Failure to protect sensitive data can result in millions of dollars in damages
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Security Breach: 10 Industries Impacted

cyber security 2013Cyber attacks can threaten critical national infrastructure like power grids and air traffic-control systems. As online services and transactions rise in popularity, businesses and consumers are also growing increasingly concerned about effective cyber security. During 2012, there were multiple high-profile security breaches. In fact, the Identity Theft Resource Center reported 189 incidents in only the first half of the year. In June, hackers stole more than 6.5 million LinkedIn user passwords. And in mid-July, 450,000 e-mail usernames and passwords were stolen from Yahoo’s databases. Also in 2012, the Federal Trade Commission (FTC) sued Wyndham Hotels for repeatedly failing to protect consumer data. According to the FTC, Wyndham failed to use cyber security best practices, such as encrypted passwords and credit card data, resulting in as much as $10.6 million in fraudulent credit card charges.

In the 2013 State of the Union Address, President Obama directly addressed the threat of cyber attacks and has signed an executive order to improve security practices. Under the order, the Department of Homeland Security will create a Cybersecurity Framework (with an expected release in October), and companies will be encouraged to adopt these cyber security standards as they are developed.

Over the next five years, 10 industries are anticipated to play a greater role in and increasingly depend on cyber security, including Virtual Data Rooms, Online Insurance Brokers and Financial Data Service Providers. These industries form a growing part of the US economy, according to IBISWorld estimates, together totaling an estimated $207.1 billion in revenue in 2013. In fact, if these industries represented a country, it would have the 46th-largest economy in the world, ranking just above Algeria and below Portugal. In the five years to 2018, these industries are forecast to grow at a combined annualized rate of 7.7% to $285.9 billion, compared to projected average annual GDP growth of 3.3%. The 10 industries are also highly profitable, with an average total profit margin of 17.5%. Strong growth and high profitability will make these industries attractive targets for investors. Still, the implementation of effective cyber security procedures will be critical to the success of these industries over the next five years. Failure to effectively protect sensitive data can result in millions of dollars in damages, which can potentially shatter business and consumer confidence in these industries.

Cyber security is a growing issue plaguing many companies. Without effective cyber security, incidences like that at Wyndham Hotel can happen to any other business, resulting in significant financial losses. In these 10 industries, IBISWorld has identified industries that need effective cyber security practices and others that provide services related to cyber security. Industries such as Online Payment Processing Software Developers manage customers’ sensitive data, so security is essential. Other industries, such as IT Security Consulting, will be needed to help protect websites and databases from unwanted intruders.

cyber security table

Online payment software developers

This industry provides software that enables merchants to authorize, settle and management credit card transactions online. Typically, consumers can link their credit card information to payment systems like eBay’s PayPal and Google Wallet, allowing them to make internet purchases. The explosion of smartphones and mobile computing power has driven industry growth over the past five years. These technologies combined with others, like near field communication technology for example, allow consumers to pay for transactions in the store via radio communications. And the barcode-like images of quick-response codes allow customers to access store payment information.

Continuing strong growth from the past five years, this industry is anticipated to expand rapidly over the next five years, growing at an annualized rate of 17.2% to $33.7 billion in 2018. Because industry services are automated and require minimal labor costs, the Online Payment Processing Software Developers industry has high profit margins. Currently, profit is estimated to account for 19.9% of industry revenue, a share that is forecast to improve over the next five years as industry operators continue to grow their economies of scale and improve operating efficiency. The industry’s high and expanding profit is making this industry more attractive to investors.

Effective security measures, such as encrypted financial information or two-step verification that involves identification through a password and a verification code sent by e-mail, will play an import role in securing information and be critical for this industry over the next five years. Consumers and businesses can suffer heavy losses if their financial information is not properly secured, and industry operators would then be responsible for compensating customers for their losses and possible litigation from customers, which would pressure industry profitability and make this industry less attractive to investors. Repeated cyber security breaches could then cause consumer and investor confidence for industry services to wane, making industry growth volatile.

Online insurance and mortgage brokers

In the five years to 2018, revenue for online insurance brokers is forecast to increase at an annualized rate of 12.9% to $19.2 billion, while revenue for online mortgage brokers grows 4.7% per year on average to $10.1 billion. Like the aforementioned online industry, these industries are expanding and have relatively strong profit margins at 11.0% and 4.2%.

Similar to online payment software developers, online insurance and mortgage brokers will also require comprehensive cyber security practices over the next five years. The two industries provide insurance and mortgage brokerage and management services online, which require them to store critical consumer information, such as social security numbers, addresses and other personal information. Without effective security practices, consumers can potentially lose insurance coverage, retirement financial assets or even their homes as a result of security breaches regarding mortgages. In turn, consumer confidence in online financial services would fall, hurting the long-term growth prospects of these two industries and making this industry a more risky prospect for investors.

Data providers

Businesses are increasingly reliant on online data providers due to the rapid growth of cloud computing and cloud data storage. Online data providers, which include industries such as Virtual Data Rooms, Financial Data Service Providers and Data Processing and Hosting, allow businesses to instantly access information, such as financial data, that is critical for informed business decisions. All three industries, especially Virtual Data Rooms, are attractive targets for investors due to the exponential growth of cloud data storage and the industries’ resulting strong revenue and profit growth.

