PayPal acquires a security company in a renewed anti-fraud effort

EBay's PayPal division recently snapped up Israeli security company Fraud Sciences, in a move that could help advance eBay in its long battle against online scammers.

Fraud Sciences' unique software is reportedly able to properly sort "between real and fraudulent transactions with unprecedented accuracy." Yesterday, its chief executives agreed to join PayPal's fraud management division, in a transition which could benefit hundreds of PayPal's merchant customers, and which could bring at least 200 more merchants to PayPal.

"Today, PayPal offers a highly secure online payment service with one of the lowest fraud rates in the industry. We expect, over time, that Fraud Sciences' risk tools and advanced analytics will help lower fraud in the PayPal system," said Amand Pires, PayPal Corporate Communications Director, in a statement to BetaNews today.

Even though eBay and its PayPal division have worked for years to combat phishing attempts, very little has been successful to truly combat scammers. EBay plans to integrate Fraud Sciences' software into its latest attempt to limit the amount of damage caused by thieves, although PayPal projects it already loses only one third of one percent of its merchant cash flow to fraud. But in Pires' statement to BetaNews, PayPal noted that even algorithmic detection techniques may not be enough to make a serious dent in the fraud problem, especially when phishing is the technique scammers tend to use today.

"Phishing, unfortunately, is an insidious problem that comes from outside our system and therefore is difficult for us to combat," Pires told us. "The best way to combat phishing is through education. If people do not click on links or respond to e-mails, then phishers are ineffective."

In another recent attempt to limit fraud, PayPal released a plug-in for Web browsers designed to mark authentic messages from PayPal with a unique icon. Last year, the company also worked with VeriSign to release a Security Key, which randomly creates a unique six-digit code users enter when logging into their PayPal accounts.

Both parties expect the $169 million deal to be finalized in the next 30 days.