PayPal Buying Online Security Vendor

The eBay subsidiary's purchase of Fraud Sciences is aimed at improving the buyer and seller verification process.

PayPal, the Internet transaction service owned by online auction retailer eBay, is buying Fraud Sciences, an Israeli online security technology vendor, for about $169 million.

In a statement jointly distributed Jan. 28 by eBay and Fraud Sciences, eBay cited the purchase as part of a plan to "significantly improve trust and safety across its sites in 2008."

"Fraud Sciences has a unique approach to identity verification on the Web," said PayPal spokesperson Amanda Pires. "It's hard to know who's initiating or receiving transactions. They have a unique way of determining if someone is legitimate. Fraud is an arms race. You've got to keep one step ahead of the fraudsters."

Pires declined to discuss specifics of either Fraud Sciences' or PayPal's security systems capabilities, citing the sensitive nature of the technology. However, she did say that PayPal already has a fraud management engine in place and reports low quarterly fraud loss rates.

According to the PayPal Web site, security measures include 24/7 transaction monitoring by specialists, including former law enforcement officials, proprietary fraud models, state-of-the-art technology and a verification process that in the United States involves adding and confirming a bank account.

While Pires said that PayPal is not beefing up its fraud management technology in response to any specific requests from customers, she did say that the Fraud Sciences purchase fits in with PayPal's general security strategy.

"Our priority for our customers is maintaining the security of the system," she said. "Our focus is on growing our buyer and seller base. eBay delivers security on all of its platforms around the world."

"This is a highly necessary acquisition for PayPal," said RSR Research analyst Steve Rowen. "PayPal prides itself on its transactions being the safer way to pay and receive payment online. Yet as its reach extends into markets well beyond the scope of just its main application - eBay - the need for better fraud mitigation will become more and more apparent."

He said PayPal got 44 percent of its revenue from online merchants last year.

"While the specifics of the Fraud Sciences solution must remain veiled, it's actually quite refreshing to see proactive steps taken to protect both consumer and merchant," Rowen said.