Fraud costs e-commerce retailers billions each year, as do the rules-based fraud-detection systems they use to identify and block potential fraud. But you might be surprised to learn that the lion’s share of fraud-related losses come not from fraud itself, but from false-positives (i.e., accidentally blocked purchases that are perfectly valid).
The Berlin-based startup Fraugster estimates that for every dollars lost to fraud, $17 is lost from rejected sales. But with its fraud-detecting software, it believes it can bring this ratio down to 1-to-2. Its “Fraud Free” product, which it sells to payment companies, uses artificial intelligence (AI) technology to gather data from multiple sources, analyze it and cross-check it in the blink of an eye to determine whether a transaction is fraudulent – or, perhaps more importantly, not fraudulent.
The founders of Fraugster: Chen Zamir and Max Laemmle © Fraugster
In other words, it’s less about blocking potential fraud than about giving a green light to what is most likely a valid purchase – and thereby also avoiding a poor customer experience and any reputation damage caused by customer annoyance. Plus, the company assumes full liability for each transaction to ensure e-retailers that they are protected. The fact that confidence in this product is high can be seen from the USD 14 million in funding that Fraugster recently raised from some big-name venture capital firms, which it plans to use to expand into more markets.