I wrote some days ago about one of the selected FinTechs that will integrate to Finconecta―a 10-month pilot program in partnership with a&b, that FOMIN/IDB is partially financing. I wrote about the US$21.84 billion losses (in 2015) due to credit and debit card fraud worldwide. But this figure is just the tip of the iceberg. Because of the need to prevent fraud, payment processors and financial institutions use anti-fraud technologies that end up blocking good transactions for fear that these transactions are fraudulent; and the numbers are simply astonishing.
The transactions blocked in 2016, because of fear that they were fraudulent but were not (false positives), totaled US$493 billion; the losses due to fraud in 2016 were a bit higher than in 2015, US$26 billion. Financial institutions are throwing the baby out with the bath water. For each fraudulent dollar blocked, merchants are losing $17 good dollars.
Digging a bit, I found some interesting figures for Latin America: e-commerce retail sales in the region exceeded US$57 billion in 2016. The market is small because of fear of fraud. Fear of credit card holders to shop online and fear of e-commerce payment enablers and banks to authenticate fraudulent transactions. In Mexico, the percentage of e-commerce authentic transactions declined is 14%. In Peru, it can reach 60%!
That’s where Fraugster comes in. Fraugster, a German-Israeli payment security company, is one of the selected FinTech companies that will integrate to Finconecta.
Fraugster uses machine learning techniques to mimic the thought process of human analysts―rather than to develop algorithms based on human rules. It also uses an in-memory database to leverage the capabilities of their artificial intelligence (AI) engine. Fraugster enriches every payment transaction received (on average between 20 and 60 data points per transaction―for example: name, billing and shipping address) with thousands of additional data points to get better insights into the user’s behavior and produce an accurate and transparent decision in less than 15 milliseconds.
Fraugster offers a tried and tested product that works, is scalable and is trusted by two of the 4 largest payment companies in Europe at the moment. They are so confident about their product that Fraugster offers full liability for every transaction analyzed and will cover the losses from card-not-present fraud. They not only protect merchants but also boost their revenues by accepting more transactions―you know, the good $17 dollar blocked for every bad $1 blocked.
Fraugster was named one of the 21 leading companies applying AI to build next generation financial services solutions. They are working with leading international payment companies like Ingenico, Wirecard, Credorax, among others, and are currently handling over €35 billion worth of risk for their clients.
E-commerce in Latin America is expected to growth by double digits annually through 2019. Maybe leveraging Fraugster’s technology can boost that growth in the region even more. We’ll learn about this and other Fintechs in Foromic 2017.