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), 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), over the past two and a half years.

Here, IBM's Software and Systems senior vice president and group executive Steve Mills speaks in detail about the company's new, Smarter Counter Fraud move:

Tse: Steve, can you tell me about the investments that IBM is putting into the Smarter Counter Fraud initiative?

Mills: This is the result of a series of investments. The product offerings that we have packaged together here incorporate a whole variety of technologies that we use in areas related to big data analytics and technology that helps our customers with the workflow and case management side of managing all kinds of counter-fraud, anti-fraud initiatives.

Obviously we have invested in a huge amount of money around analytics and big data. Annually, that adds up to a couple billion dollars a year. We've done more than $20 billion worth of acquisitions, some of which are incorporated into this particular offering. It's very much in keeping with the investments we're already making around big data and analytics.

Tse: What are the key components of the Smarter Counter Fraud initiative?

Mills: So this is made of a couple of different of pieces of technology that we brought together to help our customers deal with this challenge. Let's think about this across the spectrum of a fraudulent event and therefore what kinds of tools are required in order to support the effort to investigate and resolve some kind of fraudulent event.

So the first part of the process is the collection of all the data one would need to collect to be able to identify specific patterns that provide the clues around whether or not a transaction or something taking place is likely to constitute some aspect of fraud. And given the challenges that exist today with the enormous amount of data and the cleverness of those that attempt to defraud banks and insurance companies, healthcare payers, and so on, you know you're looking at a lot of data over an extended period of time to effectively tease out the important information that can be applied against the known patterns of fraud that are taking place. And these obviously would relate to aspects of human identity, to the indicator numbers. If you think about credit card numbers, social security numbers, Medicaid, Medicare -- it depends on the domain, what the human identifiers are, what the numerical identifiers are.

So the first wave of technology that we apply in this solution are technologies for dealing with big data: ingest, analyze, determine patterns. We do a lot of filtering because there's so much to look at, that you can't present it all to the investigatory people. It's an enormous number of cases. You have to be able to filter out the false positives and show them cases that have greater likelihood to represent a fraudulent event. The investigatory people love to look across the spectrum of case types. Some have greater evidence, some have weaker evidence, and so you have to show them the evidentiary data.

There's a whole set of technologies that we have for displaying information that puts in front of the analyst the evidentiary data that then allows them to utilize the facts that are contained behind that evidence and reach a determination that they want to go even deeper in investigating what they believe to be a fraudulent event. From there, they turn it into a managed case and they manage it across the lifecycle.

It's a full investigation and resolution, and there's a feedback loop in fact where new patterns of fraud found during the investigatory process then are fed back into the tools to provide a more rapid identification of future fraud. In addition, companies also want to use this data to block certain kinds of transactions. So there's really a combination of technologies from big data and analysis, statistical analysis, human identity, degree of separation display, and then moving into the case management processes and final resolution.

So it's very much a lifecycle. It's not just finding what you believe to be an instance of fraud, but supporting the investigatory processes. That's one of the things that for many companies they struggle with. They've got some tools to do identification, and those tools will sometimes give good filtering, sometimes not so good filtering. False positive tends to burn a lot of staff time, chasing false leads. And then this whole close-looped feedback process through the management of a fraud investigation case is something else that differentiates IBM technology here.

Tse: Why today, why now to launch the new initiative?

Mills: We've been in the risk and fraud business now for some time, and we've been adding technology to our portfolio for helping institutions look at risk, risk analysis. Finding things or finding people is a key part of our portfolio. We've invested in that area for now the last decade in supporting a wide range of scenarios. What we're delivering here in the marketplace and announcing is the result of many customer engagements that we've already done.

So beyond the core technologies that we have for analysis, we've gone to school on how companies deal with fraud issues, how their staffs manage the whole process of fraud investigation, and what we're focused on is this issue of anti-fraud across a set of scenarios that would include various aspects of banking, including credit card, credit-related fraud, fraud in healthcare, and healthcare claims, which is easily applicable into any entitlement program; investigatory process; and then finally some unique capabilities for anti-money laundering investigation.

So this announcement is actually a series of products being announced across the entire spectrum of anti-fraud.

Tse: How is IBM uniquely positioned to tackle global fraud issues following your recent acquisitions?

Mills: Well in fact, those acquisition technologies are an important part of what we're delivering. So we're taking advantage of our acquisition of the Cognos company ... our acquisition of i2, which is a company with very unique analytic capability ... SPSS for statistics.

Our recent acquisition of Trusteer was a company that specialized in dealing with aspects of fraud and attack on financial institutions, that's been their primary focus. The Curam company that we acquired provides us with case management capability. Those are among the core technologies that make up this solution.

There are essentially about a dozen different product assets that we're pulling together to create the product offering.

And then we're aligning our global business services practice around this. We'll have about 500 practitioners here at the beginning of the second quarter, directly engaged in this area of anti-fraud. That's an extension of what we've already been doing around risk analysis, some of the existing fraud projects we've done.

And then we're also forming up a new competency group that's specifically focused on working with institutions that help them identify and frankly share these fraud patterns because 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. 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.

Tse: Which sectors do you think will generate the most demand for your new product offering?

Mills: So clearly, financial services -- so banks, credit card companies are the primary customers here. But also in the healthcare area which includes both private insurers in the healthcare field as well as government agencies that are involved in the administration of Medicaid and Medicare, and related healthcare problems.

Frankly, any scenario where money is moving because it's important here from a fraud, from an anti-fraud identification perspective.

So we expect to work with retailers that are obviously concerned about managing their environment relative to the issue of fraud. They collaborate obviously with banks and credit card companies because a lot of this identity theft and credit card-related fraud touches on different aspects of the retail industry where people are using credit cards every day, so this really touches on, anywhere money is moving, there is a good chance that some mischief is taking place.

-- Written by Andrea Tse in New York

Follow @atwtse

>Contact by Email

More from Technology

Throwback Thursday: Intel Edition

Throwback Thursday: Intel Edition

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Intel CEO's Surprise Exit Leaves 'Large Void' That Won't Be Easy to Fill

Intel CEO's Surprise Exit Leaves 'Large Void' That Won't Be Easy to Fill

The Winners and Losers in Thursday's Market

The Winners and Losers in Thursday's Market

Will Porsche's Electric Car Push Take Down Tesla?

Will Porsche's Electric Car Push Take Down Tesla?