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

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.