In the five years to 2018, the Virtual Data Rooms industry, which provides businesses with information regarding legal due diligence, mergers, acquisitions and bankruptcies, is anticipated to grow at an annualized rate of 14.2% to $728.4 million. Industry operators are also profitable, with an average profit margin of 7.5%. Financial data services providers have even higher profit margins of 21.9% and are forecast to experience revenue growth of 4.9% per year on average to $6.3 billion over the next five years. These firms provide information on stock prices, fixed income markets and balance sheet information. Finally, data processing and hosting services providers offer general business intelligence and data. Over the next five years, data processing and hosting services firms are forecast to grow at an average annual rate of 3.4% to $82.2 billion, with profit accounting for 12.0% of revenue.

Despite strong anticipated growth over the next five years, industry success is contingent on effective cyber security practices. These firms host sensitive business, financial and legal data, and unplanned leaks can cause millions of dollars in damages for industry clients. Repeated cyber attacks may lower business confidence in cloud data storage, which would put significant downward pressures on industry growth and profitability.

Security service providers

IT security consultants help businesses manage firewalls, encrypt data and develop intrusion-prevention and -detection systems. Security professionals are especially important for preventing insider leaks because insiders often have access to sensitive company financials and other data. Consultants help implement tools that monitor e-mail traffic, patterns regarding sensitive data and corporate network usage. As the risk of cyber attacks increases, IT security consultants that can help mitigate damages associated with security breaches will likely experience greater demand. With anticipated greater demand for security services,, industry revenue is forecast to grow at an average annual rate of 6.7% to $5.3 billion in the five years to 2018. Profit currently accounts for 7.5% of industry revenue and is also projected to increase as downstream demand picks up, making this industry more attractive to investors.

Identity theft protection firms use software to track unauthorized use of credit and other personal information. In the five years to 2018, this industry is forecast to increase at an annualized rate of 2.1% to $3.8 billion. Like with IT security consultants, profit is also anticipated to slightly improve from its current level of 8.0% of revenue. The industry does well because operators can quickly detect and resolve identify theft; however, it has been criticized for failing to prevent theft in the first place. As consumers increasingly conduct financial transactions online exposure to identity theft will rise; even theft over a short period can result in major damages. As a result, identify theft protection firms will need to step up prevention capabilities. For instance, industry firms can invest in software that can more effectively monitor consumer spending patterns and data usage. The failure to more effectively prevent identify thefts can push consumers away, especially as cyber security improves in general for online financial services providers.

Software publishers

Consumers and businesses also rely on software publishers to develop more secure programs. The Database, Storage and Backup Software Publishing industry has enjoyed high profit margins of 21.9% due to steady demand for data storage. Over the next five years, this industry is anticipated to grow at an annualized rate of 4.1% to $38.6 billion as businesses increasingly rely on cloud data storage. Database software publishers will need to cater to cloud-based and mobile applications that require secure transmission and restricted access. Effective cyber security practices will be integral to industry growth over the next five years because downstream customers store sensitive business information using industry products. The lack of industry-wide standards on cyber security can result in more volatile demand in the five years to 2018, which can push investors away from this industry.

Similarly, revenue for operating system publishers is forecast to increase at an annualized rate of 6.8% to $38.6 billion. In the five years to 2018. Currently, industry firms enjoy high profit margins of 34.4% due to the low marginal costs of producing copies of existing operating systems. Over the next five years, operating system publishers are anticipated to steadily expand due to the large-scale adoption of cloud computing. As businesses turn to cloud storage, the demand for servers, which host and manage information, will increase. Like other publishers, industry operators will also need to improve the security of operating systems. For instance, Google’s mobile operating system Android is currently in the spotlight for security issues, with a large number of malware and hacks targeting the operating system. Potential cyber security flaws like these will hamper business demand for an operating system, which may constrain industry growth and profitability over the next five years. The failure to implement effective cyber security practices can make this industry a more risky target for investors.

Conclusion

Convenient online services are boosting the need for effective security for private information. Consumers increasingly store sensitive information, such as credit cards and social security numbers, online and are highly vulnerable to cyber attacks. Businesses also host important financial and legal documents online and can suffer major damages to stock prices and other factors following cyber security breaches. As a result, over the next five years, effective cyber security will become a more important component of business operations for these 10 industries, in addition to countless number of industries that conduct business online.

In particular, industries that provide services online will need to have highly secure customer data; leaks and security breaches can cause major damages for customers, resulting in costs associated with litigation and reparation. Failure to secure consumer and business data can result in damages from identity theft, insider trading and fraud. In general, industries that lack effective cyber security practices will face volatile demand and profitability, as consumer confidence wanes and downstream demand falls. Subsequently, industries without cyber security methods will become a riskier prospect for investors, further constraining their long-term growth.

For a printable PDF of Security Breach: 10 Industries Impacted, click here.

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