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The Land Of Milk, Honey And Fraud Prevention

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Israel has become a hotbed for startups in the fields of identity verification and fraud prevention. The IDF Unit 8200 develops systems for gathering intelligence, automatically sifting through data to flag dangers, and escalating serious threats for manual review.

Riskified (a Genesis Partners company) uses these systems to help retailers recoup millions in revenue from fraud loss while gaining customers that would otherwise have been rejected. The company closed 2015 on a run rate of $3 billion in approved transaction volume for global retailers including Burberry, Wish and Viagogo, and just announced a new funding round of $25 million.

Forter, a related company out of Israel using algorithms to detect fraudulent users, raised over $18 million to develop algorithms for the detection of fraudulent users and provide a frictionless environment for online merchants.

And a third Israeli company in the space – EverCompliant – offers a range of solutions that give acquirers and PSPs the necessary relevant information to check ongoing and newly boarded merchants.

At its core, fraud prevention for e-commerce is detecting when people buy with credit cards that do not belong to them. To automate this at scale, these companies have pioneered complex algorithms that yield approval decisions for merchants in milliseconds.

I Am Real is one such Israeli-based company focused on identity assessment. Using their social and video verification technologies, online platforms can safely enroll new users, quickly validate their identities and mitigate the risks attributed to these users.

Nadav Benedek, the CEO of I Am Real explains:

“Under the hood, these technologies are inspired by the concept on which Google’s search engine is based, a.k.a PageRank. In order to assess the credibility of a persona, it’s highly useful to check its interactions with other identities with whom we already have an a priori assessment on them.

For instance, let’s say we have a new user, Alice, coming onto the web platform. Now, this is the first time we have met Alice, but by analyzing her history on Facebook, we see that she knows an already-verified identity, Mark Smith, for example. We notice that Alice has a photo together with Mark, shaking hands with him at some VC conference, and another mutual and authentic video. We also discover what we call a bilateral-meaningful communication between them over the last three years.

If we know Mark is a real and verified identity and we have these signals, the chances that Alice is fake decreases. It’s difficult for Alice to force herself into shaking hands with Mark without his approval. This analysis takes a considerable amount of computational power, similar to what you’d expect from Google’s search engine and from Unit 8200’s massive supercomputers.”

Identity proofing is a key ingredient in fraud prevention, especially in the booming sharing economy. Airbnb’s revenues are a direct derivative of their users’ trust in the platform. After all, we live in the world of the wild web and competition between different ventures is high. When a user chooses Airbnb over Hilton, this could be attributed to his concern over the credibility of the platform and its users. Naturally, this translates into billions of dollars of market cap for the chosen service.

Online lending is another example of a proliferating mega trend. A chief factor of the risk you take when cutting a deal is knowing  you’re lending your money to the right identity. When you have a fast and robust identity protection mechanism on your side, you can safely make risk-free deals, and your business metrics skyrocket.

Unit 8200 is one of the biggest units in the Israeli Defence Forces (IDF). Its size is comparable to that of an entire military division. The main objective of this unit is to gather and intercept data from various information sources – communication signals, documents, computers, phones, satellites, etc. It then processes this data in order to generate insights both for the ground troops and top decision makers in a timely manner. Some data is gathered passively, while other knowledge is obtained behind enemy lines.

This is a tall order to carry out, and in order to ensure success, it is essential to recruit intelligent and highly motivated, out-of-the-box thinkers. The skill set and hands-on experience one acquires during his 3-plus years of service is priceless in dealing with real-life civilian fraud prevention use-cases and many who work with Unit 8200 go on to do just this.

Just as Silicon Valley has famously aggregated technical talent in other areas, Israel is the capital of the world for talent who specialize in algorithmic thinking about risk. Following their military service, many of these specialists honed their commercial skills at Fraud Sciences, acquired by eBay in 2008 and now operating as PayPal Risk Services, analyzing billions of dollars in global transactions from offices in Herzliya.

For Israeli startups in the field, this means a ready pool of specialists in each layer of fraud detection, from detecting proxies at a low level to automation with machine learning at the highest levels, developing algorithms that are border agnostic.

And with the advent of SaaS business models and distribution platforms like Shopify, local startups can quickly overcome integration challenges and scale into global leaders, utilizing virtual infrastructure over cloud providers to process vast amounts of data from any location.

With record-breaking holiday sales, 2015 ended on a high note for e-commerce merchants. As more people come online around the world, global online purchases are projected to more than double to $3.551 trillion by 2019, according to Internet Retailer.

Fraud prevention will play a critical role in sustaining the growth of online and mobile e-commerce, as well as related sectors that all fundamentally depend on knowing your customer. Fraud prevention and identity verification will certainly be a trend to watch out of Israel in 2016.

Featured Image: Maksim Kabakou/Shutterstock