Chicago startup Rippleshot helps banks combat fraud

By Wenjing Yang

Card transactions have gained, if not surpassed cash, in the 21st century economy. While card use can afford consumers great convenience, the risk of fraud is ever-increasing, bringing headaches to banks and merchants.

Rippleshot, a Chicago-based financial technology startup, uses algorithm-based analytics to help reduce these risks with earlier predictions of where fraud may occur. Its motto is “stopping fraud at the speed of data.”

Rippleshot from Medill Reports on Vimeo.

Rippleshot, co-founded by Canh Tran, Yueyu Fu and Randal Cox in 2013, has raised a total of $4.6 million in funding, including its largest round, $2.6 million, on Feb. 1. The company has 10 employees at its offices at tech incubator Catapult Chicago.

“Profitable may not the right metric for us, it’s how fast we’re growing,” CEO Canh Tran said, referring to the company’s early stage of development.

Rippleshot’s technology is now in pilot programs with two of the top 10 card processing companies in the United States. If adopted, it will be used by thousands of credit unions and banks across the country.

Banks’ cost of battling fraud is not minor, with the median amounts spent to staff fraud departments ranging from $10 million a year for larger institutions to $10,000 for community banks, according to an American Bankers Association survey in 2015.

Even with these outlays, financial losses from debit card fraud, accounting for the greatest industry loss, increased by about 12 percent in recent years, up from $1.7 billion in 2012 to $1.9 billion in 2014, the report said.

“The problem is global,” Tran said. “Not just the United States, but around the world. It’s an interesting and fascinating problem for us to see if we can tackle it.”

A brainstorming wall in Rippleshot’s office at Catapult Chicago. (Wenjing Yang/MEDILL)

Rippleshot innovated a cloud-based platform, called Sonar, that uses machine learning and big data analytics to help banks and credit unions identify fraudulent activity more quickly and efficiently.

The technology processes millions of transactions by merchants and banks each day to proactively pinpoint when and where a data breach occurred.

The American Bankers Association endorsed Rippleshot’s Sonar platform in June based on its capability to detect data breaches an average of 46 days ahead of network-issued Compromised Account Management System, or CAMS, alerts, a widely used fraud detective system.

Doug Johnson, senior vice president of payments and cyber security policy at the ABA, said that Rippleshot may fill an important niche in debit card fraud detection.

Currently, large banks that issue credit cards, and card networks like Visa and Mastercard, have access to massive amounts of transaction data across the credit card industry. But smaller banks do not, Johnson explained.

“We want community banks to have the ability to do the same types of fraud detection mechanisms as large banks, and that’s what fraud detection measures like Rippleshot essentially end up doing,” Johnson said.

Rippleshot’s Sonar has won several awards since its debut in 2013. (Wenjing Yang/MEDILL)

Because a compromised card usually does not pass through only a single merchant, Sonar identifies the common point of suspicious activities and ranks a bank’s entire portfolio by how likely each card is to go fraudulent.

This helps banks and credit unions detect data breaches at an early stage and lowers unnecessary and costly card reissuances.

Tran compared fraud detection to fly fishing, where the name Rippleshot comes from. Just like fish can be spotted by the ripples they make in the water, Rippleshot can identify when and where the card data was breached by analyzing the fraud reports.

“The more data we have, the more we are able to see those ripples,” Tran said, and the more accurately the Sonar can predict the fraud.

The company asserts that fraud prediction using Rippleshot’s algorithm has improved accuracy anywhere from 30 percent to up to 400 percent for banks that use the technology.

A map of all compromised merchants that are impacting one of Rippleshot’s banking clients is shown in the Sonar system. (Courtesy of Rippleshot)

One of the biggest challenges Rippleshot faced in its early days was building trust with potential clients, said Kaleigh Simmons, Rippleshot’s director of marketing, who joined the company two years ago.

“Fraud is very sensitive,” Simmons said. “People don’t typically want to talk about it or give you tons of information about what they are struggling with.”

Simmons said the company has made important steps by actively participating in industry events and organizations.

As a member of FinTEx Chicago, an innovation hub for financial technology, the company found opportunities to introduce its product to more people and gradually gained a reputation of trustworthiness in the highly competitive industry, she added.

Looking to the future, Tran said the company plans to use the $2.6 million raised last month to develop a product that will help merchants determine whether a payment method actually belongs to the customer.

“It’s a long-term game,” Simmons said. “The mission now has not been fully achieved, but we are getting there.”

Photo at top: Randal Cox, Canh Tran and Yueyu Fu co-founded Rippleshot in Chicago in 2013. (Courtesy of Rippleshot)