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The Land of Milk and Honey — and Startups

PayPal’s competitors in the 1990s went bankrupt due to fraud. The need for such an antifraud initiative is essential for a company such as PayPal. “There are countries in which PayPal handles more than 20% of online commerce,” Barel said. “As a result, PayPal is a major target for fraud. We have almost 150 million users, so theoretically this involves a huge number of people who could become theſt victims. Every day, 10 million transactions are conducted on PayPal, and the company’s loss rate is 0.2% of sales, most of which stems from fraud.” PayPal’s fraud prevention team has to make decisions

made them perfectly suited to the task. “The company’s battle against fraud is led by a team of 100


Israelis, mostly veterans of the Israel Defense Forces’ intelli- gence corps who work at the firm’s Tel Aviv development center,” according to The international giant (when PayPal started trading in July

2015 as an independent company [spun off from eBay] its market cap was US$49.5 billion) took fraud prevention most seriously. And who better to keep up with or outsmart the ever- creative fraudsters who target companies such as PayPal than men and women who had been trained to protect a nation that is constantly under threat? PayPal, founded in 1998, had taken a major step in its anti-

fraud initiatives when it acquired Israeli risk management startup Fraud Sciences in 2008 for US$169 million. Fraud Sciences focused on the development of breakthrough innova- tions in online fraud detection. That acquisition led to the establishment of the fraud prevention development centre in Tel Aviv, the company’s second-largest office aſter its headquar- ters in San Jose, Calif. “From a technological point of view, it’s the largest center,”

Tomer Barel, PayPal’s chief risk officer, who has experience with Israeli military intelligence, told “In a quiet way, we’re doing the most complicated and complex things at the highest level of expertise in the world,” he said, adding that


HEN PAYPAL HOLDINGS INC., THE US-BASED digital payment service, wanted to create an elite team to combat fraud, it turned to people whose background

almost instantaneously about whether a transaction seems legitimate or suspect. “We need to identify attempted fraud in real time, and that’s a matter of a fraction of a second,” Barel said. “We need to identify that a stranger is using your account. You’re not going to wait in front of your computer or mobile device for five minutes for the system to approve the transaction.” Some of that work is done through automation, but not

always. “The Israeli team also has to analyze sophisticated cases that a computer can’t recognize as fraudulent,” reported “This involves research and intelligence gather- ing. Graduates of the Israel Defense Forces’ technology units are natural candidates [to do this.]” PayPal’s team of analysts in Israel “look at huge volumes of

data, identify patterns and help the algorithm make a deci- sion,” Barel said. “People are still more powerful than machines in trying to foresee and identify human behavior.” Fraud Sciences was by no means the only Israeli antifraud

startup. In a February article, “The Land of Milk, Honey and Fraud Prevention,” on, author Barak Rabinowitz declared that Israel had become “a hotbed for startups in the fields of identity verification and fraud prevention.” He explained that Unit 8200, Israel’s famed cyberspace

agency, “develops systems for gathering intelligence, automati- cally sifting through data to flag dangers, and escalating serious threats for manual review.” In July 2015 FT Magazine added, “In few other countries does

the military establishment mingle so closely with academia and business, to all three sectors’ profits. Last year Israel’s export of cyber security products — designed to protect com- panies, banks and governments from the growing ‘dark web’ of hackers, fraudsters and snoopers — topped US$6 billion, exceeding Israel’s exports of military hardware.”

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