A company founded by an Indiana University graduate to fight payment-card fraud with data analytics, statistical modeling, and machine learning is now backed by the school’s Innovate Indiana Fund. Part of a $2.6 million investment round, the funding will help Chicago-based Rippleshot launch a new product later this year aimed at stopping criminals from scamming online merchants.

The company—founded in 2013 by IU alumus Yueyu Fu, Canh Tran, and Randal Cox, who have a combined 40 years of experience working in financial services and fraud detection—is going after a market expected to total more than $183 billion between 2015 and 2020, according to payments industry newsletter The Nilson Report.

Kaleigh Simmons, Rippleshot’s marketing director, says that a few years ago, the company’s founders noticed a dramatic rise in credit and debit card fraud, and they wanted to try using big data technologies to proactively mitigate the problem.

Tran, the CEO, is a fly-fishing enthusiast who chose the company’s name because it refers to the ripple across the water that a fish makes when it comes to the surface, indicating that it’s going to bite the lure. (He viewed the company’s ability to identify the early ripples of fraud in a similar way, Simmons says.)

Rippleshot’s cloud-based technology can identify in real time where and when payment card information is being stolen by analyzing transaction data submitted to the company by financial institutions, Simmons explains. Once fraud is detected, the company advises its customers (financial institutions and merchants) on strategies to prevent losses.

“Every time we sign a bank up as a customer, we get all of their transaction data including disputed charges,” she adds. “Disputed charges are often an early signal that something is wrong.”

For example, say the Xconomy Detroit/Ann Arbor staff goes out for coffee, and a skimmer at the cash register picks up our credit card information. Even though we all have accounts at different banks, Rippleshot would be able to perform an analysis marking the coffee shop as the point of compromise and, using customer data from the time period during which the theft occurred, assign each customer a risk score. The company can then use that score to predict which individuals would be at especially high risk for fraud—because they’re big spenders or have high credit limits, making bogus purchases harder to notice—and alert the corresponding financial institution.

Rippleshot has already released a product that analyzes payment card data. Later this year, the company expects to launch a new offering that focuses on the merchant’s side of the transaction.

Simmons says when a payment card is used fraudulently, merchants and financial institutions bicker about who’s responsible for “owning” the breach. With the advent of EMVs (chip cards), the liability has shifted to merchants because it’s so hard to replicate and steal chip card information. However, she says, you don’t get the benefit of the chip’s added security protections unless the card is “dipped” at the point of sale—meaning online shopping is still a risky proposition. Rippleshot plans to use the same proprietary big data tools to analyze merchant data to detect and prevent criminal activity.

“Because we have all this [transaction] data, we can sit in the middle and help both parties,” Simmons says. “Our banking market is big, but the merchant problem is huge, especially as more people shop online. Banks and merchants are at each other’s throats over who should do more to prevent fraud, so we’re hoping to fill the gap.”

Simmons says because this is fairly uncharted territory, Rippleshot’s biggest competitor is “honestly, Excel spreadsheets maintained internally by banks.” But many other startups are also tackling fraud from different directions, and large credit card and online payment companies also have their own fraud prevention efforts.

The multi-billion-dollar market for this kind of fraud detection lacks a singular solution, and that’s one reason the Innovate Indiana Fund wanted to jump on board as an investor, according to fund manager Ken Green.

“It’s exciting to connect with Indiana University alumni like Yueyu Fu, whose careers and experiences have brought them to a place to make a significant societal contribution,” Green said in a statement.

The 10-person company closed on a $2.6 million funding round in February, bringing the total invested in Rippleshot since its inception to $4.6 million, Simmons says. Other investors include KDWC Ventures and CUNA Mutual Group.

There are two big partnerships with large payment-card processors in the works for later this year, but Simmons declined to share specifics. The company’s long-term goal is acquisition, she says.

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