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April 29, 2008

Israeli technology attracts interest

Despite its relatively small population size, Israels card market is one of the most innovative in the world, thanks to highly advanced technological development in the fields of analytics and smart cards. Joel Bainerman reports on the companies at the forefront of the development. The Israel Defence Force (IDF) not only keeps Israeli citizens safe against terrorist attacks and invasion by surrounding countries, it is also a benefit to major international corporations seeking leading-edge technologies, particularly in the card industry. Many Israeli entrepreneurs who come out of the elite units of the IDF leave with extensive expertise in internet technology, data security and software development three key features in designing new technologies for the international card industry. Israels security industry has pioneered entirely new areas of the international data security industry, with firms such as CheckPoint Software. Now, Israeli innovators are doing the same for the global card industry. Take Fraud Sciences, for example. Earlier this year the US financial services company PayPal paid $170 million in cash for the tiny Israeli start-up whose specialised technology was designed to differentiate between real and fraudulent transactions. That technology will be folded into PayPals anti-fraud systems.

By Verdict Staff

Despite its relatively small population size, Israel’s card market is one of the most innovative in the world, thanks to highly advanced technological development in the fields of analytics and smart cards. Joel Bainerman reports on the companies at the forefront of the development.
The Israel Defence Force (IDF) not only keeps Israeli citizens safe against terrorist attacks and invasion by surrounding countries, it is also a benefit to major international corporations seeking leading-edge technologies, particularly in the card industry.
Many Israeli entrepreneurs who come out of the elite units of the IDF leave with extensive expertise in internet technology, data security and software development – three key features in designing new technologies for the international card industry. Israel’s security industry has pioneered entirely new areas of the international data security industry, with firms such as CheckPoint Software. Now, Israeli innovators are doing the same for the global card industry.
Take Fraud Sciences, for example. Earlier this year the US financial services company PayPal paid $170 million in cash for the tiny Israeli start-up whose specialised technology was designed to differentiate between real and fraudulent transactions. That technology will be folded into PayPal’s anti-fraud systems.
The Israeli company had devised what it calls the SpotLight transaction verification system, which relies on behavioural analytics and real-time fraud intelligence tools. It can confirm that the customer trying to use a credit card number on a computer is the owner of the credit card. The system cuts down on fraudulent transactions, but also lets merchants accept transactions that seem to be suspicious. Any activity on the credit card, such as it being used in two distant places within a short period of time, is detected.

mConfirm fights fraud

Another innovative start-up that will likely attract the attention of a blue chip corporation in the international card industry is mConfirm, whose technology is used to thwart credit and debit card fraud, and potentially stops ID thieves in the act. This in turn helps banks better protect customers, stem losses due to fraud, and attract new depositors with free identity protection services.

The Israeli start-up’s technology uses mobile phones to pinpoint the location of a consumer and their payment card. If the locations don’t match, the transaction is flagged and risk systems alerted, so that action can be taken immediately. Already proven highly successful at Visa CAL, a major Israeli credit card issuer and processor, mConfirm claims its technology significantly improves fraud detection and reduces false alert rates without slowing down the transaction process.
Once a bank is set up with mConfirm, it can provide the technology to depositors and credit card customers as a value-added free service, bundled with checking and savings accounts, credit cards, and so on. While the location-based behaviour module does not rely on cellular location data, and therefore can automatically be provided to bank customers, the cellular location module is an opt-in service. The mConfirm system soon pays for itself through reduced losses, and through increased revenue by attracting security-conscious depositors and borrowers.
In the US, the technology is being sold to US banks exclusively by Security Identify Systems. It is being offered to customers of the banks free of charge, and does not require GPS-enabled phones or changes to existing card processing systems. The system uses two factors – location-based behaviour analysis and mobile phone location analysis – to develop a fraud risk score, which is the chance of a transaction being fraudulent. The system works with some of the most popular commercially available mobile phones and domestic wireless networks, including Apple iPhone, RIM Blackberry, LG, AT&T, Nokia, Motorola, Samsung, and even prepaid services.

