry Austin, CEO of Guardian Analytics, who sponsored the study.

Terry, thanks so much for joining me today.

TERRY AUSTIN: Thanks a lot Tom.

FIELD: So Terry give us sort of the mission statement of this survey here. What did you intend to find out when you went out and conducted this study?

AUSTIN: Well, Tom, over the last year there has been an unprecedented number of attacks and frequency of attacks on banks and in particular banks that serve the small and medium business community. And, as you know, small and medium businesses are really the backbone of our economy and our recovery, so we were very interested in understanding what is behind these attacks and what is really happening.

The FBI and the FDIC have gone on record talking about the increase in incidents in these types of fraud attacks. So the mission of doing this more in-depth study was really to gain insight into the scope of the attacks, what is causing the attacks, how banks are responding, and to create a more comprehensive view of the type and style of attacks and what happens after the attack occurs; how the banks and businesses are responding.

FIELD: Terry, what would you say are sort of the high-level headlines from this study?

AUSTIN: Well, the highest-level headline is that banks have a new troubled asset, and it is their customers. We just found a really alarming number of attacks that are being perpetrated on the small and medium business community. Over 55 percent of the businesses that we surveyed -- and we surveyed 530 plus employees from companies with 200 employees or less across the United States representing a broad range of businesses and demographics -- and over half of them, over 55 percent of them, have experienced a fraud attack in the last 12 months. So the level of attack is really alarming.

And then secondly, the banks' ability to protect their customers and protect these small and medium sized business customers is really very poor. The businesses reported that in 80 percent of the cases, the banks were not able to detect the fraudulent activity before the money actually left the bank, and the only way that it would have been detected was when the business themselves actually reviewed their account statements and noticed that there was something amiss.

And then the third kind of headline is that these businesses are losing faith and losing trust in their banks, and they are leaving their banks as a result of these attacks. Forty percent of the businesses that experienced a fraud attack actually indicated that they either left their bank altogether, fired their bank, or shifted the majority of their banking activity away from the bank in question.

So, it is really pretty astonishing both the rate of attack, the banks' failure to adequately protect their customers and the customers' willingness to shift their business allegiance away from the bank that is not adequately protecting them.

FIELD: So, really, Terry this is speaking exactly to the headlines we are reading about customers suing banks and banks suing customers; this is the type of fraud that is at the heart of those cases.

AUSTIN: That is absolutely right, and you know it is surprising the sort of flat-footedness of the industry in their ability to respond. And it absolutely plays to the trusted relationship between the business and the bank.

One interesting statistic that came out this is that over half of the respondents, 54 percent of the respondents, said that they lost confidence in their bank following a single fraud attempt; but 8 percent of the respondents said that they actually increased their trust in their bank as a result of the banks' response to a fraud attack. So, it says that there is real hope for the banks to do a better job of protecting their customers and if they do that they actually have the opportunity to gain their customers trust even in the face of this unrelenting set of attacks from the fraud community.

FIELD: Now you have had a chance to review these results. Would you say that there were any surprises in what you have seen?

AUSTIN: Well, there were a few surprises. I mean certainly the rate of attack and the customer turn away from banks, but also there is a lot of opportunity for the bank to be more transparent with their customers; 24 percent of the businesses that we surveyed claimed that their banks either do not provide a policy explaining their responsibilities, and 39 percent were not sure at all if the policy even existed.

So, there is a real lack of transparency between the bank and their customers, but one thing that was resoundingly clear is that the businesses hold their banks responsible. The overwhelming majority of businesses indicated that the banks are responsible for protecting their assets and for preventing fraud, and the banks just aren't doing a good job.

FIELD: Well, that is a good point. What would you say is the main message that you want to deliver to your banking customers here?

AUSTIN: Well, there is a real opportunity here. Your businesses are under attack; they know it; they are looking to their bank to protect them. The banks are not doing a good job today, and if they don't step it up they are really going to lose their customers. So it is really time for the banks to evolve their definition of what reasonable security is and really step up and protect their customers.

FIELD: Well, if they don't do it, the courts are going to decide it, as we have seen in suits that have been filed.

AUSTIN: Absolutely. That's a worse case scenario for the forum for these things to be resolved.

FIELD: Well, absolutely.

AUSTIN: There is a real opportunity here for the banks to get in front of this problem.

FIELD: Well, let's think of how they can respond then. For banks and credit unions -- I realize that it has been more of a bank issue than credit unions -- but what are the action items that they can take from not just the survey results, but the reality of what we see out in the fraud field now?

AUSTIN: Well, there are number of things that banks can do. One, they can be clear about their policies and their approaches to protecting their customers. Two, they can take advantage of some of the leading technologies that are available to proactively predict where fraud is going to occur, and they can monitor their users' accounts in a very detailed manner so that they can anticipate anomalies and unusual behavior in those accounts, and actually proactively prevent fraud before money leaves the bank or leaves the small business. That would save everybody a tremendous amount of anxiety, a tremendous amount of time and lost productivity, and we would get this stuff out of the courts and back to the trusted business relationship where it belongs.

FIELD: Now, you are just announcing these survey results now; give me a sense of what you are going to do with these results and where people can go to get more information.

AUSTIN: Well we are publishing this report. It is available for download at, or you can go to to register for our March 17th webinar where we will be covering this in more detail.

FIELD: Very good, Terry. I appreciate your time and your insight today. It is a great and timely topic, and I look forward to hearing more, and I hope that we can come back a year from now and report progress in this area.

AUSTIN: Likewise. Thanks very much, Tom.

FIELD: We have been talking with Terry Austin, CEO of Guardian Analytics. The topic has been Business Banking Trust, the new study.

For Information Security Media Group, I'm Tom Field. Thank you very much.

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