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It's alarmingly easy to get wiped out financially in the digital age -- and I'm not talking about risky Internet stocks.
It's the cyberthieves. They're ubiquitous, and perfectly happy to hijack your bank account or credit card. Making matters worse, the folks we trust with our private financial data are frighteningly sloppy. In the past two years, three financial institutions I deal with have told me they lost tapes containing all my account information. And the post office has regularly handed total strangers my banking, credit card and mutual fund statements along with that annual letter from Social Security -- once all in a neat bundle with a rubber band around it.
The good news: Financial institutions are throwing money at the problem of how to clean up their acts and protect your identity. And the companies they're hiring are growing an average of 40% a year. In a minute, I'll tell you how to invest in those companies.
First, if you don't think online financial account theft and credit card fraud are huge risks, you're in denial. Here are just a few recent examples:
- Two years ago, hackers used an antenna near a Marshalls clothing store to intercept wireless data that helped them download more than 45 million credit card and debit card numbers from The TJX Cos. (TJX, news, msgs), the parent of Marshalls. The cards were used to make millions of dollars' worth of purchases around the globe.
- Using passwords obtained with keystroke-logging programs, thieves have stolen tens of millions of dollars from online brokerage accounts at E*Trade Financial (ETFC, news, msgs) and TD Ameritrade Holding (AMTD, news, msgs).
- Earlier this month a division of the Homeland Security Department lost a computer hard drive containing Social Security numbers and bank and payroll data for about 100,000 employees. The Government Accountability Office believes that virtually all of the two dozen major agencies it recently studied have "significant weaknesses" in information security controls.
- Thieves regularly use phishing programs and "man in the middle" attacks to grab account access codes online, or "skimming" devices to steal your credit card information in restaurants.
Token appreciation
A big way that banks and companies are boosting security is by increasing the number of hoops people have to jump through get into accounts and computer systems. The old user name and password don't cut it anymore, a fact of life acknowledged last year by the Federal Financial Institutions Examination Council, a coalition of U.S. banking regulators. It told financial institutions they should move to "dual-factor authentication," or more hurdles beyond the simple password.One of the most popular solutions is a small device called a "token" that generates one-time passwords required to get into accounts and corporate computer networks. If you have to sign on to your company network, you may already have used these. But now, these tokens are being rolled out in the U.S. financial sector by E*Trade, Wachovia (WB, news, msgs) and the PayPal division of eBay (EBAY, news, msgs). They are more commonly used by European banks, but there is still a lot of room for growth there and in the rest of the world.
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The go-to company for tokens is Vasco Data Security International (VDSI, news, msgs), and you can see it in its stock chart. Vasco shares are up 150% in the past year. Vasco offers a Digipass line of handheld tokens, but the technology works via cell phones and inside Web browsers as well. The company also sells the software that goes on servers to accept one-time passwords from its tokens.
Business is booming -- and it should continue to for several years. Revenue grew 93% in the first quarter to $26.4 million. Banks were the main customers, accounting for 85% of revenue. Vasco Data Security guided for 35% - 45% revenue growth this year, but Andrey Glukhov of Brean Murray, Carret & Co. thinks it could see more like 63% growth.
Vasco Chief Executive T. Kendall Hunt says investors can count on a lot more growth. After a bank signs on, it typically takes two to four years to roll out tokens to everyone it thinks should get them. At that point, they often upgrade to a new device and the process starts all over. "So there is a continue flow of revenue once we get it started," Hunt says. "Next, the number of banks we sign on is accelerating through all of this."
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