Mastercard to acquire fintech company Ethoca

Dive Brief:

Mastercard agreed Tuesday to acquire fintech company Ethoca for an undisclosed sum in a transaction expected to close in the second quarter of this year, according to a Mastercard press release.
Ethoca operates a global network linking more than 5,000 merchants and 4,000 financial institutions. The company identifies possible fraud activity and notifies merchants in "near real-time" to allow them to confirm the transaction, stop delivery on it or reverse it to avoid a chargeback, the press release stated.
Mastercard's announcement of the Ethoca deal comes less than a week after Mastercard said it would acquire Transfast, an operator of a cross-border account-to-account payment network for businesses and individuals, according to a separate statement.

Dive Insight:

MasterCard plans to integrate Ethoca's suite of products with other capabilities in its existing security and anti-fraud portfolio. The company has been building out its assets and tools in this area for several years, both through introduction of its own offerings, like the artificial intelligence-based Decision Intelligence anti-fraud scoring service unveiled in 2016, and through acquisitions, like the 2017 purchase of NuData.

Fraud continues to be a growing problem in the digital commerce sector. Juniper Research noted in a recent report that retailers could lose $130 billion by 2023 due to online, card-not-present fraud incidents.

Mastercard cited Aite Group research regarding false declines, which occur when card issuers decline transactions from good customers due to a perceived fraud risk. False declines led to losses of $331 billion in 2018 in the U.S. alone, according to Aite Group.

The ability to stop fraud at the originating source of the transaction, rather than trying to address it after purchase, can help both merchants and card issuers reduce operational costs, as well as the amount of time it takes to investigate and resolve fraudulent transactions. Reducing false declines also will decrease losses and the likelihood that a shopper will boycott a particular merchant and payment card issuer over a bad experience.