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PayPal to buy firm specializing in fraud detection

"Thanks largely to the phishing attacks most of us are seeing right now, people, myself included, don't trust PayPal."

Rob Enderle, Silicon Valley analyst of Enderle Group

Online financial transactions firm PayPal announced on Monday it had a US$169 million deal to buy an Israeli company that specializes in uncovering fraud.

PayPal, which is owned by veteran Internet auction service eBay, expects to complete the purchase of Fraud Sciences Ltd in 30 days.

Once acquired, the company's expertise will be used to expose scams and deceptions targeted at PayPal and eBay users, the companies said.

"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," PayPal president Scott Thompson said.

PayPal did not disclose details of the deal but said it is valued at US$169 million.

Fraud Sciences founders Shvat Shaked and Saar Wilf, and its chief operating officer Yossi Barak, will become part of PayPal's fraud management team under the terms of the deal.

Fraud Sciences bills itself as a "leader in online credit card-not-present fraud protection" and claims technology that accurately distinguishes legitimate from bogus transactions.

Building trust in PayPal and eBay services and transactions is wise investment by the companies, Silicon Valley analyst Rob Enderle of Enderle Group said.

EBay faces mounting competition from popular Internet firms Google and Craigslist, which offer ways for people to sell items online.

PayPal's integrity has been unfairly punished by a plethora of "phishing," bogus e-mails sent by scammers to trick people into divulging passwords or other sensitive information linked to accounts, Enderle said.

"Thanks largely to the phishing attacks most of us are seeing right now, people, myself included, don't trust PayPal," Enderle said.

"That is their critical weakness. Anything they can do to restore consumer confidence is probably worth it," he said.

PayPal and eBay both stand to gain from reducing fraud and ramping up the faith people have in the online services, according to analysts.

Improving fraud detection would also better position PayPal to expand into more types of financial services on the Internet.
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