What triggered the foundation of Fraugster?
Max Laemmle (CEO Fraugster): Online merchants lose over 1.5% of their revenue to fraud every year, which can amount to over USD 50 billion in 2019. With these numbers bringing fear to the industry, online merchants turn to risk mechanisms or risk tools to fight against the bad guys. However, these solutions sometimes create a much bigger problem - false positives and drop off, where good transactions are getting blocked or aborted. The ratio of false positives and drop off to fraud varies a lot, depending on the merchant’s anti-fraud setup, and can go from 5:1 to as high as 30:1, as we have seen in edge cases.
I think that this situation was really the starting point for Fraugster: how to help online merchants eliminate payment fraud, while also enabling them to maximise revenues by reducing false positives and take down the usage of outdated technology. Fraugster was founded in 2014 with the vision to design and build an anti-fraud technology that could help create a fraud free world - one where ecommerce merchants would never have to worry about fraud again.
Fraugster’s team of world-class risk and payment experts spent several years designing and building an advanced, proprietary Artificial Intelligence (AI) technology. Based on this technology, today we offer a suite of products that cater to the needs of both payment companies and merchants: from self-managed risk tools to fully outsourced risk solution, where we take over the financial liability for chargebacks. Our company operates globally, managing tens of billions of dollars in transactions annually. Our products are used and trusted internationally by payment companies such as Ingenico, Natixis/Dalenys, Worldline | Six Payment Services and RatePAY.
Could you please elaborate a bit about what is Dalenys? From your experience working with Europe’s biggest merchants and e-merchants, can you tell us what are their challenges in terms of fraud prevention, payments, and meeting customer demands?
Ludovic Houri (CEO Dalenys/Natixis payments): Dalenys is a payment service provider fully licensed in France, from a regulatory standpoint, with passports for all-across Europe. I have been serving as the CEO of the company since January 2019. Our company is a member of Visa and Mastercard with European licenses. We have been on the market since 2012 with the aim to serve large merchants, primarily for their ecommerce transactions, and along the years Dalenys has been able to acquire close to 3,000 customers. At the moment, 20% of the 10-15 French ecommerce merchants are processing through Dalenys. In 2017 Dalenys had been taken over by Natixis banking group, owned by Groupe BPCE, which is the second largest Visa issuer in France and among the ten largest acquirers in Europe.
When it comes to the challenges our merchants face, they basically fall in two categories: on the one hand merchants aim to sell as much as possible avoiding fraud - conversion is top of their mind; while on the other hand they want to stay competitive on the French market as well as across the European market. To overcome these challenges merchants demand the best possible solutions.
Dalenys has been quite successful in delivering these, as we have been able to build and deliver end-to-end solutions to merchants, from integration at the checkout to acquiring and delivering a pure reconciliation.
Congrats for your partnership with Fraugster! How does this collaboration enable you to cater for the business segments you address?
Ludovic Houri (CEO Dalenys/Natixis payments): We are always looking for opportunities to bring the most advanced solutions for our clients, and teaming up with Fraugster can solve painful problems and deliver meaningful business results for them.
As a result of the partnership, Dalenys is integrated with Fraugster’s One Stop Risk Management Platform, and will offer its merchants the choice between FraudFree, a fully outsourced AI risk management service, and Fire, an AI risk management suite that merchants can use to manage their own risk. By combining our efforts, Dalenys and Fraugster strive to offer merchants an uplift in revenues up to 10-15%.
Improved customer experience means more data available whenever and wherever users want it, smarter security and most of all – less purchase friction (i.e. false declines). How can AI be leveraged by merchants to fight fraud while also increase revenue?
Max Laemmle (CEO Fraugster): AI technology offers users, as well as merchants and businesses two main advantages. One is to increase the accuracy. Data availability itself is not enough; it is about what you do with it. On average today, a payment company receives 20 to 60 data points per transaction (e.g. billing, shipping address, credit card data, etc.) but this information is still not enough to make a decision if a transaction is good or not.
AI technology enables us to bring accuracy to the market and to understand the user behaviour. Our AI takes these data points and enriches them to over 2500 datapoints, thus gaining extra insight into a shopper’s behaviour. In addition to accuracy, AI technology brings new advantages in scalability and speed. These are very important topics in the risk management world because the more friction you bring into a checkout process, the higher is the chance that you have a drop-off.
Our AI engine basically mimics the thought process processes of human analysts and combines it with machine scalability. We enrich available data points, turn them into unique insights, and can then decide within 15 milliseconds if a transaction is good or bad.
And last but not least, Max - can you share with our readers what are the hottest trends in the fraud prevention industry and what is next on Fraugster’s agenda for 2019 – 2020?
Max Laemmle (CEO Fraugster): There are various hot topics on fraud prevention’s agenda, nevertheless, in Europe, on top of the list is the need of being compliant with PSD2, starting 14th of September. This will change the industry, probably not in a positive way, because you will see a lot of drop-offs in the checkout process. For example, when you have 3D Secure implemented you can have very high drop-off rates of 20% - 40% in your checkout process. This means less revenues for European merchants with European credit card payments.
However, we also notice that fraudsters are becoming more sophisticated, with fraud attacks rates growing side-by-side with the rates of the ecommerce market growth, surpassing them to become twice as big.
Still, we continuously aim to tackle these issues. Fraugster, this year - as well as the next year – will support its clients complying with PSD2 while still maximizing their approval rates. FraudFree, our fully outsourced service, ensures the highest acceptance rates, with zero fraud losses for ecommerce businesses. This is because we take over the financial liability and provide full protection and coverage for chargebacks and chargeback fees. With Fire, merchants can manage their own risk to lower their fraud level, and apply for PSD2 exemptions based on their improved performance.
Ludovic Houri (CEO Dalenys/Natixis payments): To emphasize what Max touched upon with regards to the use of 3D Secure 2.0 for online purchases – this move is massively changing (or about to massively change) the industry, in what could be perceived, by merchants, not a positive way; unless we the actors of this industry play the cards right. At Dalenys we intend to offer a solution that will allow merchants to provide frictionless transactions to their consumers, as much as possible, while maintaining a high level of conversion. One way to achieve this goal is to improve the level of fraud, as an acquirer, as well as to build or to improve trust between us, as an acquirer, and issuers.
Here is where companies such as Fraugster play an interesting role, by helping acquirers to assess transactions at their inception, so that when we recommend exemptions for frictionless transactions to issuers, we get better responses from issuers to accept our recommendation.
At the end of the day, nobody wants to lose, and nobody has an interest in decreasing their business winnings.
Therefore, communication and cooperation should be encouraged, and partnerships such as Fraugster and Dalenys can help increase this level of cooperation between the actors.
For more information about Fraugster’s technology and products: https://fraugster.com/
For more information about Dalenys: https://www.dalenys.com/
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