According to new fraud prevention company Forter, the best way for merchants to combat electronic payments fraud is hand off the responsibility entirely.
"Our goal is to allow merchants to treat the world as if it's fraud free," says Michael Reitblat, co-founder and CEO of Forter, which sells a hosted anti-fraud service. The company takes a cut of clients' transactions, and pays all chargeback costs if any fraud gets through.
Reitblat founded Forter, which has been in development for the past eight months, along with other former executives at Fraud Sciences, a security company that PayPal acquired in 2008. Reitblat and his colleagues then integrated the technology into PayPal's anti-fraud system.
Forter runs each transaction through an engine it developed with the help of the Citigroup's innovation center in Tel Aviv. The technology analyzes user profile data, behavior data and web intelligence, a type of artificial intelligence that improves the product's ability to spot suspect transactions as it accumulates more data.
The accumulation of data with web-based learningwhich Reitblat says is particularly useful for companies that don't have the resources to vet all transactions for fraudis partially based on Reitblat's experience as an intelligence officer in the Israeli Defense Force, where "we had to find creative ways to use limited resources to tackle problems," he says.
Citi's innovation center in Tel Aviv hosts financial technology developers such as those focused on the complex processing of large amounts of data in short amounts of time. Forter contends its system delivers a fraud decision in 300 milliseconds or less. Forter split its time between the Citi lab and its own offices in Tel Aviv, which are nearby, as it was building its product.
"We were able to get access to people who understand credit cards, online acquiring and other payments technology, so it was invaluable," Reitblat says, adding the lab allowed an environment in which new ideas could be developed and tested quickly.
Forter will launch in the U.S. and expand to other markets over time, Reitblat says. The company plans to attract merchants by selling its services as a way to combat the increasingly organized efforts of fraudsters. It did not release uptake for its new service.
"The cybercrime environment has become institutionalized. There is a complete ecosystem that includes people buying technology tools and proxy servers that allow them to hack into websites, and then turn around and sell stolen credentials on an e-commerce site for crooks," Reitblat says.
It can be difficult for merchants using locally installed technology to guard against fraud, he says. "The merchants dont want to have to handle their fraud threat," Reitblat says.
Merchants are also challenged by the number of technology relationships that are required to combat fraud, Reitblat says, citing research from Visa's CyberSource that says the average merchant uses five fraud detection tools. CyberSource did not return a request for comment by deadline.
"The reliance on multiple tools certainly complicates the e-commerce decisioning process," says Julie Conroy, a research director at Aite Group.
Even with platforms that provide rules engines and decisioning analytics, such as Accertify or CyberSource, it can be difficult for a merchant to determine which rules are working and which are not, she says.
"In an ideal world many merchants would love to use a streamlined system such as the one that Forter describes," Conroy says. "However, this is not an ideal world and I think larger merchants would reluctant to relinquish the control over decisioning to a third party."
Conroy says she surveyed large e-commerce merchants about the relevance of manual review and the majority deemed some level of manual review essential. "I would see that the Forter product would be very attractive to smaller merchants, however, for whom fraud prevention is not a core competency," she says.