Ethoca will use the $45 million in new funds to expand internationally and add services.

A company that seeks to reduce online retailers’ losses, both from fraud and from turning down good transactions, has raised additional capital and has ambitious plans to grow.

Ethoca announced today that it has raised $45 million in a funding round led by Spectrum Equity. The company, whose clients today are mainly in the United States and United Kingdom, is expanding in Europe and Asia. And it is developing two new services, including one likely to be available within a year designed to minimize e-retailers’ lost revenue from rejecting orders from legitimate shoppers.

Ethoca’s data shows that, by dollar volume, 42% of the orders online retailers turn down as fraudulent are actually from trustworthy customers, Keith Briscoe, Ethoca’s chief marketing officer says. The new service called Order Rescue is designed to allow online retailers to better recognize legitimate orders and accept them.

Web merchants who sign up for the program will send to Ethoca any orders they are about to reject as fraudulent after conducting a manual review. Ethoca will pass the transaction along to the bank or credit card company that issued the card, and that institution will call the cardholder to determine if the transaction is legitimate. If the cardholder confirms that she placed the order, that information will be relayed back to the merchant who will process the order. “That gives the merchant the opportunity to recover orders they would otherwise decline,” Briscoe says.

He says the service is being tested by a handful of online merchants and card-issuing banks and should be generally available late this year or early in 2016.

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The new service is a variation on Ethoca’s existing service, Ethoca Alerts, in which card issuers notify participating merchants when the issuer becomes aware that a transaction is fraudulent, for example, by getting a call from a cardholder who sees a purchase on his credit card account that he did not make.

“Instead of waiting four to six weeks to hear about fraud a merchant can hear about it within hours or a day and take action, such as pulling that laptop it was about to ship off the shipping dock,” Briscoe says. He says Ethoca charges merchant clients a percentage of the amount the retailer saves by not shipping goods to criminals. He says the listed rate is 40% of the savings, though that varies by merchandise category, the retailer’s profit margin and other factors. Ethoca also charges card issuers a percentage of the money they save from fraud that is prevented.

Ethoca says its clients include 2,100 online merchants, including seven of the top 10 North American e-retailers as ranked in in the Internet Retailer 2015 Top 500 Guide. On the card-issuing side, Ethoca says it serves seven of the top nine U.S. issuers; 12 in Europe, the Middle East and Africa, including eight in the United Kingdom; seven in Canada; a top five card issuer in South Africa; and three in Australia.

Part of the funds will go to international expansion, particularly in Europe and Asia. Ethoca plans to expand this year and next into Germany, Spain, Portugal, Turkey, China, Southeast Asia, New Zealand, South Africa, Brazil and Mexico. The company earlier this year hired Australian banker Brett Small as its regional director for Asia-Pacific.

Ethoca is also developing another new service Maximum Acceptance that is designed to help retailers that sell digital goods accept more transactions. Briscoe says a retailer selling a digital product, such as music, is less concerned with shipping a fraudulent order than a retailer of physical merchandise, because it absorbs no significant loss from the transaction, unlike a retailer, for example, who ships a flat-screen TV and then does not get paid. Sellers of digital goods primarily are concerned with turning away good transactions, and the new program is designed to minimize such rejections.

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The problem today, Briscoe explains, is that many card issuers absorb the cost of fraud below about $30, because investigating a cardholder’s claim of fraud costs more than the disputed amount, which can be as little as $1. As a result, he says, issuers often turn down small transactions if they think there is any risk, which costs the merchant a sale.

The new program would require participating merchants to reimburse the issuer for any losses. For example, if a criminal obtains a consumer’s credit card and buys a digital song for $1.50, and the cardholder complains to his card issuer, the merchant will agree to reimburse the bank the $1.50 for the charge. The aim is to reduce the issuers’ risk from approving such purchases.

“There’s a tremendous interest among digital goods merchants,” Briscoe says. “We’re working with issuers to see to what degree they can loosen their rules.” He says Ethoca is looking for merchants and card issuers to participate in a test of the service.

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