Fraud-prevention startup Sift just announced plans to acquire Chargeback as the $1 billion fintech l

• E-commerce is growing rapidly, and that's meant an uptick in fraud.
• Fraud-prevention startup Sift just acquired Chargeback, adding dispute management to its offerings.
• Bringing the two companies' data sources together could help reduce fraud further, the CEOs told Insider.

E-commerce has grown rapidly since the onset of the coronavirus pandemic. But as consumers have shifted their spending online, fraudsters have followed.

The increased focus in the market has led an up-and-coming startup to expand its offering in the hopes of making it a more complete option for merchants. 

Sift, a fraud-prevention startup used by merchants like Airbnb, Doordash, and Poshmark, just announced plans to acquire Chargeback to broaden its suite of fraud-fighting software.

Founded in 2011, Sift focuses on fraud before and during a transaction, verifying customer identities and payment methods. Chargeback, meanwhile, targets post-purchase fraud through disputes and chargebacks.

The acquisition comes off the heels of Sift's $50 million Series E, led by Insight Partners, that valued the fintech at over $1 billion in April. Sift has raised more than $150 million to-date from investors including Spark Capital, Union Square Ventures, and angel investor Max Levchin, the CEO of Affirm.

Sift and Chargeback declined to disclose the terms of the deal. The companies expect the deal to close in the coming weeks.

The two companies already had a preexisting relationship, as Chargeback was available to Sift customers through its network of connected apps. Now, Chargeback's tech will be integrated into Sift's fraud-prevention services, called Sift Dispute Management. Chargeback's CEO John Munro will join Sift as general manager of dispute management. 

The deal will allow both sides to benefit from shared data. 

"By taking advantage of the dispute data that Chargeback has, we're improving the accuracy of our risk assessments upfront," Sift president and CEO Marc Olesen told Insider. "At the same time the data that we have prior to payment that helps Chargeback increase win rates and mitigate the friendly fraud that's happening on the backend."

The deal was, in part, driven by customer sentiment, as well, Munro told Insider. Previously, merchants were using different data sources to manage fraud at various points of the transaction, making for more manual and time-consuming processes. 

Now, using Sift and Chargeback's automation, merchants are able to monitor fraud before, during, and after a purchase in one place.

Over 34,000 websites and apps use Sift globally. Every month it analyses over 70 billion events, meaning things like new account sign ups and purchases. As Sift's machine-learning algorithms process more data, they get smarter, resulting in more accurate and automated fraud detection.

"The Sift and Chargeback combination removes all of that pain and allows both systems to provide more value to each merchant while the merchants gain some incredible efficiencies," Munro said.

With a focus on e-commerce and travel businesses, Sift competes with fellow upstarts like Forter and Signifyd. There are also other players in the fraud monitoring space focused more on financial services, like FeedZai and Socure.

Sift and Chargeback target both 'true' and 'friendly' fraud

Not only is fraud on the rise, fraudsters are also getting more sophisticated, Olesen said. 

Last year, amid a 20% spike in charitable donations, Sift uncovered a fraud ring that was using donation sites to steal consumers' credit card information.

Using stolen credit cards and fake accounts, the fraud ring set up fake causes on various donation sites, and raised small amounts of money, typically around $5. Once the fraudsters saw those charges clear, they'd take the same credit-card information to make larger purchases elsewhere.

But when it comes to fraud, merchants and payments providers don't just have to watch out for bad actors and stolen credit card numbers.

They also have to monitor what's called "friendly" fraud, which comes from existing customers who might falsely dispute a payment. 

Chargeback's specialty targets schemes like so-called 'pizza rings,' where a group of people order pizzas, then take turns disputing the charges, telling their credit-card companies that the pizzas were never delivered in order to get a refund.

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