BillGuard offers mobile apps for credit monitoring. (Photo: BillGuard)

App uses crowdsourcing to watch for credit-card fraud

BillGuard's monitoring system can warn you if your financial info has been compromised.

The scenarios are all too common: A pickpocket lifts a wallet out of an unzipped backpack on the subway, or thieves hack into the data center of a business and steal its customers' credit- and debit-card numbers. The stolen cards are then used to rack up purchases - gas, iPads, designer shoes - all before the unwitting card holders have any idea their information has been compromised.

Most banks have credit monitoring services that detect fraudulent transactions like this. But one of their shortcomings is that they often don’t alert the customer until hours later.

Seizing this opening in the market, Israeli startup BillGuard is expanding its “crowd-sourced” approach to free credit monitoring with a fast-acting hacker-breach warning system. The company monitors a half-million user accounts linked to thousands of banks throughout the United States and Canada. Based on flagged transactions, the system warns of deceptive, hidden or fraudulent merchant practices, such as automatic subscription renewals.

BillGuard says the same free monitoring strategy also detects other micro-charges initiated by hackers seeking to verify access to a credit account. Those charges are usually less than $10 and are often lost to the consumer, but those transactions account for millions of dollars per year in mysterious “gray charges," experts say. The rate of banking fraud remains high with as many as 7 percent of Americans ages 16 and older victimized – to some degree – every year, according to the Federal Trade Commission.

“We have built a crowd-sourced system of identifying fraud on debit or credit cards,” BillGuard CEO Yaron Samid told Forbes earlier this year. If a user sees charges they don't recognize, they can flag them as unauthorized. When several people flag the same transaction, the system will then alert other users that the charges are potentially fraudulent.

Samid founded the company in August 2010 with fellow Israeli Raphael Ouzan, who serves as the chief technology officer. The company has offices in Tel Aviv and New York.

Like similar crowd-sourced networks, the system becomes more effective as its user base grows. “The more people that join the network, the more effective it gets,” Samid said. “We saw how many people were using the app and felt a responsibility to open it up.”

Along with the linked financial networks of the subscriber base, the system also scours a large merchant database for customer dissatisfaction, looking for signs of potential criminal activity about to happen. BillGuard launched its iPhone app last year just in time for Target’s massive holiday-season data breach, which compromised the financial information of some 40 million retail customers.

Samid said hackers rely on the complacency of most consumers, who typically don’t check their bills for suspicious activity. “Attackers who want to sell the cards will run micro charges, definitely less than $10, on tens of thousands of cards,” Samid told Forbes. Since launching the app, “we have found more than $600,000 in fraud just by checking card activity with iPhone BillGuard.”

Merchants large and small don’t always wish to acknowledge a shared corporate vulnerability to fraud, wary of protecting their reputation. And BillGuard understands this dilemma. In the event of security breaches, the firm provides merchants “an acceptable length of time, say under one week” to disclose the breach before notifying police, said Ouzan.

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