1. Coordinated, "industrialised" fraud attacks will continue to rise causing more government intervention and pushing financial institutions to work together on common standards to fight increasingly sophisticated cyber criminals.

2. Industry consolidation will continue but challenges mount in cross-border deals as financial institutions confront how to intelligently integrate systems built for local economic and regulatory compliance issues.

3. Advances in service-oriented architecture (SOA) and other component-based technology will enable cost-effective, flexible and more intelligent infrastructures, providing a smarter approach for financial institutions to upgrade core systems.

4. Open source IT solutions will rise, spurred in part by growing use of extensible business reporting language (XBRL) and other web-based technology. Banks also will look to open source solutions as a cost-effective way to tailor services to new markets, such as capturing a share of the rising wealth of "unbanked" populations.

5. Growth opportunities in insurance and banking will continue in emerging markets, especially greater China.

"Security - always a top industry concern - will permeate business decisions in ways never before seen," says Dominick Cavuoto, president of the Global Financial Services practice at Unisys. "Greater challenges will mount on the regulatory front, and executives will grapple to understand the true value of customer trust to their bottom line. Securing customer trust with service enhancements is vital across the entire enterprise: from more obvious actions like preventing ID fraud, to other less tangible areas such as streamlining operations, improving acquisition strategies or embracing new technologies."

Cavuoto expanded on Unisys 2006 predictions for the financial services industry:

1. Coordinated, "industrialized" fraud attacks will continue to rise causing more government intervention and pushing financial institutions to work together on common standards to fight increasingly sophisticated cyber criminals.

Unisys predicts not only that 2006 will see more enterprise security breaches involving lost or stolen tapes containing sensitive customer information, but also that there will be one or two broad industrialized fraud schemes, targeting unprepared banks and their customers. Attacks in markets ripe for fraud - such as the U.K., where consumer complacency puts the country at higher risk - will increase. Calls from regulators in the U.S., Europe, Asia and Latin America for mandates for two-factor authentication in online services will force the industry to act as a group to find common ways to fight fraud and build better security systems. Banks will join together with a trusted third party to develop fraud protection industry standards that they can market to customers to regain eroding trust.

2. Industry consolidation will continue but challenges mount in cross-border deals as financial institutions confront how to intelligently integrate systems built for local economic and regulatory compliance issues.

Banks and insurers will continue on the merger-and-acquisition path of the last few years but 2006 will see cross-border deals more difficult to implement as a result of growing regulatory challenges and reporting requirements. Core systems built around local economies bring challenges for seamless integration and consolidation. Financial institutions, particularly in Europe and Asia Pacific, are learning hard lessons on how to grow globally, and future cross-border expansions will slow down until banks effectively develop a more coordinated, intelligent integration strategy.

3. Advances in service-oriented architecture (SOA) and other component-based technology will enable cost-effective, flexible and more intelligent infrastructures, providing a smarter approach for financial institutions to upgrade core systems.

Both Tier 1 and Tier 2 banks and insurers will undertake more studies and increase investments in core system upgrades in 2006. Financial institutions will move from prior rip-and-replace approaches, where potential costs and complexities scared off many companies in the past, to a greater emergence and acceptance of SOA and componentized solutions. Such strategies for intelligent infrastructure - in which business rules govern how IT infrastructure responds to specific customer demands - make core system upgrades less risky, and more manageable, effective and secure. These flexible solutions allow financial institutions to replace systems over time based on individual business needs.

4. Open source IT solutions will rise, spurred in part by the growing use of extensible business reporting language (XBRL) and other web-based technology. Banks also will look to open source solutions as a cost-effective way to tailor services to new markets, such as capturing a share of the rising wealth of "unbanked" populations.

With calls from a number of U.S. regulators for reports filed in XBRL, as well as other worldwide moves to embrace web technology, financial institutions will more and more see the merits of open source IT solutions. For XBRL and related technologies to truly make an industry impact, banks and insurers must also adopt them for internal operations as well as a reporting format. As with any substantial IT introduction, if not properly managed, it can be an expensive and disruptive implementation. Financial institutions will undertake more studies and pilots of open source in 2006 to help simplify implementation and control costs of data conversion.

In addition, open source offers a cost-effective way for banks to explore more creative business models for new markets such as "unbanked" immigrants whose economic impact is growing at faster rates than those of other demographic groups. To attract upwardly mobile immigrant populations, where views of financial security differ from more traditional investments and banking services, financial institutions need customized strategies such as kiosks and other correspondent relationships with retailers, real estate investment services, and other new offerings that acknowledge the unique finance and spending habits of this population. Advances in open source solutions make developing these new strategies more cost-efficient.

5. Growth opportunities continue in emerging markets, especially greater China.

The pending foreign investments in Industrial & Commercial Bank of China and Guandong Development Bank are the first of a number of foreign deals expected in 2006 as other financial institutions try to catch up and take advantage of more open markets. Insurers also will see expansion, though growth rates will slow as the Chinese market continues to mature in 2006; competition increases yet opportunities continue in this fledging insurance industry which has tripled in size since 2000. The challenge for banks and insurers is keeping up with demand for new services in a labor pool that is better prepared for manufacturing. Outsourcing IT functions will allow companies to focus more on training for necessary service improvements.

"Achieving secure business operations for financial institutions means not only strengthening physical security and improving customer trust, but also increasing efficiencies in core banking, insurance policy administration and other operations to provide new secure services more easily. It also means having the agility to adapt quickly to changing market needs," Cavuoto says. "Banks and insurers also need greater visibility into their operations to navigate compliance challenges more easily and compete more effectively in a global marketplace."