When digital identity verification company Socure launched operations in 2012, online gambling was still illegal, cryptocurrency networks did not yet exist, and buy now, pay later was just using a credit card in a store. Today, Socure has about 500 customers across industries as diverse as government and healthcare, all focused on securing payments and other transactions, said its CEO, Johnny Ayers.

"When we did research in the early days of the company, everyone we interviewed said 'you have a huge runway,'" Ayers said in an interview, noting that Socure added 217 customers in the second quarter of 2021.

Today, that runway may be more crowded, with numerous companies working to verify identities and secure all types of payments, from wages to unemployment benefits. Services such as telehealth and payroll are undergoing rapid digitalization, which increases the number of industries seeking secure payments, Ayers said.

Additionally, emerging business areas like cryptocurrency and online gaming keep popping up, and the use cases for advanced identity assurance are rapidly increasing, he said. Even social media platforms now must take steps to guard against identity fraud.

Money moves faster, risks rise

Many companies are working toward faster money transfers and marketing instant fund availability as a selling point, but that brings risks that must be solved through technology, Ayers noted.

"E-commerce transaction volume went from $600 billion to $800 billion, meaning the surface area for risky transactions expanded dramatically," he said. As that surface area increases, fraud loss numbers in financial services, e-commerce, and other sectors are also rising, he explained.

The COVID-19 pandemic forced a round of growth in online payments, with many traditional transactions moving to the digital space. The digital payments market is expected to more than double in the next five years, from $5.4 trillion to$11.3 trillion in 2026. With such a large amount of money at stake, fraudulent activity is also expected to grow in tandem. Credit agency TransUnion reported that compared to the last four months of 2020,the first four months of 2021saw suspected online fraud volume more than double.

Seeing such huge potential demand, it's no wonder many fintech companies are rushing tofocus on payment security, with startups vying for market share and established payment companies investing in their own B2B security tools. Forecasts from Prophecy Market Insights estimate that the market for anti-payment fraud products and services willgrow 15% annuallythis decade, from $4.6 billion in 2019 to $18.6 billion in 2029.

It's an increasingly crowded market, said Andras Cser, principal analyst for security and risk at research firm Forrester, who recentlysurveyed the competition. His research identified 37 companies offering enterprise fraud management software with annual revenue over $1 million, of which 10 earn more than $80 million annually from EFM-related revenue. (The study excluded companies with revenue under $1 million, but Cser noted that many startups also operate in this space.)

The proliferation of technology and cloud computing capabilities is one factor in market growth. Many technological tools used for fraud prevention require significant computing power, so the availability of cloud computing has enabled more companies to use these tools. Additionally, the surge in online payments and fraud during the COVID-19 pandemic "is certainly part of the attention," Cser said.

Traditional credit risk management companies like Experian, TransUnion, and FICO now focus on digital payments. Tech giants such as IBM and SAS are also key players in the global online payment fraud market.

Card giants also focus on fraud

Card giants like Mastercard and Visa now offer full suites of tools to help merchants combat cybercrime. Visa acquired CyberSource for $2 billion in 2010and made it the core of its efforts. American Express acquired Accertify in 2010and now ownsAccertify. Recently, Mastercard acquired NuData Security in 2017Accertify. Most recently, Mastercard acquired Ekata in AprilNuData Security, gaining the company's behavioral biometrics technology, which can identify people through unique characteristics such as how they hold their phone or their typing speed. Mastercard also acquired Ekata in AprilEkata, a digital identity company that provides tools for consumers to prove who they are.

"We really see fraud, cybersecurity, and digital identity as areas that need a lot of improvement and are full of opportunity," said Sukhmani Dev, senior vice president of digital payments at Mastercard Canada. "You'll continue to see a lot of action in this space because we're spending more and more of our time online."

For traditional payment networks, security is a unique selling point in the battle for credit and debit card transactions, especially as they increasingly face new fintech competitors.

At a recent virtual conference, Visa CFO and Vice Chairman Vasant Prabhu highlighted the company's $9 billion investment in technology over the past five years, specifically mentioning security features such as "everything we've done in tokenization, the efforts we've made in identity verification." He told investors at theBofA Securities Global Technology Conferencethat this is a highly competitive industry.

Venture capital fuels anti-fraud startups

Meanwhile, venture capitalists have also invested in this space. A recentGartner market surveynoted "frequent investment activity over the past year." E-commerce fraud prevention company Forterrecently raised $300 millionin funding, nearly triple the $125 million it raised just six months earlier. In April, Signifyd Inc., which sells fraud protection software that uses artificial intelligence to identify fraud in real time,raised $205 million from investors. Risk management platform Feedzai raised $200 million in March aloneand recentlyacquired RevelockRevelock, a company focused on behavioral analytics and biometrics, to round out its offerings.

The Gartner report noted that increased funding is being used for sales and marketing activities in new global regions and new customer segments. So far, this seems like a safe bet: Risk management platform Riskified went public on the New York Stock Exchange at the end of Julylisted. In June, Socure received an unspecified investment from Capital One Ventures, the bank's technology incubator, and hinted ata possible next IPO in the space。

The proliferation of fintech companies—such as "fintech" firms like Square and Stripe—is also a major factor in the growth of anti-fraud technology. Many of these digital-native companies are seeking to partner with technology firms, explained Socure's Ayers.

Many internet-first companies are looking for peers that move at the same rapid pace as partners as they grow into "tomorrow's Fortune 500 companies," he said.

The expansion of open banking—sharing transactions and data across apps and systems—also creates more need to protect those transactions, spurring more anti-fraud technology activity. Financial institutions are rushing to carve out a place in this evolution, leveraging their credibility in transaction security.

Visa CEO Alfred Kelly recently told investors, highlighting the company'sacquisitionof open banking platform Tink this year and "continued investment in resilient cybersecurity and fraud prevention" as key to driving open banking expansion in Europe.

For new entrants, scaling technology has been a focus, and that's a factor in the surge of new anti-fraud solution activity. The availability of large-scale machine learning and AI capabilities has driven a lot of market activity, noted Forrester's Cser.

"These algorithms are more accessible now," Cser said. "Our ability to buy hardware, cloud-based computing, and all this digital processing has greatly increased," but he warned that this is not the whole story of success. The need for industry knowledge should not be underestimated, he said.