February 13, 2008, 12:00 AM

PayPal beefs up security with the acquisition of Fraud Sciences Ltd.

PayPal has acquired Fraud Sciences Ltd., a privately held Israeli company with expertise in online risk tools, for approximately $169 million in cash.

PayPal has acquired Fraud Sciences Ltd., a privately held Israeli company with expertise in online risk tools, for approximately $169 million in cash.

PayPal, a subsidiary of eBay Inc., is a third-party payment service that pays merchants on behalf of consumers, who fund their PayPal accounts with payment cards or bank accounts. Fraud Sciences’ risk tools and analytics are expected to enhance eBay’s and PayPal’s proprietary fraud management systems and accelerate the development of next-generation fraud-detection tools.

Fraud Sciences has innovative risk tools and analytics-including expertise in identity verification on the web-that are complementary to PayPal’s proprietary anti-fraud system, a PayPal spokeswoman says.

“We have very, very good fraud models and anti-fraud engines,” she says. “But we know that we always have to iterate and improve because it’s an arms race. As you build more ways of preventing fraud in your system, fraudsters continue to try to challenge that.”

PayPal has a fraud-loss rate of 27 basis points, a rate below industry averages for card-not-present merchants, the spokesperson adds.

The acquisition follows eBay’s recently announced plans to 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’s and PayPal’s hundreds of millions of customers around the world,” says Scott Thompson, PayPal president.

Key Fraud Sciences personnel will join PayPal’s technology and fraud management teams, including COO Yossi Barak, and co-founders Shvat Shaked and Saar Wilf. CEO Gadi Maier will provide strategic and operational support to the company during the acquisition period.

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