1. Finance & Investment Club
Technology, Media, and Telecommunication Sector
Senior Analyst: Cole Secor
Junior Analysts: Osamah Aamir, Tudor Dorobantu,
Kirstin Fong, Jiayi Ren, Joshua Sussman, Kevin Zhang,
Yi Zhu
Fall 2015
Fraud Detection Software Developers

2. 2
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

3. 3
Industry Definition
 Businesses that develop software to detect fraudulent payments made to clients. The software
also protects against fraudulent payments.
Support the detection, analytics and management of fraud across
users, accounts, products, processes and channels
Monitor and analyze user activity and behavior at the
application level
Watch what transpires inside and across accounts
Analyze behavior among related users, accounts or other entities

4. 4
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

5. 5
Industry Overview
Life Cycle Stage:
Growth
A growth of 30.5% for the past 8
years is a good sign of the future.
Regulation Level:
Light
Government struggles to keep up
with the rapidly changing
industry.
Industry Globalization:
Medium
China and India are becoming
bigger players.
Revenue Volatility:
Medium
Uncertainties surrounding
contracts and pricing pose risks
to revenue.
Technology Change:
High
The continuing competition
between fraudster and firm drives
innovation.
Competition Level:
High
With an extreme ease of entry,
companies of any size can
compete for market share.

6. 6
Industry Overview
0
200
400
600
800
1000
1200
1400
1600
1800
Industry Revenue
Revenue ($m)
30.5% CAGR
15.5% CAGR

7. 7
Market Segmentation
 The financial sector represents the
largest market segment
– Includes commercial banks, retail
banks, and brokerage firms
 Public sector is another large
contributor to market revenue
– Ranges from national security to
welfare
 Information sector accounts for the
third largest segment of revenue
– Continued growth as more and more
companies move data into digital
forms
 Insurance and Healthcare sector
widely uses fraud detection
software to detect fraudulent claims

8. 8
Industry Overview
Market Cap: $3.72B Market Cap: $2.87B
Market Cap: $2.75BMarket Cap: $3.01B

9. 9
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

10. 10
Total E-Commerce Sales Growth
 As electronic payment transaction
volumes increase with consumers
increasingly using the internet for a
diverse range of services, such as
online shopping, online trading and
online banking, the risk of theft and
fraud over the internet rises.
 Percentage of services conducted
online is expected to increase for
the foreseeable future, creating
opportunity for the industry.
 Extremely strong correlation between
E-Commerce volume and industry
growth in recent history
– R2 of .97904
The fraud detection industry will continue to grow as the amount of E-Commerce traffic volume increases.
2006 2007
2008
2009
2010
2011
2012
2013
y = 1.008x - 147.89
R² = 0.979
0
100
200
300
400
500
600
700
0 100 200 300 400 500 600 700 800
IndustryRevenue(Millions)
E-Commerce Volume (Billions)
Industry Growth vs. E-Commerce Volume
Years Percent Growth
2006 - 2007 26%
2007 - 2008 10%
2008 - 2009 32%
2009 - 2010 10%
2010 - 2011 26%
2011 - 2012 19%
2012 - 2013 10%
CAGR: 19.06%*
*Since 2006
Source: Ibisworld

11. 11
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

12. 12
Crime Rate
 In addition to rising concerns of international terrorism and money laundering, occupational fraudsters have
become more sophisticated.
 Several major US retailers have experienced data breaches, threatening and simultaneously stimulating
industry revenue.
 As the number and intensity of these crimes increase in 2014, financial institutions, retailers and electronic
payment processors will seek ways to leverage new technologies to protect customers by preventing
fraudulent transactions.
Qualitative analysis show that as crime, be it digital or physical, increases so too will the amount of fraud.
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e
CreditCardFraud$bn
Credit Card Fraud $bn
*forecasted using averaged past 4 years CAGR*Source: Ibisworld

13. 13
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Credit Card Chips
Industry Overview
Industry Definition

14. 14
Chip Inclusion in Debit and Credit Cards
 The new credit and debit smartcards
use an encrypted chip rather than a
magnetic stripe, reducing electronic
payment fraud.
 U.S. fraud rate expected to follow
Canada’s dramatic decrease.
 Industry will need to rely on a
continuing growth from other areas of
fraud within the U.S. and Canada
 “In every country that has switched to
EMV cards, online fraud has jumped.”
–Aite Group
 UK saw a 79% increase in online
fraud once chips were introduced.
As credit and debit cards increasingly use computer chips the amount of fraud will be decreased hurting revenue.
0
50
100
150
200
250
2008 2009 2010 2011 2012 2013
Canada's Decrease in Retail
Fraud Since Chips
Debit and Credit Card
Fraud Losses
Expon. (Debit and Credit
Card Fraud Losses)
Source: Yahoo Finance

15. 15
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

16. 16
Comparable Company Analysis
Companies are highly valued on the market despite lackluster revenue generation.
Company
Name
P/E EV/EBITD
A
EV/Reven
ue
PEG Gross
Margin
Net Profit
Margin
Debt to
Equity
Nice Systems 29.85 14.84 2.72 2.22 62.87 10.19 0
Fair Isaac
Corporation
20.09 11.35 2.80 1.39 68.40 12.03 1.20
ACI
Worldwide
34.42 13.92 3.08 1.31 55.25 6.65 1.53
Verint
Systems
93.31 23.33 3.26 29.61 63.21 2.74 0.74
Collective Data
High 93.31 23.33 3.26 29.61 3.26 29.61 1.53
Mean 44.42 15.86 2.97 8.63 2.97 8.63 0.87
Low 20.09 11.35 2.72 1.31 2.72 1.31 0
Median 32.14 14.38 2.94 1.81 2.94 1.805 0.97

17. 17
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

18. 18
Risks
 Suffer from dependency on on a small number of customers for a significant amount of profit
 A decrease in government spending poses as threat as the public sector accounts for 20% of industry profit
 Unsuccessful mergers and acquisitions will result in growing companies falling behind
 Losing the right to third-party software that is an integral part of the fraud detection software being developed
 If software has a base code that has been open sourced they may have to make the resulting software
open sourced and free
The industry suffers from many software-based risks that will need to be navigated carefully.

19. 19
Agenda
Fund Suggestion
Risks
Comparable Company Analysis
Trends
E-Commerce Sales Growth Crime Rate Government Spending and Contracts
Industry Overview
Industry Definition

20. 20
Fund Suggestion
Strong
Buy
Strong
growth
prospects
Correlated
growth with
Ecommerce
Insulation
from EMV
chip effects
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