It's important for merchants to look at Signifyd's entire value proposition and think about it in context of the total cost of fraud. Signifyd is not only offering a form of insurance to protect against chargebacks and losses. It's offering a solution that helps reduce time and labor expenses associated with manual reviews and disputes, not to mention an opportunity to increase revenue by pushing back against false positives and creating the confidence to begin selling cross-border. Signifyd's services aren't cheap, but when thought of as a both a business expansion partner and an outsourced fraud function paired with insurance, its pricing structure becomes more reasonable. What we particularly like about Signifyd is the growing diversity of its customer base, which provides richer data for fraud screening, and its flexibility in how it works with enterprise customers. But to expand its position with larger e-commerce merchants with more mature fraud controls, Signifyd will need to emphasize its differentiation for it to be viewed separately from traditional fraud scoring and rules engines.
Signifyd was co-founded in 2011 by two former risk executives at PayPal, Rajesh Ramanand and Michael Liberty. Ramanand brings another unique perspective, having served as the head of the payments and risk team at FedEx for the better part of a decade, prior to PayPal. Headquartered in San Jose, Signifyd went live with its first product in 2014. It now counts 126 employees and more than 5,000 predominately SMB retail customers.
The company has amassed $87m in funding, most recently completing a $56m series C round in May led by Bain Capital Ventures, with participation from Menlo Ventures and American Express Ventures. The recent round of funding has a variety of purposes, including expanding engineering headcount, building out Signifyd's machine-learning platform and, broadly, to help fuel efforts to further penetrate the enterprise. Additional investors in the company include Andreessen Horowitz and Data Collective. While Signifyd does not disclose revenue, it notes the volume of transactions it is handling has grown 20x Y/Y, with revenue increasing 4.5x in the same timeframe.
Products
Signifyd effectively offers fraud insurance for e-commerce merchants; if it gives the green light to a fraudulent order shipment, it reimburses the total cost of the loss, including the chargeback fee, cost of goods and shipping costs, within 48 hours. Signifyd supports this proposition by comparing a buyer's credentials to data from a variety of third-party sources (e.g., social media), user data (e.g., device fingerprinting and geolocation) and purchase data across its 5,000 merchant customers to make a determination on the legitimacy of the transaction in real time.
Signifyd's platform learns from fraud patterns over time and gains accuracy with each transaction that it sees. But while machine learning is a major pillar supporting Signifyd's technology stack, it believes human intervention plays an important role in helping its model learn and improve. The vendor strives to keep its chargeback rate to about 25 basis points across merchants, meaning it wants to see a small percentage of fraudulent transactions to allow its model to gain further awareness.
Merchants can integrate Signifyd's technology in several ways, including connecting via pre-built plug-ins into several major e-commerce platforms like Shopify or directly via Signifyd's APIs. Customers are able to review orders in Signifyd's case console, which provides a user-friendly interface with further details supporting Signifyd's decision on a transaction's legitimacy, including a numeric score that indicates the quality of the order. Merchants can further optimize their integration with Signifyd by connecting it to their back-office systems to automatically initiate fulfilment based on Signifyd's order decision.
Strategy
Signifyd's strongest foothold has been with smaller merchants with generally low gross merchandise volume (GMV), although it says it has a healthy midsized enterprise segment of customers that drive the bulk of its revenue. Its customers are predominantly US based and tend to have little to no in-house fraud capabilities. The overwhelming majority, 80-90%, leverage Signifyd's Complete Assurance solution, which is typically sold on a month-to-month basis. Under this package, the vendor takes a 1% cut of each transaction in exchange for 100% chargeback insurance for all approved customer orders.
Understandably, for Signifyd to be a successful provider in the eyes of customers, it must not only decrease chargebacks for its customers, but also limit the amount of declined revenue. The vendor says this is a major focal area, with many customers seeing their declined revenue rate drop a full percentage point. To better reach customers, Signifyd has built out several app-based integrations with SMB-oriented e-commerce platforms such as Shopify and BigCommerce while also collaborating with channel partners such as TSYS and Authorize.net.
Beginning in 2016, Signifyd started to see some interest from enterprise-sized merchants. Large merchants just beginning to scale their e-commerce business, such as hhgreg, or emerging e-commerce businesses such as Jet.com and Wayfair, have been particularly good fits for Signifyd because they often lack mature fraud competencies. However, given that most major e-commerce merchants tend to have built up in-house fraud capabilities and processes, Signifyd has designed an on-demand consumption model that offers a considerable amount of flexibility. Under this plan, merchants are able to choose how and when they leverage Signifyd's technology and chargeback guarantee, such as only for transactions from a certain geography or for a particular product line. On-demand customers are charged a much higher rate of 4% of the total order, but only when Signifyd's detection services are leveraged. This model allows Signifyd to gradually expand its role within larger enterprises as it is able to prove its ability to optimize in-house fraud management – a tactic that has worked with customers like Lacoste.
To further its reach into the enterprise, Signifyd is working to embed its product into major commerce platforms with lightly branded service integration that allows the platform owner to maintain the customer relationship. To that end, it is currently live with Accertify and will soon be turned on in Magento's cloud version.
Competition
Among the more pertinent competitors for Signifyd are fraud scoring and rules engines. This includes enterprise gateway solutions with anti-fraud components offered by payment networks – namely Accertify (American Express) and CyberSource (Visa). However, as evidenced by the Amex Ventures investment and subsequent partnership with Accertify, Signifyd's on-demand delivery option can also make it complementary to these offerings. Other competitors in this category include a variety of startups, such as well-funded Kount and machine-learning specialists Feedzai and Sift Science.
Competitors with similar chargeback guarantees to Signifyd are limited. The primary players include Israeli startups Riskified, which recently picked up $33m, and Forter, which is generally focused on large enterprises, has gathered roughly $50m in funding.
As Signifyd works to penetrate the enterprise, it must also contest with large in-house fraud management practices with existing processes already deeply entrenched. In some ways, emerging technologies such as 3-D Secure 2.0 and Apple Pay can also be viewed competitively given their role in fraud reduction.
Strengths
Signifyd's no-chargeback guarantee is unique compared with the vast majority of competitors. Its increasingly diverse customer base provides it with better data to improve its models.
Weaknesses
Some prospects fail to recognize Signifyd's value proposition. Signifyd is exposed to considerable financial liability should it fail to detect a fraudulent transaction.
Opportunities
Signifyd's approach of embedding its solution in major commerce platforms should help it to scale with greater speed. The vendor's on-demand model allows it to start small with large enterprises and gradually expand its role.
Threats
Enterprises have invested heavily in-house fraud processes for years, making them a considerably more challenging sale. The impending global rollout of 3-D Secure 2.0 may challenge Signifyd.
Jordan McKee is a Principal Analyst leading 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers. His research helps vendors and enterprises assess the key implications of emerging technologies driving the digitization of the end-to-end shopping journey.
Research Director Sheryl Kingstone focuses on improving the customer experience across all interaction channels for customer acquisition and loyalty. She helps operator and enterprise clients make decisions regarding the use of technology, business processes and data to boost revenue and optimize business performance. She also assists vendors with custom research projects, messaging and positioning, as well as product road map evaluations. Kingstone researches and writes on the top trends in mobile marketing and commerce along with cross-channel customer experience technologies.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.