Editor's note: This article is part of Inc.'s 2016 Best Industries report.
You bank online. You pay bills online. You buy things online. And the more transactions you make, the more potential there is for your personal information to become a target for fraud.
The increasing danger has fed the rapid growth of the industry devoted to keeping online commerce secure. According to research firm IBISWorld, fraud detection software generated $817.2 million in revenue in 2014, up from $48.8 million in 2005. The industry is expected to rise to $1.78 billion by 2020.
Unless online transactions are your business, you may not notice the touch of fraud detection companies weeding out bad users logging into payment platforms. At the vanguard of this field is Vancouver, British Columbia, startup NuData, a 58-person firm that processed 38 billion transactions last year.
NuData was founded in 2008 by Michel Giasson and Christopher Bailey, who had met two years earlier when they worked at computer game studio Threewave Software. Giasson, a former tech lawyer, was on the business side, while Bailey was a developer. The pair started NuData as a research effort primarily focused on analyzing patterns of behavior among people buying and selling items online. By 2010, they realized their efforts could lead to a commercially viable product. "The whole premise behind this company," says Giasson, "is how can we help customers understand their own customers so they can give them the experience good customers should have."
NuData's annual revenue is in the tens of millions, and has grown by an average of 237 percent per year over the past three years, according to vice president of customer success Ryan Wilk. The company, which has been bootstrapped, has more than 50 clients, including three of the 10 biggest e-commerce companies in the United States. Clients sign up for annual subscriptions and pay from a couple thousand to hundreds of thousands of dollars per month, depending on the volume of transactions processed, Giasson says.
Software that records how hard you type.
Your email, mother's maiden name, financial information--it's all already out there. The key for preventing fraud, Giasson says, is to find ways to identify registered website users based on characteristics they can't easily fake. NuData uses a multi-layered approach to detection that relies on device identification and analysis of user behavior such as where users tend to log in from or the typical nature of their purchases.
The company's software also examines "passive biometrics," such as how fast, or even how hard, a user types. For example, NuData measures the pressure of a user's keystrokes using input sensors PC and mobile devices are equipped with that detect such subtle things, explains Giasson. The software "evaluates the aggregate pressure settings in the user's profile to better understand if it appears to be the correct user based on how hard they are typing on the device."
As innovative as that technique may sound, NuData has yet to radically distinguish its model from those of other startups in the space, says Al Pascual, head of fraud and security for Javelin Strategy & Research. Still, he acknowledges one key edge that NuData touts: its ability to attract customers. Giasson says that NuData's early entry in the field of user behavior analytics has enabled the company to land large e-commerce companies eager to adopt the technology.
Growing in a crowded field.
The need for fraud protection in e-commerce is ever increasing. Online retail transactions numbered 45 billion in 2002, 215 billion 2009, and 407 billion in 2015, according to data provided by Pascual. Competing with NuData in payments security are startups including Behaviosec and Gurucul. There's also BioCatch, which has the lead with banks, a field from which NuData also draws clientele, says Pascual.
NuData and other fraud detection startups will remain in a good position for investment into the future, even with money from blue-chip venture capitalists and other investors growing scarcer in the tech sector, says Pascual. Wilk acknowledges that NuData may seek VC funding down the road as it expands.
And it is indeed expanding. The company is currently looking to hire 22 to 25 new employees, and has some grand ambitions for this year. To illustrate, Wilk references an institution in the company's home country: the Tim Hortons doughnut chain, which offers a "double-double" order of a coffee with two creams and two sugars. NuData, he says, "is going for its own 'double-double'--double revenue and double staff in 2016."