As the cost of cybercrime balloons in the U.S., a number of startups have emerged to help small businesses detect fraud before it happens. Stripe, the San Francisco payments processor recently valued at $5 billion, is now offering its own cybersecurity program to small-business customers.

On Wednesday, the company announced a suite of new tools to help startups detect and prevent fraudulent transactions. Dubbed "Radar," the new offering uses machine learning to examine the hundreds of thousands of businesses processing transactions on Stripe every second. By looking at purchasing patterns--and better spotting irregularities--the new tools will help bolster defenses and curb fraud, the company claims. Stripe also says it receives signals from its financial partners, including credit card companies, to determine when a transaction seems suspect.

"We've been thinking about this problem for a long time," says John Collison, Stripe's co-founder and president. "We have this behavioral network that lets us make intelligent fraud decisions on the basis of what we've seen and what we believe to be normal." He gives the example of the same IP address being associated with multiple cards over the course of 24 hours as something abnormal.

On their Radar

Radar will be free for existing Stripe customers, and there's no downtime, as the capabilities are built into its existing code. It's not currently available as a standalone product, though that could be coming in the future, according to the company. Still, the tools are likely to entice more customers onto the company's platform over time.

During a two-month beta test period, Stripe says it blocked more than $40 million worth of fraud attempts for Watsi, a nonprofit that funds medical treatments.

While Stripe would not disclose its total number of users or annual revenue, it says that nearly half of all Americans bought something using Stripe last year, up from just 3.8 percent in 2013. The company processed around $20 billion worth of payments in 2015, according to industry sources, and counts Silicon Valley giants such as Facebook, Twitter, Pinterest, and Lyft as customers. The service itself is free to use; Stripe takes an industry-standard cut of every transaction made (typically, 2.9 percent of the sale, and an additional 30 cents).

A growth industry

The U.S. market opportunity is great, as a growing number of online businesses contend with fraud each year. A report from Hewlett-Packard and the Ponemon Institute of Cyber Crime found that hacking costs the average American firm $15.4 million annually--double the global average of $7.7 million. The costs associated with cybercrime are projected to rise to a staggering $2 trillion by 2019, according to Juniper research. And while data breaches at larger companies such as Yahoo and Sony have lately grabbed the headlines, it's worth pointing out that around 43 percent of cyber-attacks target small businesses.

Brendan Miller, a principal analyst at Forrester who watches the payments industry, sees Stripe's decision to launch a cybersecurity product as a sign that the company wants more midmarket customers, as opposed to just smaller startups.

"I think they're realizing that long term, working with a bunch of startups and developers who are working out of their garage is not a great business strategy," Miller says. "The revenue exists in the midmarket space."

Cyber-competition

Still, Stripe faces a number of competitors that do offer standalone security products. (As Miller notes, many payments processors choose to partner with multiple existing cybersecurity firms, rather than build out their own solutions.) Forter, a three-year-old fraud prevention company based in San Francisco, for example, makes algorithms that let e-commerce companies understand their exposure to fraud at the time of checkout. Delivery.com, a meal delivery service and Forter client, says it's seen a decrease of almost 70 percent on chargebacks since adopting the tools. Similarly, Signifyd, a fraud technology company based in San Jose, offers tools that aim to prevent and manage fraud. It charges customers, such as high-profile startups Jet.com and Bonobos, a transaction fee of between 1 and 4 percent.

Nevertheless, Radar will surely aid Stripe's existing small-business clients hoping to cut costs. And given that the cybersecurity industry is estimated to reach $170 billion in sales by 2020, Stripe could also benefit--should it begin selling the technology to third parties, that is.