Investors flock to Forter's fraud and false positive 'immune system'
Getting companies to share fraud fighting intel is a tough game, but Forter has played it well enough to draw a fresh round of funding to boost the fintech's profile in the U.S.
The New York City-based Forter has secured $50 million in Series D funding from March Capital Partners, Salesforce Ventures, Sequoia Capital, New Enterprise Associates and Scale Venture Partners. Forter, which operates a research lab in Tel Aviv, will use the investment to further its push into the U.S. market. It also wants to expand its research and development as it eyes other global markets.
Forter reports it's attracting more and larger customers in the U.S. because of its ability to manage e-commerce security and user friction. The company reports 50 percent reduction in fraud and, at the same time, about a 75 percent reduction in false positives, according to Michael Reitblat, CEO of Forter.
Reitblat attributes that record to its Forter Merchant Retail Network, in which retailers share fraud and false positive data with Forter, which incorporates it into the machine learning network.
"We don't share that data with anyone else, but every time a fraudster attacks one of them, they all are automatically being protected against that fraudster," Reitblat said. "It's like an immune system, because if one retailer is attacked, the machine-learning system figures out what is going on and automatically protects all other customers."
In that way, Forter addresses an industry concern — that not enough banks and merchants are collaborating on fraud or breach information in a way to establish a unified front. Forter's process represents a blanket coverage that resonates with those providing financial support.
"Forter is addressing a huge issue, and it is a great example of how AI can be applied to address real world problems," said Jamie Montgomery, managing director of March Capital Partners. "Legacy solutions are rules-based, while Forter has the ability to use machine learning and build a complete database based on all transactions and data that come through its system, at scale."
The company's technology "flips the paradigm on the very sophisticated fraudsters," Montgomery added. "By pooling their insights across the industry, the technology can track personas and patterns that evolve and get stronger over time to authorize valid transactions and to filter out fraudsters."
Forter cut its teeth in the fraud prevention industry four years ago in offering a system for e-commerce transaction protection based on the technology and practices that Reitblat and PayPal executives — initially part of the Fraud Sciences company PayPay acquired in 2008 — developed as well as innovation from Citigroup's innovation center in Tel Aviv. Forter is serving a market that's looking for answers as breaches terrorize online commerce. Forter cites RBS research that found 2,300 breaches exposed more than 2.6 billion personal records in the first half of 2018, providing fraudsters with more identity theft and e-commerce fraud capabilities.
Forter's own research indicates a 13 percent increase in fraud attacks since the beginning of 2017, and a 53 percent spike in account takeovers in the third quarter of 2017 — likely resulting from the financial data stolen during the Equifax breach. Forter has seen transactions from more than 180 million U.S. shoppers go through its network, and Reitblat said those shoppers are responsible for more than 95 percent of all e-commerce transactions. It helps dramatically decrease false positives for retailers.
"That means that in more than 95 percent of the cases when we see a transaction, it is coming from a person we already know," Reitblat said. It's important to note that the network knows the person, not necessarily the device or payment card, he added.
"If a person is at a Starbucks, he may be hooked into a WiFi system there that thousands of people are on every day," Reitblat said. "The Forter system knows the person from past transactions and other habits, so it can approve a transaction even if the person is on a different network or device."
Rather than focus on a single merchant network at a time, as many fraud prevention programs have done in the past, Forter views itself as a company waging war on fraud through an entire ecosystem.
The same fraudulent transaction security measures can also come into play in other areas Forter has stressed in the past year. The company is also helping retailers protect their data during registration processes in which customers sign up for loyalty or rewards programs, as well as protection from account takeovers.
Forter is weeding out bad actors who use stolen card credentials to abuse a restaurant's order-and-pay ahead services, or monitoring spending and return habits of those who abuse clothing store policies by purchasing an outfit, wearing it for two weeks for special events, and then returning it. Additionally, Forter is zeroing in on protecting merchants using an omnichannel approach to increase online sales and bulk up in-store offerings at the same time, March Capital Partner's Montgomery said.
Forter is jumping on this trend by applying its technology to scams that span both the online and offline worlds, Montgomery added. "Criminals use stolen credit cards to purchase items online, and then return them in-store for their money back. Similar opportunities exist within financial services, or for that matter, government agencies."