August 19, 2016
Riskified: Fraud Free, Guaranteed
By Katie Flood
When the founders of Riskified, an Israel-based risk management company, sat down to work out their business model, their goal was to achieve safer, more profitable e-commerce for their merchant clients. According to co-founder Eido Gal, they realized that merchants are losing money on card transactions in three ways: through chargebacks, declining good sales, and the expense of their anti-fraud system itself, whether external or in-house. Gal recalls that these profit-loss points “were the points we envisioned [addressing] when we started Riskified and how we decided on our business model: To be the turnkey solution that takes the transactions and approves or declines them, and guarantees transactions that we approve.”
Riskified is unique in that it offers a 100 percent money-back guarantee on all credit-card transactions it approves. And, to those cynics who may be tempted to think that Riskified simply denies risky transactions, think again: The company gets paid a percentage only on transactions it approves. As Gal points out, “if we were just getting the transactions and declining them, aside from the fact that merchants would just stop using us, we would actually see no revenue from that because that’s the only revenue stream we have.” Thus their fee structure aligns Riskified’s incentive with that of their clients. And this business model seems to be working for them: Gal tells CardNotPresent that Riskified grew 50 percent month over month last year, and hopes to continue on that trajectory in the coming year.
While its guaranteed-transaction model makes Riskified unique, Gal believes the company’s custom-built technology is the key to its success. The company prides itself on its ability to detect and approve good transactions that are typically declined. The client’s credit card transactions are run through Riskified’s “contextual risk engine.” The company has built all of its own fraud detection systems, including proxy detection, device fingerprinting, behavioral intelligence, and data enrichment technologies. Gal says that the company designed its risk engine such that “the parts really interact with one another. That’s why we call it contextual—it’s not just looking at the device ID as a standalone, it’s looking at the device ID, together with the proxy measurements, in relation to the social information. That’s what really brings the power out of the analytical engine.”
In addition, he explains, the company’s closed, in-house analytical process “gives us a high degree of control over everything.” This allows Riskified to customize solutions for its diverse customer base: Clients range from purveyors of high-end goods to merchants operating on a high volume/low price sales model, and they vary in terms of which countries they sell to most frequently. With clients of such diverse risk profiles, Gal says, “we need to be able to build specific models based on the variables. So most of our models take into account where and what the [merchant] is selling.”
Riskified offers four main plans for merchants to choose from. Its Shop Protection Plan is the comprehensive solution, where merchants submit every transaction to Riskified to be approved or declined. Then there are three versions of the company’s Never Decline solution: Domestic Mismatch, wherein all domestic transactions with an AVS mismatch are submitted to Riskified; International, wherein all of a merchant’s international transactions are analyzed; and Select and Submit, the most flexible plan, which allows merchants to view all of their credit card transactions in Riskified’s interface and choose which transactions to submit for analysis based on their own criteria. Merchants can also mix and match the Never Decline plans to suit their needs. The fees range from 1.4 percent of each approved transaction (for the Shop Protection Plan) to 4.9 percent (for Select and Submit). Gal says Riskified’s clients generally use the Shop Protection Plan as a standalone fraud strategy, while the Never Decline solutions can be used in conjunction with other anti-fraud measures.
When Never Decline officially launched earlier this month, Riskified released the results of case studies with several clients. These results reflect the effectiveness of their business model in addressing e-tailers’ three lost profit channels: chargebacks, declining good sales, and lost time and money implementing an anti-fraud strategy.
- On the International Plan, footwear merchants Stubbs and Wootton saw chargebacks reduced by 85 percent, and their time spent manually reviewing suspicious transactions reduced by 89 percent.
- Turntable Lab, a DJ equipment seller, used the Select and Submit Plan, and reduced chargebacks by about 90 percent, from 3 to .29 percent. New customer orders accounted for 85 percent of approved transactions, and the order approval rate increased to about 83 percent.
- Eyewear retailer Gaffos.com combined the International and Select and Submit solutions and saw an 80 percent reduction in time spent reviewing orders, along with an increase in international sales from 20 percent of overall orders to more than 40 percent. The company’s overall transaction approval rate increased by 10 percent.
Says Gal, “This is the kind of solution that [Riskified] always envisioned—something that takes the entire process out of your hands as the merchant, is able to quickly tell you is the transaction either good or bad, and it needs to be able to guarantee the transaction, because that’s fearless e-commerce.”