PayPal To Roll out New Fraud Filters with Channel Partners by January

Online auctioneer eBay Inc. and its PayPal payments service are generating headlines this week for enhancing their coverage of buyers' and sellers' losses when sales go bad. Less noticed but also important for merchants, however, are the enhanced risk controls for merchants that PayPal is quietly rolling out. Dubbed Fraud Management Filters, earlier versions of these risk controls are already available to merchants on the gateway business that PayPal acquired from VeriSign Inc. in late 2005. By next January, they'll be enhanced and also available to merchants served by the undisclosed number of PayPal's so-called channel partners, one of which is Chase Paymentech Solutions LLC, the largest nation's merchant acquirer. These channel partners enable their merchants to accept PayPal in addition to Visa, MasterCard, and other payment options. The filters are discretionary tools a merchant can turn on or off and ride on a number of fraud controls that PayPal runs continually, Katherine Hutchison, PayPal senior director of risk management, told Digital Transactions News Thursday at the eBay Live! annual user conference in Chicago. For instance, depending on the nature of its business and transaction patterns, a merchant could decide whether or not to accept international orders or to accept orders in the middle of the night, she says. Another filter is linked to a transaction's deviation from the merchant's average ticket size. The target users are sole proprietorships and small and mid-sized merchants that don't have full-time IT or risk-control staffs. “These filters give the merchant control over which types of things would indicate fraud,” she says. “The merchant will always be best served if they combine what we as a provider can provide on their behalf, coupled with what they've experienced.” The system inherited from VeriSign had six alerts, but the new set will have about 12, according to Hutchison. The reprogramming effort required to make the controls accessible to the channel partners' merchants caused the previously planned July rollout to be delayed until January, she says. Some of the filters will be free to merchants with PayPal business accounts, while so-called advanced filters will be offered to PayPal's Website Payments Pro merchants for $20 per month or 5 cents per transaction. PayPal also is instituting what it calls “success with warning” alerts, Ryan D'Silva, PayPal senior product manager, told an audience earlier in the week at eBay's conference for software developers, also in Chicago. Under such an alert, PayPal recommends that the merchant delay shipping until PayPal completes an investigation of a transaction that in some respects looks legitimate but still raises at least one red flag. PayPal typically completes such checks within 24 hours. Also on the security front, Michael Barrett, PayPal's chief information security officer, said at the developers' conference that the steps PayPal and eBay took to reduce phishing fraud have greatly reduced the phishing attempts at their Web sites. In phishing, fraudsters send urgent e-mails in the name of PayPal or a financial institution suggesting that something is wrong with their financial account that recipients must correct immediately. Links in such e-mails take a recipient to a spoofed Web site that looks like the referenced company's and asks the consumer to enter passwords and other personal information that enables the phisher to steal funds. In 2006, PayPal was the single biggest phishing target on the Web. “There were weeks when PayPal's phishing numbers were significantly north of 50%,” Barrett said. And when eBay's phishing numbers were added, the two entities accounted for the “vast majority” of phishing at the time, he said. Since then, PayPal and eBay have taken a number of educational and operational steps to reduce phishing, including working with big Internet e-mail domains such as Yahoo! Inc. and others to block suspect e-mails. The Yahoo pact alone blocked an estimated 50 million phishing e-mails in its first six months, according to Barrett. As of February, PayPal's estimated share of phishing e-mails was under 10%, he said. Also this week, PayPal lowered its basic merchant-acceptance fee in Canada from 2.9% sale plus 55 cents (Canadian) to 2.9% plus 30 cents. The fall of the U.S. dollar against the Canadian dollar so that the two currencies are now at near parity is the reason, a PayPal executive tells Digital Transactions News.