IBM Builds Out With Software Stack Smarter Counter Fraud
March 31, 2014 Timothy Prickett Morgan
As we have pointed out a number of times now, IBM is gradually building an arsenal of application software and related services to make up for the fact that it ceded the market for ERP, supply chain, and customer relationship management to others in the 1990s and 2000s. IBM has spent tens of billions of dollars acquiring companies with expertise in analytics, security, sales, and marketing and it is now moving into counterfraud applications.
The Smart Counter Fraud effort brings together experts from its Software Group, Global Services, and IBM Research units to take on fraud and various kinds of financial crimes. The target is absolutely immense. IBM cites statistics from the Association of Certified Fraud Examiners, who put out a report two years ago saying that the typical organization surveyed by the organization had lost about 5 percent of its annual revenues to fraud, and when you extrapolate that over the global gross domestic product, that works out to $3.5 trillion–with a T–in fraud losses per year. This is the statistic for what is called organizational fraud, which is precisely what it sounds like–fraud inside of companies, government agencies, educational institutions, and other organizations that is usually discovered by an insider, who tips off the authorities. The median loss is $140,000 and a fifth of those surveyed reported losses in excess of $1 million.
In the United States, Javelin Strategy and Research reports that in 2012, 12.6 million citizens of the United States were victims of identity fraud, and that they had an aggregate of $20.9 billion stolen. Fraud peaked at the height of the Great Recession, with 13.9 million Americans reporting $31.4 billion in losses from identity theft, and then dropped in 2010 only to start climbing again. Data breaches, like the one that just gave retailer Target a big hit on its financial results for the holiday season last year, are a big driver of fraud, with about a quarter of those who had their information taken in a breach eventually falling victim to some kind of identity theft that resulting in actual financial theft of one sort or another.
Because not all fraud is detected, the numbers could be a lot higher. And Smart Counter Fraud is about deploying analytics software to try to root it out. IBM has a team of over 500 fraud consultants–meaning they know how to detect fraud rather than helping people commit it, of course–who are deploying many of the same technologies used by law enforcement and intelligence agencies to root out fraud. IBM says that such expertise is necessary because criminals are learning how to use cloud computing and vulnerabilities in social networks and mobile devices to commit crimes.
IBM’s Smart Counter Fraud software stack is based on Cognos, i2, and SPSS analytics software as well as its Q1 Labs and Trusteer security software and its X-Force cybersecurity service. IBM says that it has hundreds of clients that it has helped to build counter fraud applications and it is leveraging its SoftLayer cloud as well to offer counter fraud as a service. Specifically, IBM will offer a subscription based service with four different levels: Hosting, Application Management, Behavior Modeling and Scoring, and Analytics and Referral Generation. IBM has created modules aimed at detecting medical fraud, insurance claim fraud, public tax fraud, and occupational fraud (with special emphasis on accounts payable, travel, and expense claim fraud). IBM has modules for the first three, called Fraud Asset Management System (FAMS), Loss Analysis and Warning System (LAWS), and Tax and Audit Compliance System (TACS).
If you are having flashbacks to MAPICS for manufacturers and DMAS for distributors and CMAS for construction companies way back in the early days of the AS/400, you are probably not alone.
I have said it before and I will say it again. IBM should just buy Infor and bring all that software back home again and compete with Oracle. But it will probably not happen because IBM is still reliant on Oracle database, middleware, and application software to drive its own platform sales.