| Kuntri | 06-21-2009 01:27 AM |
Why PayPal Wants to Know Where Everybody Lives
This was an article in the NY times...thought it might be interesting reading!
Why PayPal Wants to Know Where Everybody Lives
By Saul Hansell
PayPal
You may not have ever bought anything with PayPal, but it’s got a file on you anyway, just in case. The reason is that if you decide to buy something online and set up your first PayPal account, the service has three seconds to decide if it trusts you or if it will block the sale.
That’s about all the time it needs. Online, people leave a long trail of digital breadcrumbs that, taken together, give a much better picture of a prospective customer than traditional bankers ever had.
“Good people on the Internet leave footprints,” explains Scott Thompson, president of PayPal. “There are e-mail accounts, I.P. addresses, things that accumulate over time that you can find on the Internet if you rummage around.”
That sort of digital rummaging around typically doesn’t find any evidence of someone who just made up an identity to commit a fraud.
Mr. Thompson said risk management had been the key to the company’s success. Even before it was purchased by eBay, PayPal was willing to let individuals selling on eBay accept credit cards, when banks and eBay itself found that concept of trusting someone who appeared out of nowhere over the Internet too frightening. (There is greater potential for fraud by a seller than a buyer, because someone could sell a lot of stuff then disappear without shipping it.)
What PayPal has learned is that the Internet actually reduces risk, Mr. Thomson said, because
it provides so much information to identify potential fraud artists.
“If it’s a fraudster, you can’t find footprints,” Mr. Thompson said. “They go out of their way not to leave traces about who they are.”
Last year, the company spent $169 million to buy Fraud Sciences, an Israeli company that specialized in this sort of data analysis. While Fraud Sciences sold a fraud prevention service to other merchants, PayPal is keeping the technology in-house. Of course, it hopes to attract merchants claiming that PayPal helps detect fraudulent customers. And by reducing its own costs from fraudulent merchants, PayPal can lower fees to merchants.
Part of the risk control approach is to scrutinize all the details about the way the user connects to PayPal over the Internet. That means understanding the I.P. address of every computer connecting to it — a clue to the location of a user — as well as the type of browser used and other facts that are available. This can help find scam artists who aren’t located where they say they are. It can also find patterns of the smarter crooks who use technology to try to obscure their real whereabouts.
PayPal also asks for information about individuals who apply for accounts. It can do a credit check and also see if they have accounts on eBay, Skype or other affiliates.
“After we’ve seen you a while, we quickly get to know you are a good customer,” he said. “New people create all the risk.”
But increasingly it is finding other information to evaluate as well. It scours the Web, much as a search engine does, for clues about someone’s history. And it also purchases information from database companies, such as lists of people that include both their e-mail addresses and addresses they have used in the past.
If people buy things and ship them to addresses they have used many times before, the odds of fraud are much lower.
But when users show up without a PayPal or eBay account, the company can’t start checking them out from scratch if it wants to approve transactions within its three-second window. That’s why it buys data and assembles files on prospective users who have never done business with it.
“To do risk management well,” Mr. Thompson said, “You have to have more data than anyone else.” | 
