Riskified is halving its fees for its Shop Protection service, which guarantees against chargebacks but requires merchants to let Riskified fully control which sales go through and which get blocked.

The 18-month-old Tel Aviv company now charges 0.7% on each transaction it vets. Riskified is part of the increasingly popular machine-learning fraud detection market. Unlike rules-based fraud detection systems that demand the merchant set rules for each type of behavior to flag as suspicious, machine-learning software analyzes activity in real-time and makes decisions based on a number of factors, including device fingerprinting, biometrics and behavioral analytics.

Machine-learning fraud detection vendors such as Sift Science and Feedzai use similar mitigation techniques, then give their merchant clients a risk score and allow them to decide whether to accept or deny the transaction. But Riskified prefers to take full control.

"You have to be somewhat of a fraudster to be in this business…to understand how fraudsters work" and build defenses against them, said Eido Gal, co-founder and CEO of Riskified, during an interview over coffee at the Bowery Hotel in Manhattan.

To adopt fraudsters' mentality, Riskified's experts frequent the same online forums that cybercriminals do, gaining intelligence on emerging fraud trends. Gal likes to spot fraud by comparing normal consumer behavior to that of a fraudster.

"Take two customers - customer A visits a merchant browses several products, comes back to the one they want, adds to cart, buys and selects standard shipping.  Customer B visits the same merchant goes straight to a high value/high risk product, adds to cart, selects next day shipping," he said.

Gal said customer B is more likely to be a fraudster since a normal customer wouldn't come to a site knowing exactly where to locate the merchant's most expensive item.

Currently Riskified has more than 1,000 customers, with 70% in the U.S., 20% in Europe and the other 10% throughout the rest of the world. Its clients include the U.S. retail jewelry company Reed's Jewelers; Viagogo, an online ticket marketplace; and Ssense, a designer clothing retailer.

Under Riskified's shop protection plan, Riskified approves 99% of transactions on average, eating the losses for any chargebacks that occur when it makes a mistake.

"No catch, we refund the fee and cover the cost of the chargeback in full in the event of fraud on an order we approved," said Gal.  

To encourage more merchants to take advantage of the platform, the company is offering the first $50,000 in sales for free.

Riskified offers two other packages. It will vet sales from international regions for a fee of 2.4% per transaction, and it will let merchants select which transactions to review for a fee of 4.9% per transaction.

Prior to Riskified, Gal built risk and identity solutions for PayPal, BillGuard and Fraudsciences. He founded Riskified with Assaf Feldman, a graduate of the MIT media lab. Gal also spent some time serving as a team leader in the special intelligence community of the Israeli Defense Force (IDF).

While some merchants still want rules-based fraud detection to stay in control, industry experts have said in today's world where cybercriminals are becoming more sophisticated, a multi-layered approach is key.  

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