Six months ago, Michael Reitblat, CEO of Forter, which provides fraud prevention technology for online commerce, moved with his wife from New York to Austin, Texas. "With the pandemic, all the advantages of New York no longer exist, while the city's disadvantages are still there," he says in explaining the move.
The change has complicated Reitblat's online shopping. "My bank address stayed in New York, but now my orders are coming out of Austin, and my receiving address is also in Texas. So, I suddenly appear very unusual, and many stores have rejected my orders because of that," he tells "Globes".
Reitblat is not the only innocent customer rejected by an online retailer, of course. "The volume of transactions rejected worldwide because the systems mistakenly thought they weren't kosher is $440 billion. This means that if you built a company out of all the rejected customers, you'd be worth more than Amazon," he says. "At the same time, credit card theft amounts to only $20 billion a year. From the start, our approach at Forter was, as long as we don't know for sure you're a thief, you're not a thief as far as we are concerned."
This approach - reducing the number of transactions rejected by online shopping sites - is one of the key factors in Forter's growth. The company, founded in 2013, currently handles over $200 billion worth of transactions a year for ecommerce sites like Asos, Hugo Boss, Nordstrom, travel marketplaces like Priceline, and Chinese mobile brand OnePlus.
While others focus on preventing theft and fraud, Forter chose to approve deals, even those with warning signs. They also insisted from the start that all transaction approvals would be given automatically, without any human involvement in the decision making. But it wasn't easy.
Liron Damri, president of Forter and co-founder together with Reitblat, recalled how one of the first customers, online retailer Jomashop, called them in horror after they approved the sale of a Rolex watch for $35,000 to a user from Nigeria. Damri and Reitblat backed the system's decision, and the deal fortunately turned out to legitimate, the buyer being an American CEO stationed in that country.
"After Jomashop realized that our system could be trusted, they began to advertise their goods heavily in third world countries and places that are notorious for scams, like China and Indonesia. It really became their competitive advantage," says Damri. "Today, whenever we meet with Chinese company managers, and mention that Jomashop is our customer, they always enthusiastically tell us that their watch collection is from there."
To reach a high level of fraud detection while maintaining a low rejection rate, Forter required a great deal of information about users. "Before Forter, the market was made up of layers of information. Sites would purchase different types of tools, the sort that could identify buyer location, their credit card region, and a system that would indicate whether the transaction was good or not. Sometimes the site would send transactions to a third party to examine the deal. We came in and told sites in advance that we wanted all of their data, about the good deals and bad ones, to make decisions," Damri explains.
The thieves' advantage
Last month, Forter officially became a unicorn, a $1 billion privately-held technology company. In mid-November, it announced a $125 million funding round led by Bessemer Venture Partners and Itai Tsiddon, co-founder of Lightricks. The round was at a $1.3 billion valuation, almost doubling the company's value within a year; last year, in Round B funding, Forter was valued at only $700 million. The jump in value resulted from the rapid growth in online shopping worldwide during the Covid-19 pandemic, which has made Forter's technology more in-demand than ever before.
The new value puts Forter among the world's top 500 privately-held tech companies, but Reitblat and Damri refuse to get excited about the achievement. For them, it's only a milestone on the way to a much greater goal, just like the milestone the company passed earlier this year, when it crossed the $100 million mark in sales (in terms of annual recurring revenue or ARR). Even the planned IPO that the company is preparing for, although no date has been set yet, is just another milestone for the duo.
"Our vision is to unify the entire ecommerce industry within our ecosystem so that all transactions go through us. Today we handle just over $200 billion of transactions annually, and we're already the biggest player in the market. But the global ecommerce industry has a $4 trillion turnover, so we still have a lot of work to do," Reitblat declares.
At this point, a difference of opinion arises between Reitblat, who is being interviewed from the US via video-call, and Damri, who is sitting next to me in the company's Tel Aviv offices. While Damri is content to unite all online sellers with the exception of Amazon, which deals with the issue of fraud prevention independently, Reitblat believes that Amazon would also like to join.
With or without Amazon, Forter's vision is grandiose enough, but it isn't unreasonable, at least not when Reitblat and Damri sell it. "At present, thieves have an asymmetrical advantage, because all they have to do is find one vulnerability in one ecommerce site, and they can replicate it in all sites. The different shopping sites don't share data, for competitive reasons, so they don't know what's happening with one another. We will sit in the middle, our system will be able to identify an attack on one customer, and immediately inoculate our other customers against it. "
"It can help us as citizens as well," Damri adds. "Our vision is being able to check a customer once, and then allow them entry to Forter's 'safe zone'. That way, there will be no need to check them again at each site, and they'll be able to shop freely without being hassled."
