PayPal Inc. says its deal to acquire an Israeli provider of online risk management software is part of an effort to improve security on its payment Web site.
The San Jose unit of eBay Inc., said Monday that it would buy Fraud Sciences Ltd. of Tel Aviv for $169 million, mostly in cash. Though fraud detection has been an important part of PayPal’s capabilities since it was founded, this would be its first acquisition of an antifraud provider. The deal is expected to close within the next 30 days.
The announcement came less than a week after eBay announced several major executive changes, including the upcoming departure of Meg Whitman as its chief executive and the promotion of Scott Thompson to president of PayPal.
Ms. Whitman, who will remain an eBay director, said she would step down in March after a decade leading the online auction company. John Donahoe, who headed its auction business, will succeed her as the CEO.
During eBay’s earnings conference call last week, Mr. Donahoe outlined several of his goals, including boosting security. “We’re going to get very aggressive about making eBay easier and safer to use,” he said.
Though he did not describe the specifics of this plan, he said it would coincide with an aggressive growth plan for PayPal. “I believe 2008 will be PayPal’s best year yet,” he said.
Rajiv Dutta, who was PayPal’s president until last week, has succeeded Mr. Donahoe, and Mr. Thompson, who had been PayPal’s chief technology officer, has already taken over the payment unit. The company did not make the executives available for an interview Monday.
Amanda Pires, a PayPal spokeswoman, said that Fraud Sciences would be “a PayPal acquisition, but it will be used with all our eBay properties.” Fraud Sciences has “a unique approach to identity verification on the Web,” with a focus on identity verification and advanced analytics.
However, these are categories already covered by PayPal’s internally developed fraud management tools, and Ms. Pires would not say how Fraud Sciences’ technology could improve on her company’s capabilities.
PayPal’s current fraud detection system traces its roots to technology the unit put in place in 2000 to stop a con artist who called himself Igor and kept the company on its toes as he used various methods across hundreds of accounts to get money from stolen credit cards. The unit later named the system after its nemesis.
PayPal has improved its system over the years, but never through acquisition. Ms. Pires would not say whether Fraud Sciences’ technology would be integrated with the Igor system or run separately. She did say PayPal would not begin using the Fraud Sciences technology until the acquisition closes.
Nick Holland, a senior analyst at Aite Group LLC of Boston, said that PayPal is known for its expertise in managing fraud. “They have always been pretty much on the cutting edge of fraud detection and authentication technology.”
The deal for Fraud Sciences may have been fueled by PayPal’s recent experiments with newer payment systems, he said. Last year PayPal launched Pay Later, an instant credit tool that enables online shoppers to delay making payments for purchases. (The service is similar to the one offered by Bill Me Later Inc.)
Though PayPal said it can rely on its payment database to help with the risk management, Mr. Holland said there may be areas where it needs more help in making risk decisions.
“There might be greater risk exposure, and they might have to go the extra mile,” he said. Pay Later and any future mobile developments are “outside of their comfort zone.”
