With lockdowns keeping everyone at home, many individuals are turning to online stores to enjoy their retail therapy. However, while this has accelerated the adoption of e-commerce solutions, it has also resulted in a surge of online fraud. Even before the pandemic began, over 3.8 million cases of fraud were reported in the UK alone. And that’s something this AIM stock is trying to eliminate.
Fighting fraud with cyber-security
GB Group (LSE:GBG) is a global technology firm specialising in identity data intelligence. It’s very likely we’ve unknowingly encountered its technology at some point in time if we’ve ever used online banking or ordered a product via a website.
The business operates in three segments called Location, Identity, and Fraud. The first develops and provides software solutions to clients that accurately verify customer addresses for checkout systems. Besides giving an extra layer of security, it has subsequently made the checkout process for customers much faster. In 2020 alone, this technology was used over 140 million times each day worldwide.
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The Identity segment provides rapid access to identity data and security solutions. These include financial databases, biometric scanners, and bank account validation systems. For anyone who has ever applied for a new credit card or started a new job, chances are this division was involved in verifying personal information.
The final segment is directly fighting fraud. Its risk management & intelligence software platform uses artificial intelligence to combat cyberattacks as well as identify and eliminate fraudulent activity. It is currently being used at the heart of the global banking network.
Investing in AIM stocks always has risks
AIM stocks are typically in the early stages of their business cycles. As a result, they tend to carry additional risks. But this is not my primary concern regarding GB Group.
At the core of all three of its divisions is the reliance on data collection. The General Data Protection Regulation Act (GDPR) introduced many new restrictions that limit companies’ data-gathering capabilities. While this legislation only applies to Europe, similar laws are being imposed around the world. If the firm fails to comply with these rules, it would likely have a significant legal impact on the business that would significantly damage its reputation.
The stock also has to continually invest heavily into its own cyber security. With the amount of sensitive data flowing through its platforms, any security breach could also lead to devastating reputational damage.
In either case, if customers lose faith in the security of GB Group’s technology, it would likely result in permanent revenue loss.
The bottom line
GB Group’s technology has proven to be critical in the fight against fraud. And is already being used by an A-list of clients that include IBM, Santander, and Lyft.
Personally, I believe the need for cyber security is exponentially increasing. Combining this with its proven technology makes the potential growth of GB Group outweigh the risks, in my mind. Therefore this is one AIM stock I’d like to own in my portfolio.
