Catching credit card cheats from Cork to China
Merchants takes the hit in internet fraud and Cork entrepreneur Pat Phelan has devised a tool to help them spot dodgy customers
Pat Phelan: “Internet commerce is a really unfair business on the merchant because no one else takes any risk. So it’s all down to one guy and what happens is he’s told to go ahead and later he’s told, sorry that was fraud.”
Most of us have been a victim of credit card fraud at this stage. And most of us have not suffered any great loss as a result, with the card company reimbursing us for the fraudulent transactions. In general, most of us don’t worry about who actually picks up the bill.
Pat Phelan does. “Internet commerce is a really unfair business on the merchant because he’s the one: no one else takes any risk. The credit card company takes no risk. The payment gateway takes no risk. The guys that supplied him with his merchant account takes no risk,” he explains.
“So it’s all down to one guy and what happens is he’s told to go ahead and later he’s told, sorry that was fraud.”
The net effect is that many online retailers are turning away business because they have had a bad experience with fraud and this could end up costing them even more in lost business.
“What happens is that the fear of fraud becomes so great for the merchants that they turn off opportunities. They block countries. Just to give you a small example. In Europe, only 6 per cent of e-commerce companies do business with a second country,” the serial entrepreneur from Cork says.
The result, he believes, is a massive opportunity for his latest start-up business Trustev, which will give retailers the confidence to do more business online.
It protects them against fraud by studying the behaviour of a customer as they browse the retailer’s site and make a purchase before deciding whether or not to accept the transaction.
Mix and matching
“We actually use about 80 different data sources instead of these rules. We actually look at the human in the transaction. And we make a decision in about a quarter of a second,” he says.
The retailer must first allow Trustev access to its systems and for the first few weeks Trustev just watches transactions on the site in order to establish a profile for a “normal” customer.
“So what we do is we sit in there, we look at you, we look at your device, we look at your IP address. We look at your behaviour. We look at your location.We look at your email address. And we do a lot of mix and matching with that and a lot of algorithmic work, and we make a decision,” he says before adding : “We look into the core of you as a technical digital entity.”
I am not quite sure what that means but, in these post-Snowden days, it sounds a little Orwellian.
“We create a digital footprint of you at that time,” he explains. The amplification does not reassure to be honest. Nor does what comes next.
“We’ve gone through the payment. How you browse the site. How you interact with links. The machine you’re on. The IP address you’re on. Does the IP you’re on match the shipping address? If you enter your mobile, we pull back mobile location. Does the IP address match the mobile location, match the address you put in?
“And now you’re starting to run through multiple different, completely independent, pieces of data confirming identity and location,” he adds.
It’s a lot of information and Trustev retains it and uses it across its “platform”. However, it is all erased after 90 days as required by law.
“After 90 days it is useless information anyway,” he explains, which in its own way is quite unsettling.
But Pat Phelan is an unlikely candidate for big brother. Indeed at the heart of his business is a refreshing faith in human nature.
“You know, not everyone’s a crook. Actually, in general, in life, the crooks are the minority,” he says.
The dark side of human nature is very familiar to him. An epiphany on New Year’s Eve 1999 brought to an end an addiction to alcohol, which had seen him stumble from job to job and threatened to destroy his family. His personal battle – which he has spoken openly about – makes his subsequent business success all the more admirable.
His first business – set up in the early Noughties – drew on his catering background and sourced staff for ethnic restaurants, most of whom came from the Indian sub-continent and southeast Asia. Their need for cheap access to the internet and phone credit led him to set up to a chain of internet cafes and then a prepaid phone card company Fonehome.
He sold Fonehome and set up what was to become Cubic Telecom in 2005. Cubic offers companies cheaper voice, SMS and data services via roaming agreements in place in more than 230 countries, through 500 partner networks.
Top technology start-up
He sold his stake in Cubic to the other investors and founded Trustev in December 2012, along with Chris Kennedy who had been with him in roam4free, the precursor of Cubic.
The technology industry seems to have had little trouble grasping both what it is that Trusted does and its potential. In May 2013, the company was selected as one of 30 global finalists at Techcrunch Disrupt NY 2013. Previous winners include Dropbox, Yammer and Mint. com.
The following month it was named top technology start-up in Europe as part of the European Commission’s Tech All Star initiative. In October, it announced, at the Dublin Web Summit, that it had raised €2.2 million to finance its expansion into the US and it then rounded off the year by being named as one of the “hottest global start-ups of 2013” by Forbes magazine.
It hasn’t let up since. March of this year saw Trustev take home the top prize in the start-up accelerator competition at SXSW in Austin, Texas, and Phelan is a finalist in the 2014 EY Entrepreneur of the Year awards.
Not surprisingly, the company has come to the attention of the bigger beasts in the jungle.
“We’ve had a couple of acquisition inquiries over the last few months. But you know,we’re going to build a global business,” he says.
Central to their ambitions is the US and Phelan moved to the New York this spring. “We are beginning to be successful in Europe, but a lot of our customers are in the US and I was in the US three times a month. So we moved, myself, my wife, and my son. All area happily ensconced in the Bronx. ”
He genuinely seems to have no interest in selling this business. “I think there are enormous opportunities in this space. I think it’s something that’s broken and people don’t know that it’s broken. There is so much money being left on the table here.”
All he has to do is get the retailers to see what they are missing and he thinks it will not be that difficult.
“What we do is we just say; can you drop in our code? It creates no burden, no load and, at the end of two weeks, we give them a report saying: Hey! here’s all this free money.”
As you might expect of any business connected to Liam Casey, China is very much in Trustev’s sights.
“You have, 60,000 people a week joining the middle-classes . . . insatiable demand for high-end western goods,” he says.
Three billion credit cards have been issued in China in the last five years but the Chinese cannot buy international goods over the internet because no-one accepts payments from China for fear of fraud.
“I am trying to help. We want to enable global commerce for high-end brands.”
It is perhaps not the most noble of ambitions, but it is a very lucrative business opportunity.
CV: Pat Phelan
Name: Pat Phelan
Position: CEO and founder of Trustev
Age : 49
Family: Married to Carol with two sons, Andrew and Scott.
Education: Cork Institute of Technology
Something you might expect: He has 15,000 followers on Twitter
Something that might surprise: He became an apprentice butcher at the age of 15