Israel's Forter raises $15M to expand to the US, promises to put ecommerce fraud prevention on autopilot

By Michael Carney , written on November 11, 2014

From The News Desk

Fraud is the only true constant in the world of ecommerce. Anytime value is exchanged over the Internet fraudsters are omni-present. The problem is, merchants are typically the last people equipped to deal with these kinds of attacks.

Forter is a two-year-old Tel Aviv startup aimed at productizing fraud prevention. The company, which offers merchants a real-time decision engine, has been growing rapidly in stealth mode, processing hundreds of millions of dollars in transactions over the last year. Today, Forter announced $15 million in Series B funding from New Enterprise Associates (NEA) and Sequoia Capital aimed at growing its reach in this category.

“At the advent of widespread data breaches and major technology changes in the payments space, Forter is the first company to truly innovate and change the way merchants address fraud prevention and allow them instead to focus on growing their business,” Says NEA Managing General Partner Peter Barris.

Forter’s founders, Michael Reitblat (CEO), Liron Damri (COO), and Alon Shemesh (Chief Analyst), have deep experience with this problem, having previously founded and sold Fraud Sciences to eBay (PayPal) for $169 million in 2008. After an additional five years working at PayPal, the trio was intimately familiar with the need for a fraud prevention product independent from a payments platform.

"We would always see merchants trying to bend PayPal to try to get a more comprehensive solution for fraud prevention on non-PayPal transactions," Damri says.

It was this experience that led them to take a radical approach to fraud prevention: a 100 percent chargeback protection guarantee. In other words, Forter delivers a simple, real-time "approve" or "decline" recommendation on every transaction, and if it’s wrong, the merchant is not responsible for paying the fees associated with the ensuing chargeback.

It’s an industry first, according to Damri. The goal is to remove the headache and the decision making process from merchants’ plates, allowing them to focus on the customer, approve more transactions, reduce transaction friction, and ultimately complete more sales.

“We’re able to reduce false declines by more than 70 percent,” Damri says. “The average business declines between 3 and 7 percent of transactions, depending on how much international and mobile traffic they see. We’re very aggressive in allowing businesses to open new opportunities. Fraud does still happen, but we look at it as a learning exercise. Our merchants selling more, ship faster, and have higher levels customer satisfaction.”

The good news is that the product, which is already highly effective, will get better over time as it analyzes more transactions and is better able to recognize patterns of bad behavior.

Forter relies on a combination of hard and soft sciences to complete its real-time analysis, including big data and machine learning on one side, but also linguistics and human psychology on another. The team has created a set of sophisticated algorithms that analyze both sets of factors around each transaction looking for known patterns consistent with fraudulent activity.

“We use machine learning, but we’re not obsessed with data – we don’t think it’s the whole deal,” Damri says. “You need to have smart data, which is why we’ve hired experts in areas like cybersecurity, psychology, and linguistics. We look at this as a problem of a human trying to defraud you. We track behavioral patterns, and try to understand cause and effect.”

While the solution may be complicated, deploying it is remarkably simple, Damri adds. It is typically as simple as copy and pasting a code snippet into each page of a merchant’s website, allowing Forter to analyze the behavior of individual consumers.

Conservatively, fraud is thought to cost online merchants more than $5 billion per year in chargeback expenses, according to Forter. With this year’s holiday shopping season alone expected to drive a record $315 billion in spending, according to an eMarketer report, it could just as easily be a record season for online fraud. With Forter now available to the public, the company is hoping to be a major part of the solution to that problem.

“As data breaches and innovations in mobile payments make it more complex to run an e-commerce business, the necessity and value of Forter’s solution will only continue to grow,” says Sequoia partner Shmil Levy.

With this new capital in hand, Forter will be expanding its operations from Tel Aviv to the San Francisco Bay Area, where the company will soon open a sales and account services office, according to Damri. Israel may have some of the best cybersecurity talent in the world, but if the company wants to reach merchants here in the US, it needs a local presence, he adds. Expect Forter to grow a traditional outside sales team much like you’d see in any other enterprise software company.

“We didn’t really go out and fundraise,” Damri says. “But, ‘fraud prevention’ is a hot topic and investors have been approaching us. NEA suggested that we skip the hassle of fundraising and work with them and we agreed. This round will allow us to extend wider and faster and take those technology risks that you need in this category.”