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IBM Unleashes Big Data Technology Against Fraud

NEW YORK (TheStreet) -- The opaque, yet intrinsically efficient network of enterprise hackers has reached the point where they're now believed to have developed from lone wolves into a sophisticated global supply chain, and are treated as such by the top security experts.

IBM (IBM - Get Report), for one, has launched an all-out battle against these hackers and any other participant of fraudulent crimes against enterprises, much of which of course is now occurring through digital channels. The company has invested $24 billion in developing big data and analytic software and services, from which it will dedicate funds to launching its new, "Smarter Counter Fraud" initiative involving the delivery of counter-fraud software aimed at prevention, identification and investigation at all digital levels including mobile devices, social networks and cloud platforms for companies across the board. Most businesses these days are vulnerable in some way or another to attacks.

As part of the new initiative, expertise will be drawn from more than 500 fraud consulting experts and 290 fraud-related research patents.

Steve Mills, IBM's Software and Systems senior vice president and group executive told TheStreet that these crimes needs to be addressed, and urgently.

"The bad guys, the people that they're trying to defraud, whether it's a bank or an insurance company, or whatever it is -- generally they're quite active and busy coming up with new techniques, new patterns, new ways to try to, if you will, fool the system," Mills explained in an interview. "So you know, the attackers obviously try and try and try again and the defenders have to defend 24 hours a day, seven days a week."

Indeed, reflective of the relentlessness of the infiltrators is the amount lost to fraud and financial crimes has now reached $3.5 trillion a year, according to the Association of Certified Fraud Examiners, and companies are taking this problem very seriously. IDC estimates corporate spending on security products at a global level could easily reach $42.4 billion by 2017, with a compound annual growth rate of 7.1% over the 2012 to 2017 period.

The Global Supply Chain of Hackers

Of all the criminals, the hackers in particular can afford to be relentless because the global supply chain they're members of is both scalable and flexible. The worldwide network is built upon little specialized groups each focusing on particular areas of vulnerability, according to IDC analyst Craig Stires. Collectively, they're able to touch the systems of enterprises in a very complex way. One group for instance may specialize in breaking company access points, and once accomplishing the task, would thereafter sell the information about those broken points to a second hacker group who, say, specializes in installing malware.

When that second group has successfully carried out its unique role in the supply chain, it now will have available for example, a list of compromised company servers that it can sell to a third group who would then similarly go on to use the "goods" as a vehicle through which to create its own specialized product for sale yet to another group, and so on, and so forth. One, small vulnerability can lead to a financial fallout as information gets passed down the supply chain and at some point culminates in a gaping hole in the company's system. "These guys are really trying to go through all the processes of hacking into your company," said Stires. Financial gain is almost always the ultimate goal of these hackers.

Like any other market, the end market in this global supply chain of hackers is subject to the laws of supply and demand. For instance, the price per hacked valid credit card number plus pin has recently been cut to 80% to 70 cents per valid number from $4 after the Target (TGT) breach that began late last year flooded the market with 110 million valid credit cards, according to the IDC analyst.

IBM Well-Positioned With Smarter Counter Fraud Move

In the wake of the now prevalent presence of digitally-accomplished financial crimes against enterprises, Gartner Research vice president and distinguished analyst Avivah Litan says IBM is well-positioned, with the launch of its new counter-fraud initiative, from a stock investment perspective.

"They have really executed on their security division," Litan told TheStreet. "IBM's really been selling a lot of security. And if they get that message out to the shareholders, and then they bring fraud and compliance into the picture, it could be very powerful. Seriously."

Since the IBM Security Systems division was formed about two and a half years ago, it's overtaken some of the industry's biggest heavyweights. According to business consulting firm Frost & Sullivan, IBM Security Systems revenues have consistently come in about twice that of RSA Security's, the prominent security arm of EMC (EMC - Get Report), over the past two and a half years.

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