Better protected: PayPal looks to Tel Aviv startup Fraud Sciences for help in the fight against online fraud.US online auctioning giant eBay and its subsidiary PayPal will soon be better protected from online fraud. This comes after news that PayPal has purchased Israeli online risk tools startup Fraud Sciences for $169 million.

The small privately owned company, which only raised $7 million in investment before the buy-out, has developed verification technology for securing commercial transactions on the Internet.

Fraud Sciences’ technology is designed to uncover fraudulent credit card purchases by verifying that the customer making the purchase is in fact the cardholder. It uses a technique, known as ‘identity proofing’, which builds on the behavioral practices already used by many online retailers to detect fraud.

Tel Aviv based Fraud Sciences was founded in April 2006 by Shvat Shaked, and Saar Wilf. They will be joining PayPal’s technology and fraud management teams alongside Fraud Science’s COO Yossi Barak.

Investors in Fraud Sciences include Redpoint Ventures, BRM Capital and entrepreneur Eli Barkat, who acquired a 40% stake in the firm for $5 million. He is set to make 12 times that amount in the exit.

Fraud Sciences, which will continue to operate out of Israel, had originally intended to raise $11 million in a two-stage financing round, but in the course of due diligence, PayPal offered to buy the company out.

eBay and e-commerce enabler PayPal have been facing an increasing battle against online fraud. They plan to use Fraud Science’s risk tools and analytics to expose scams and deceptions targeted at their companies, and to accelerate the development of next generation fraud detection tools.

Scott Thompson, president of PayPal, said the acquisition of Fraud Sciences fits into eBay’s recently announced plans to significantly improve trust and safety across its sites this year. “Integrating Fraud Sciences’ risk tools with PayPal’s sophisticated fraud management system should allow us to be even more effective in protecting eBay and PayPal’s hundreds of millions of customers around the world,” he said.

This is the second Israeli purchase for Californian Internet auction company eBay and its first purchase of a security technology company. In 2005, the US giant bought price comparison company, for $634 million.


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