Uniting an industry in the fight against fraud

Thursday 6 May 2021 08:31 CET | Editor: Alex Guzu | Interview

To control the massive fraud and value loss the industry is experiencing, Fraugster is on a mission to unite the payment and cybersecurity industry by giving third parties access to their AI platform – Christian Mangold, co-CEO, explains more below

In 2020, online fraud grew at twice the rate of ecommerce, and in Q1 2021 alone the fraud prevention industry has received over USD 1 billion in new funding from investors who are betting on growth1. To control this massive fraud and value loss, Fraugster believes there is a need to pool resources, IP, and technology within the cybersecurity industry, and are on a mission to unite the payment and cybersecurity industry by giving third parties access to their AI platform. We speak with recently appointed co-CEO Christian Mangold about the challenges facing the payment security and fraud industry and what the future holds.

Christian, you have just joined Fraugster, a payment security company from Berlin, as co-CEO. You are a veteran of the payments industry, having sold SOFORT to Klarna and led Klarna’s DACH operations. What attracted you to fraud prevention and payment security, and why now?

I have seen multiple merchants, payment methods, and PSPs struggle to deal with fraud, and I have felt the pain myself while running a Buy Now Pay Later scheme. So, solving this problem is the main thing that attracted me and motivates me. I also find the application of technologies in fraud prevention to be very advanced compared to other parts of the payment ecosystem, and the opportunities this gives to move the dial excites me. I believe that Fraugster will play an essential role in the digital ecosystem by mitigating the impact of fraud, adding trust in transactions, and increasing revenue as conversion for partners.

What do you see as the big challenges facing the payment security and fraud prevention industry?

The problem the industry faces is that there are lots of different providers, offering a range of solutions, but none of them neatly join up. If I put myself in the shoes of a typical customer, this means multiple integrations, complexity, and getting different systems to communicate with each other. The way the payment security and fraud industry are serving customers is not fit for purpose, and spiralling fraud numbers back this up.

Can you elaborate, how much is being lost to online fraud?

In 2021, ecommerce is forecast to reach nearly USD 5 trillion, and of that 4.5% is estimated to be the total cost of fraud. This includes stolen goods, but also chargebacks and operational costs of managing fraud, from headcount costs to vendor costs. That is over USD 200 billion, and that’s before we get to the impact of false positives (when merchants inadvertently block good customers because they think it is fraud). This number is hard to measure but estimated at 10-15% of all ecommerce transactions, if you do the maths on this it is another USD 500-700 billion2. That is equivalent to the GDP of Austria and Switzerland combined! Really crazy amounts. When I looked at these numbers, I was convinced we needed to change how we tackle this problem.

So where do we go from here? Is fighting online fraud a losing battle?

It need not be a losing battle. At least that is what I believe. AI and machine learning now allow us to crunch vast amounts of data and prevent fraud before it builds in the system. But the problem is that the industry is very siloed across domains from database providers to biometrics, identity verification, and wider payment security. No single player, no matter how big or well-funded, can protect the industry from cybercriminals who learn fast and have easy access to the technology they need to defraud good customers and merchants. My co-CEO and Fraugster founder, Max Laemmle, is also very passionate about this, he keeps saying we need ‘all hands on deck and must pool resources, IP, and technology within the cybersecurity industry’. It is also my belief that we must unite across domains and bundle the best of breed within the ecosystem and allow world-class technology vendors to join forces.

What does uniting an industry against fraud look like? It sounds like a very ambitious goal.

It is an ambitious mission, you are right. But we can get there. Our first, bold step will be to open Fraugster’s AI platform to partners. This will allow us to bring a range of solutions – like device risk, anti-money laundering (AML), ID verification, account takeover (ATO), promo abuse, one time password (OTP) checks – and much more to customers, in one place. It also means customers have access to the very best tech partners who are working together to tackle complex challenges. We will be announcing our first partnerships by the end of Q2 and have exciting plans for the rest of the year.

You have had the privilege to be a leader of many key companies that employ talented people. What drives you to build such successful teams?

My leadership philosophy is built on a commitment to teamwork, determination, self-belief, and enablement. In that sense, I am more like a football coach. I create repeatable processes, set goals, and let the star players create the magic. In Fraugster’s case, I believe we have a unique team of intelligence and payment experts, with the core being German and Israeli, which comes from our founding team and their networks from PayPal, Computop, and Sum Up – just to name a few –, and an infusion of amazingly talented people from different corners of the globe. What unites the team is that they are focused on building a purposeful business that fights fraud, with intellectually curious people who believe in the potential of advanced technology to achieve this.

1Forter - $125m; Jumio $150m; Identiq $49m; Sift $50m; Socure $100m; Feedzai $200m; Seon $12m; - $100m; Veriff - $69m; Other earlier stage rounds - $200m. Sources: Crunchbase, Pitchbook, Business Insider.

2This is based on Fraugster’s merchant portfolio data and the Forter Fraud Attack index, which show false positive rates of 10-15%, with some merchants showing even more (30%+).

About Christian Mangold

Christian Mangold recently joined Fraugster as co-CEO. Christian is a seasoned payments executive who successfully scaled SOFORT, a German payment company, from USD 3 billion to USD 11 billion processing volume, before leading Klarna (now Europe's most valuable unicorn) as Managing Director for the DACH region.

About Fraugster

Fraugster is a Germany-based payment security company. Their purpose is to enable the world's leading merchants and global payment companies like Worldline and Ratepay to intelligently manage the impact of fraud to minimise the costs of fraud, maximise revenue, and improve customer experience. Fraugster has developed on the most accurate AI fraud prevention solutions on the market and are backed by some of Europe's most reputable deeptech investors from Earlybird to Speedinvest, CommerzVentures, and Munich Re Ventures.

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Keywords: Fraugster, fraud prevention, artificial intelligence
Categories: Fraud & Financial Crime
Countries: World
This article is part of category

Fraud & Financial Crime