IBM’s Big Hope for Fraud

MARCH 20, 2014, 12:01 AM 1 Comments
IBM’s Big Hope for Fraud
IBM is changing with the crimes. So are other companies, and their collective efforts could affect more than catching tax cheats.
On Thursday, IBM announced the creation of a fraud and financial crimes prevention business that combines big data analytics, business know-how and data visualization.

According to the research firm IDC, the global market for financial fraud detection is about $5 billion. IBM also intends to work in preventing health care fraud, like false claims.
Target’s loss of millions of credit card numbers last year is a good example of the hazard to companies and the opportunity for companies that can spot new threats. Hackers apparently entered Target’s computers that held its customers’ financial information byfirst gaining access to the computers associated with Target’s heating and cooling system. As with many companies, all the machines were on the same network.
Compared with traditional means for spotting frauds, like matching payments to lists of stolen credit cards, “the challenge institutions have just begins with identification of threats,” said Steven A. Mills, IBM’s head of software and systems. He noted that online frauds and cyberattacks were frequently populated by “collections of people engaged in comprehensive attacks.”
IBM is not alone. Last October, Novetta Solutions, a company known mostly for government defense work, partnered with Teradata to provide corporations with cyberdefenses that include behavioral analysis. Palantir, a Palo Alto start-up firm that initially worked for intelligence services but increasingly does private sector work, in December announced a $100 million round of financing that valued the company at $9 billion.
“It’s no longer suitable to detect and stop fraud; you have to understand the attackers, the relationships and the techniques,” said Michael Versace, global research director at IDC. “The fraud scenarios are getting more complex.” The challenge for IBM, he said, would be “adding value while moving from legacy technology that is siloed in different parts of the bank.”
Like most things IBM, the move involves lots of people and resources. IBM said it had more than 500 fraud experts in the new organization and would draw on 290 fraud-related patents, as well as several large corporate acquisitions it has made in the last several years.
“Finding needles in haystacks is what we do,” said Mr. Mills. “We have a rich set of technologies, acquisitions and an understanding of technical domains.”
Part of the problem in the new sleuthing is finding weak and indirect relationships among bad actors. For example, whether two frauds months apart made use of a similar server traffic configuration. Compared with a Palantir, he said, “we do astrophysics. Finding fifth-, sixth-, seventh-, eighth-order relationships among weak signals is different.”
The company is initially focusing on areas like banking, insurance and health care, but this kind of relationship spotting can have other uses.
Mr. Mills said IBM might use the techniques in other areas, like industrial maintenance. “You look for wear patterns among machines, predict when things will break,” he said. “This moves from industry to industry, scenario to scenario.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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