Using Machine Learning and Human Expertise to Combat Commerce Fraud

Our Investment in Forter

Machine learning is becoming the zeitgeist of new technology, invading our homes, cars, phones, and everything else we touch. While we too, at Scale Venture Partners, would love to never drive a car again, we are focusing our investing on sectors where we think the near-term upside is significant and measurable. We think that machine learning has the most impact today on software industries that have large and common data sets where learnings can be shared across customers and the value of accuracy is balanced against cost and time.

One such area that we started tracking two years ago is fraud prevention for online payments with a focus on card-not-present transactions for ecommerce businesses. Estimates for online credit card fraud range up to three billion dollars per year (Cybersource), in the US alone. In addition, merchants are spending hundreds of millions spent on proprietary software and headcount to manually screen transactions. In an attempt to prevent fraud, many of these same merchants end up rejecting good customers or avoiding transactions from other countries because of an inability to properly identify fraud. One merchant we spoke to had eighty people manually reviewing over five percent of all transactions. Another implemented a blanket rule to reject all non-US credit cards and non-US shipping addresses.

This opportunity is what has us excited to announce our newest investment, Forter. The company is the leader in next-generation fraud prevention for ecommerce. Instead of relying on a traditional rules-based decision engine, Forter ingests thousands of data points per transaction into its machine learning algorithms, informed by expert understanding and research from Israeli IDF, to produce a decision. Customers do not have to maintain fraud prevention or human infrastructure. Forter simply tells them in real-time whether a transaction is fraudulent or not (Decision as a Service) and will even provide 100% guarantee against fraud chargebacks. Even the most sophisticated merchants are limited to seeing only their transactions whereas Forter is able to learn across all its customers in aggregate.

We knew that we were thematically aligned when we met with the Forter team. What we then learned is that are the story that is so frequently told in valley. The founders, Michael, Liron, and Alon were the product and technology executives Fraud Sciences, a leader in fraud prevention which Paypal acquired in 2008. Fraud Sciences became the back-bone of Paypal’s fraud operations and all executives gained experience seeing fraud at Paypal scale. Forter is their second go-around where they can continue to build on what they started to at Fraud Sciences. We couldn’t be more excited to be joining the team as well as existing investors Sequoia Capital, New Enterprise Associates and Commerce Ventures on this journey.