Startup Plans Product to Manage Online Fraud

As Fishy Orders Rise, Startup Plans Product to Manage Online Fraud

(July
18, 2007) A startup company managed by former executives from online
travel agency Orbitz LLC plans to release in the fourth quarter a
software product that will let online merchants manage the gamut of
transaction fraud issues, from front-end screening to automated order
review to chargeback processing and, eventually, back-end collections
and law-enforcement activity. Accertify LLC, Schaumburg, Ill., expects
to have three deals closed by the end of the year for its product,
called Interceptas, says Michael J. Long, chief marketing officer.

By offering
the software on a hosted basis, Accertify also aims to establish over
time a comprehensive database on online transaction fraud, allowing the
company to act as what Long calls a “clearing house” of so-called
negative data, such as email addresses and other identifying
information about known perpetrators. The database will depend on
participation by clients, so information-sharing will not be total,
Long acknowledges. And he stresses the database will have to be
carefully monitored and updated. But he hopes to build what could be a
useful storehouse of data nonetheless. “If you could build an Internet
clearing house, fraud would go away,” says Long. “If we can build a
little subset of that, we can help everyone.”

The
company’s work on Interceptas comes at a time when the rise of
card-not-present and automated clearing house transactions in both the
Internet and telephone channels is causing a flood of suspect orders
for merchants. Online merchants expected to incur $3 billion in fraud
losses in 2006, or 1.4% of total sales, up from $2.8 billion in 2005,
according to a survey published in November by transaction-gateway
provider CyberSource Corp. At the same time, e-commerce sites are
rejecting 4.1% of all orders on suspicion of fraud, about one-fifth of
which are valid, CyberSource estimates.

Even after
screening, many orders remain questionable and require further manual
review, a time-consuming and costly process. Some 81% of online
merchants performed manual review of orders in 2006, up from 73% in
2005, and allocated almost half of their fraud-management budgets to
the process, according to CyberSource. Many Web merchants also avoid
overseas markets and other sales opportunities out of fear of fraud
losses. “It’s lost opportunity,” says Long, who managed fraud control
at Orbitz and most recently developed the RapidReviewer product at
eFunds Corp. (Digital Transactions News, June 13, 2006) before leaving
in March to help found Accertify. Two other founders, chief executive
Jeffrey T. Liesendahl and general counsel Gary R. Doernhoefer, also
worked at Orbitz.

The company
plans to offer consulting with Interceptas, including help with rules
development to handle transactions red-flagged by the fraud screen.
Many merchants lose legitimate sales by reflexively rejecting such
orders, Long argues, when they could accept them with more
sophisticated rules. “A lot of companies are losing out,” he says.
“We’re not just going to sell software and walk away.”

Inteceptas,
which Accertify is building from scratch, will be available for
license. But the company will also offer to host it, and for merchants
without in-house fraud-management teams it will offer to host it and
perform order-review functions. Pricing has not yet been determined,
but will depend on such factors as customer experience and transaction
volume, Long says.

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