Signifyd Raises $20M For E-Commerce Fraud Shield

Fraud detection company Signifyd announced today it has raised $20 million to expand the service it developed to help merchants avoid a costly downside of selling online—having to pay back credit card customers for purchases they didn’t authorize.

San Jose, CA-based Signifyd says its machine learning technology can flag shoppers using someone else’s card without permission, and alert e-commerce sites not to complete the transaction. The company backs up that claim with a guarantee that it will cover the cost if the credit card holder later denies buying the merchandise.

Menlo Ventures led Signifyd’s $20 million Series B fundraising round, joined by Allegis Capital; IA Ventures; QED Investors; Signifyd board member and CyberSource founder Bill McKiernan; and Tim Eades, CEO of VArmour. Menlo Ventures general partner Pravin Vazirani is joining the board. The round brings Signifyd’s total fundraising to $31 million since it was founded in 2011.

Signifyd’s market is the vast class of online merchants, who have more exposure to losses from fraudulent credit card use than bricks-and-mortar merchants, according to a primer on the company site.

When shopkeepers accept a credit card payment from a customer in person, they can obtain a signature, and observe other up-to-date security practices such as using a chip reader. In those cases, banks, and not the merchant, may be on the hook for the loss if the patron was actually a fraudster, Signifyd says. But an e-commerce site remotely taking a credit card number can’t fulfill all those precautions, and accepts more liability. The total cost of a “chargeback”—the victimized cardholder’s demand for a refund—can be more than twice the value of the merchandise. The online shop has not only lost the goods and repaid the cardholder, Signifyd says. Banks may also impose fees for the chargeback.

Signifyd says it now serves more than 3,000 customers, including Peet’s Coffee and Lacoste. The company plans to use the new funds to scale up the business and enlarge its staff, which now numbers about 50.

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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