“Business email compromise” and other “social engineering” schemes have garnered increasing headlines as the scams become more sophisticated and the losses pile up. Coverage claims under the “computer fraud” rider in fidelity policies for these losses have met with mixed results, leaving some policyholders holding the bag for significant losses and pushing insurers to revamp their products.
A Brief History of Financial Tech
The financial services industry has long been at the forefront of technological advances in commerce. In the 1950s, Bank of America commissioned a consortium of Stanford scientists to develop an “electronic brain” to count checks. ERMA (Electronic Recording Machine, Accounting), as it was called, was a prototypical “computer.”
Among other notable advances, this led to numerical bank account numbers (avoiding the problem of the old alphabetical by-name lists to which new customers were added and which had to be reshuffled with every new name) and magnetic ink character recognition (MICR), the readily recognizable font used for the numbering found on checks.
Financial institutions were also at the forefront of computerizing sales transactions. In the late 1960s and 1970s, Bank of America’s National BankAmericard (later, Visa) and a consortium of competing banks called the Interbank Card Association (later, Mastercard) began competing over the nascent “credit card” sales industry. That competition quickly led to the development of real -time credit account checks through phone lines, the development of automated teller machines, and, eventually, electronic point-of-sale technology.
First the Computer, Then Computer Fraud
It should not be surprising that banks and other financial institutions were also at the forefront when it came to targets for computer fraud and hacking. And their insurers were close behind in their own responses to these new threats.