Beepcard goes wireless

Beepcard is a leading Israeli developer and provider of miniaturised wireless authentication and verification systems for a variety of security and mass-market applications. It offers the world’s first reader-free smart card, and is first-to-market with self-powered digital devices of any sort that adhere to the exacting international standards for bank cards.

Beepcard has developed the ComDot technology that enables a card or credit card to perform wireless communication with a PC, phone and cell phone, without requiring a card reader. ComDot technology bridges online and offline commerce and strengthens the relationship between users and their network or internet service. It also provides the infrastructure to enforce trust and security in web-based environments, locally installed client applications and electronic consumer devices. ComDot cards use an acoustic encrypted signal to securely communicate with PCs, mobile or fixed line phones, and other audio-capable devices.
Beepcard claims that the ComDot solution is easy and convenient for users to grasp. Users simply hold the card in front of their PC, phone or other networked microphone and squeeze the ComDot – a flat button on the card. One squeeze of the ComDot button located on the card activates the authentication process.
The ComDot card transmits a one-time encrypted authentication message, using sound waves as its communication medium. Pressing the ComDot button located on the card will transmit a unique 3-DES encrypted authentication message, to be received by any sound-equipped device, such as a PC, land or mobile phone, PDA and so on. Unlike conventional smart cards, the ComDot card does not require installation of dedicated hardware, such as a smart-card reader. ComDot technology uses the PC/phone microphone as its reader. ComDot cards include an internal battery, providing autonomous operation and omitting the need for external power.
Cards based on ComDot technology can be used in many industry sectors, including banking, network security, healthcare, telecommunications, and online services, through their unique user authentication and loyalty functionality. End users enjoy the cards for their familiarity, simplicity and security in e-shopping, phone-based purchasing, and internet services log-in. They can even use the card for phone card calling and cash withdrawal from ATMs.
One card supports PCs, standard fixed line phones, mobile phones using all technologies, sound equipped PDAs, physical security systems and so on. Implementing the ComDot card in conjunction with a PIN brings the familiar two-factor authentication scheme of an ATM machine to every PC and telephone.

Praxell, Payoneer and prepaid

Praxell offers one of the industry’s most advanced programme management platforms, allowing processors, programme managers, co-branders and independent sales organisations (ISOs) to offer customised prepaid debit card programmes. Praxell customers use the platform to manage and report on programmes, to provide best-in-industry cardholder, distributor/merchant and call centre access, to help ensure compliance with the industry’s fast changing regulations and to monitor for potential fraud.

The Progreso prepaid MasterCard is distributed nationwide through retail outlets (convenience stores, cheque cashers, and self-service kiosks), and is also offered by online merchants. The card can be inventoried and ‘instant issued’ to consumers in-store.
Praxell provides retailers and online marketers with co-branded card products incorporating the client’s brand. Using Praxell’s technology-based enablement services, co-branders and programme managers can launch programmes with all of the account-by-account and merchant-by-merchant controls of the Program Management Platform. Praxell can also work with existing processors, banks, or fulfilment houses.
Praxell’s Program Management Platform provides retailers, ISOs, processors and banks with fully PCI-compliant card issuance, loading, reporting and risk management. All of the Program Management Platform’s business logic is accessible through XML application programming interfaces for flexible and quick integration to front- and back-office systems.
Payoneer markets, manages and services prepaid MasterCard cards in Israel. Anyone 13 years or older can get a card, by filling out a form online. In this way, Payoneer offers individuals and organisations a way of transferring funds directly to end users’ prepaid debit MasterCards. Payoneer was founded in 2005 and is headquartered in New York, with its research and development operations based in Israel. Its investors include Payoneer’s CEO Yuval Tal, private investors and venture capital fund Greylock Partners. Payoneer offers its business customers a co-branded MasterCard. Among its 70 clients are oDesk, MetaCafe, Amie Street and iStockphoto.
Payoneer’s payout solutions let organisations pay their people (employees, subcontractors and so on) worldwide using prepaid MasterCard cards that are managed online. The company works primarily with internet-based service companies that retain the services of contractors, freelancers, affiliates or employees worldwide. By transferring funds directly to the end users’ cards, both payer and payee avoid many of the fees and delays that are often associated with international payments. Cardholders do not need to have bank accounts in order to use the card. The company is partnered with financial institutions including the Royal Bank of Scotland (RBS Lynk), the First Bank of Delaware and Prepaid Loading Systems.
When a card is first received (through the mail), it needs to be activated for security reasons. From this point on it can be used just like any other MasterCard card and can be used anywhere MasterCard is accepted. Cardholders and others who have the cardholder’s email address or the card number can load anywhere from $20 to $1,000 per day on to the Payoneer card.
There are several fees associated with owning a card. Activation requires a one-time fee of $9.95, monthly maintenance costs $3 per month and loading money onto the card will usually set a cardholder back 3.5 percent of the loaded amount. Once a card has a zero balance for 60 days it is automatically deactivated.