Reitblat and Damri's say their vision is critical to defending against what they describe as the increasing sophistication of online fraudsters. "Ten years ago, I was sitting in an internet cafe in Africa, and next to me was someone with a printed page of credit card numbers. He was trying them one by one," Reitblat says. "Today, everything is automated; you can enter the data and run a million trades on a million different traders simultaneously. The advent of cryptocurrencies allows thieves to transfer money from one to another, creating collaborations where each one is a specialist in their field - one person steals the details, and the other builds tools. It makes them better and more sophisticated."
If in the past most fraudulent online deals were based on stealing credit card information and entering it into the system, the current hot method is to take over accounts on ecommerce sites, using the password and username to purchase products. This trend was reinforced during the coronavirus period. With the onset of the pandemic, businesses began allowing users to pick up products purchased online from stores, even from parking lots, meaning that the thieves did not have to enter a new delivery address into the system - an action which would have triggered an alert. "Every time you change the user experience, the thieves get there first," Reitblat states.
Still, if Forter really wants to unite the industry, a good place to start would be a partnership with Israel's second largest fraud prevention company, Riskified, which also became a unicorn last year. Is such a union on the horizon? "I only get asked that question in Israel. When we talk to journalists abroad, that topic never comes up, but Israelis love these inside stories," laughs Reitblat. "Riskified is a worthy company, we know the people there and know what they are doing, but we have larger competitors in other parts of the world."
Quarterly staff presentations
Damri and Reitblat grew up in Jerusalem and went to the same school, later working together on startup Fraud Sciences, which was sold to PayPal for $170 million. There they met Alon Shemesh, Forter's third founder, who works for the company as its Chief Analyst but is not part of the top management team.
After the acquisition, Damri and Reitblat went to work at PayPal. Reitblat survived for a short time, before taking a job at parking services company Pango. Damri worked at PayPal for several years before leaving to co-found Forter. The contrast between working at a small company and at a giant company shaped their concept of management greatly.
"At Fraud Sciences, I was physically sitting at a table beside one of the founders, I heard all the conversations and I knew what was going on," Reitblat says. "It helped me make decisions. At PayPal, which is a huge, hierarchical company, it's obviously not the same thing. So, when we set up Forter, it was clear to us that we were going to share things with the employees."
One way of sharing that Forter adopted was to present all business results to employees. Each quarter, they gather everyone together to watch the full presentation with the same slides that the board has received, including revenue and profit. "There are no heroics here, it's simply the logical step to make, given that 95% of the day-to-day decisions in the organization are made by staff, not by senior management. I have no ability to make a better decision than our product people or our analysts, so it's very important that our employees receive all the information and know all our considerations."
Naturally, in the Covid-19 era, these update meetings are conducted remotely. Right before the pandemic broke out, Forter had signed an agreement to rent new offices, twice the size of the current ones, in New York and in Tel Aviv. Now, most of the staff works from home. "I believe that our growth rate will justify the physical expansion, even under these new circumstances," says Damri. "In this coronavirus period, we've seen that it's been possible to convey Forter's spirit and continue working well from afar, but for us there's no substitute for personal connection, standing alongside one another in front of the dry-erase board, and collaborating."
Among the ways of dealing with the situation are the two bi-weekly online update sessions Forter holds for company employees around the world, one for Asia Pacific time, the other for Europe and the US. Before these meetings, employees can send questions to an anonymous mailbox, and management promises to answer them.
The company also decided to allow employees in Israel to take Sundays off once every two weeks (in the US, Forter employees have a half-day off on Fridays). "At the beginning of the pandemic, our emphasis was on productivity. Today the organization is more mature, and we want to provide our employees with a more all-round experience, including balancing the demands of home with those of work," explains Damri. "We hear that it's difficult for people to be on Zoom all day, so we want to let them clear their heads and be with their families, so that they don't get burned out."
- The company was founded in 2013 by Michael Reitblat, Liron Damri, and Alon Shemesh.
- $100 million in annual revenue. Prominent customers include Asos, Hugo Boss and Nordstrom.
- The company has 250 employees, with offices in New York, Tel Aviv, London, Shanghai and Singapore
Published by Globes, Israel business news - en.globes.co.il - on December 29, 2020
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