The internet, credit cards, online banking – all have made our lives immeasurably more convenient. But unfortunately, they’ve also made it easier for criminals to help themselves to our bank accounts, plastic cards and even our identities. In fact, the Government argues that identity theft and related fraud cost the UK economy roughly £1.7bn a year. These figures have been disputed – with good reason – as being dressed up to support the Government’s relentless drive to make us all carry ID cards. But other, less partisan, sources indicate the problem is widespread and growing. A recent Which? magazine report found that 25% of UK adults have had their identity stolen, or know someone who has fallen victim to ID fraud, while last week a YouGov survey found that more than one in ten people had experienced online fraud in the past year, losing £875 on average.
How criminals steal your details
One common e-crime is “phishing”. This involves tricking internet users into revealing bank account or security details by sending bogus emails as bait. The victim receives an email that looks as though it comes from their bank or an online shopping site. The user is invited to click through to a site that looks like the official website, but in fact belongs to the phisher, which asks them to input details, such as passwords or credit-card numbers, which can then be used fraudulently. The number of such attacks in the UK has soared from 1,713 in 2005 to 14,156 last year and proved such a nuisance to PayPal, the online transaction provider, that it launched a free phishing investigation service constantly to monitor activity. Meanwhile, online banking fraud jumped 44% last year to £33.5m, largely on the back of phishing activities, according to Sandra Quinn of Apacs, the trade body for banks and card providers.
But some e-criminals don’t even have to trick credit-card numbers out of people – they just break into shopping sites and steal their credit-card databases. As one hacker boasted to the BBC’s Mark Ward: “I can hack a shop in three to four hours and sell it [the card database] for $100 to $500.” Even staying offline won’t keep you safe. Card cloning, or “skimming”, involves copying the magnetic strip of a credit card when it’s used in a shop, or tampering with the card slot at an ATM. Such fraud accounted for 25% of card losses in 2006. But it’s not just the criminals who are making money from identity theft. Firms that provide technology to protect customers’ details are in demand. Fear of fraud has given rise to a near-billion-dollar business in credit-monitoring services and protection worldwide. Wall Street analysts reckon the credit-monitoring sector alone is now worth $900m, and is growing at 20% a year or more, says Eric Dash in The New York Times.
It’s little wonder – the YouGov survey also revealed that less than half of internet users believe protecting their data online is their responsibility, with around a third considering it’s up to their bank or internet service provider. So rightly or wrongly, firms are under pressure to protect customers. Fortunately, by encrypting data – scrambling it to make it unreadable without knowledge of how the code works – firms can reduce the theft of sensitive information during online payments. They can also save money: using anti-fraud software electronically to track customer transactions, banks can halve the labour costs involved in checking for fraud. We look at firms snapping up contracts to protect our identities in the below.
The two best bets in the fraud-protection sector
Surrey-based Detica (LSE: DCA), an IT specialist that focuses on providing government and corporate clients with fraud protection, has established itself as a market leader in the prevention of identity theft. A recent £500,000 order from BT for its StreamShield network anti-virus product means that Detica looks like a safe bet in the sector, say Dan Coatsworth and Russ Mould in Shares. The company has also targeted the US national security and financial services markets, spending £61m to acquire
MA Partners, Evolution and DFI International. On top of this, it pulled off a coup this week by signing a contract with the Financial Services Authority to help prevent insider trading, which will net £17m over a seven-year-period, with the majority realised in the first three years. On a one- to two-year view, Detica looks a “choice pick”, says Edmond Jackson of Interactive Investor.
Preventing identity theft is also the main focus of Cambridge-based nCipher (LSE: NCH), which supplies the encryption software used in online banking services. The company also provides technical support to the corporate sector for data protection and has just signed a deal that will deploy its hardware security system, payShield, at the core of a new telephone and banking system in Croatia. The shares currently trade on a p/e of 16.1.