Cell-Apps and mobile payments

The latest versatile application for mobile phone payments in Israel comes from another start-up, Cell-Apps, whose Cell-Cash patent-pending product turns mobile phones into an electronic wallet. “It is the world’s only secure mobile wallet,” Micha Himmelman, president and CEO of Cell-Apps, says. “All you have to do is put in the amount, the vendor’s account, your PIN code, and press send.”

Himmelman believes mobile commerce, like internet commerce, within a prepaid system, is the way of the future. “With the sale of multimedia phones expected to increase to $76 billion in 2008, outnumbering the sale of TVs, using phones to transfer money is an idea whose time has come,” he adds.
Cell-Apps’ main targets are people who do not have credit cards, or are reluctant to use them (especially for small amounts), and the unbanked in the former Commonwealth of Independent States (CIS), which includes eleven former Soviet republics.
“Eastern Europe, a cash-based society, is a big niche: 75 percent of the population does not have a bank account. The concept of prepaid is already part of the culture,” says Himmelman.
Another niche is foreign workers without bank accounts who are vulnerable to theft. The Cell-Cash technology would allow them to transfer money to their native countries with minimal expense.
Teens and pre-teens are another obvious market. Parents can limit their children’s spending with Cell-Cash, and not have the worry of excessive purchasing or a lost card.
“My 15-year-old son has a youth credit card from one of the major credit card companies. He objects to the high fee for each transaction,” comments Himmelman. “Plus, the card can only be loaded three times and cannot be fully used.” Himmelman says that no transaction fees, and minimal cost to the consumer, add to Cell-Cash’s appeal.
“Any merchant who can sell, can receive cash,” he says. “The novel two-way transfer of cash works point-to-point, person-to-person, wallet-to-wallet. The electronic wallet can be loaded with cash from a bank, a post office, or a credit card. You can check the balance on your phone.”
The platform enables companies to use the system to pay and be paid.  It can be used in a closed network where the vendor and large number of users work in a prepaid environment. For example, a company can give an employee an electronic wallet with a monthly cash credit for use in a particular restaurant.
Taking a piggyback ride on internet commerce, Himmelman sees many applications in e-commerce and e-cash.
“Many users would prefer to use prepaid Cell-Cash to access higher quality websites, and make small purchases. Social networking, dating sites and gaming sites usually require small amounts of cash. If you win, your wallet could be credited,” he says.
Security is another main feature. Cell-Cash’s technology does not save any secret, private data or personal identification in the phone. If a phone is lost, there is no access to personal data. The system comes with a patented multi-purpose key (a dongle) that fits in a pocket or purse. It sounds an alarm if the phone is lost or stolen, and renders it inoperable. The key is also used for identification and giving the user access to sums of money over $100, according to anti-terror and money laundering laws. 

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