ake one concerned executive who was double-charged on his credit card. Add in his experience and expertise in sales and marketing. Throw in an entrepreneurial spirit and, voila, you have the creation of a company whose focus is all about fraud and how to combat it.

iShopSecure was founded in May 1999 in Florida. Joseph A. McDonnell had founded several direct-marketing companies that sold home products. When he contacted Visa after a merchant double-charged him on his credit card for an Internet purchase, he discovered the frightening problem of merchant fraud and set out to find a solution.

Hoping to create a different mechanism, his initial approach was a pseudo numbering system so that the merchant would not be able to perpetuate fraud through a second use of a credit card. However, McDonnell discovered that wasn't a complete solution. It masked the problem, it reduced the problem, but it didn't eliminate the problem.

McDonnell brought together a group of techies, and they started actively working on what is today the cornerstone of iShopSecure's flagship products - ID-verified programs. Today, McDonnell is president of a company that boasts cutting-edge technology in the fight against fraud.

Joining that fight is iShopSecure's new Chairman/CEO, Stephen D. Kane, who was invited aboard at the request of its principal investors and assumed his duties on May 1, 2002.

"Business efforts take different paths at different times, and in my explorations I ran across this company," says Kane. "Certainly from my check world and credit card world, this is absolutely the best technology to deal with this problem. I have a great interest in this, and I'm spending the vast majority of my time now with iShopSecure."

Kane lays out the philosophy of iShopSecure clearly and concisely: "Our principal focus today is to prevent merchant fraud either online or via call centers or in the MO/TO and credit card world. We want to eliminate merchant fraud with a focus driven around customer service.

"We think this is one of the biggest problems of our industry and a drastic barrier to the development of Internet and MO/TO sales channels. If we can't control identify theft and merchant fraud, these channels will be much less effective than they should be. To truly have a 24-hour-a-day effective way to conduct commerce, people must feel protected."

In addition to its principal focus, iShopSecure also performs authentication identification for new account organization for financial institutions, telecom companies and anyone who needs to verify the identity of a new account and a new relation. iShopSecure accomplishes all this through three innovative, patent-pending programs: Transact-Secure, CSR-Secure and Access-Secure.

"Our biggest differentiator is our patent-pending technology and effective utilization of several proprietary databases," says Kane. "We are not aware of any other system that is empirically based as opposed to neural based. We know of no other system that screens only the unauthorized users, guarantees the transactions from fraud losses and backs it up with insurance."

Transact-Secure and CSR-Secure, iShopSecure's principal programs, seamlessly integrate with e-shopping carts or telephone-order software. Both boast significant reduction in e-commerce and telephone-order merchant exposure to credit card and check fraud.

The bundled solution aims to eliminate charge-backs from both criminal and friendly fraud by U.S. cardholders. These programs create a card-present environment in a previously card-not-present environment.

All authenticated transactions are guaranteed up to $5,000 per transaction by Lloyd's of London. Transact-Secure is used for real-time e-commerce transactions, and CSR-Secure is designed for telephone-order transactions.

An interesting aspect of Transact-Secure is that it's a stand-alone product for all credit cards and is the only solution on the market today that incorporates the new Verified by Visa initiative in a bundled package. According to iShopSecure, the certification process for Verified by Visa is another value-added service offering, often at no investment risk to the processor/acquirer.

Implementation of Transact-Secure and CSR-Secure requires little effort. The software plugs into any shopping cart on the market.

"The amount of integration is minimal because it is stand-alone in the nature of the Internet ASP model we've adopted," says Kane. "Merchants don't have to modify legacy systems. We provide customization capabilities to suit the merchant. It's a quick process, depending on how much integration."

Turnaround time can be days for an Internet merchant, but call center operations require up to a few weeks - mostly because of merchant personnel training on the iShopSecure system.

iShopSecure also comes with an appealing price tag. The merchant bears the $99 application cost of the program, a fact that has not gone unnoticed by resellers and processors. Standard pricing is 50 basis points or 50 cents per transaction, whichever is greater. There are always exceptions, though.

"If the merchant wants integration into legacy, it can cost more," says Kane. "And the integration fee can also be waived where appropriate - say, if we're going to sign to a long-term agreement with a high-volume merchant generating a lot of transactions. We also have in standard merchant services agreements a sliding price scale depending on volume that reduces as volume increases."

For those service agreements, merchants can decide the category and volume of transactions that they give iShopSecure for authentication. As their transactions vary, their costs will vary. According to Kane, they're not locked into a fixed number or inflexible agreement.

Once in place, the system relies on iShopSecure's databases. iShopSecure's system is empirically based in that it asks real questions and gets real answers that validate the person's identity. It doesn't rely on just a negative file that can screen out good as well as bad consumers. It counts on personal information only the consumer would know to validate identity.

"With criminals able to fabricate driver's licenses and other forms of ID, we're really not overly authenticated," says Kane. "Our process authenticates you by asking you questions in more severe security areas, with info requests going back as far as 20 years in a question-and-answer format."

When a consumer is online and is ready to make a purchase with a credit card or e-check, iShopSecure will ask a few questions and compare answers to various databases. "Depending on the level of security, our program will ask two to five questions that you can easily answer that are not credit file-related and only you, as the rightful owner of the credit card, can answer," Kane says. "Even if your card were stolen, the thief would not be able to answer these questions."

Which merchant market is iShopSecure targeting? "Across the board," says Kane. "We're looking at the entire online and MO/TO world. Our product applies across the board. We are seeing Internet and MO/TO merchants whose fraud losses range from 1 to 20%. If you're above 1%, you obviously need additional services for fraud."

Kane says iShopSecure is receiving a great deal of interest from processors as well as merchants: "We prevent charge-back losses and, secondarily, by protecting merchants, we are protecting processors. The processor stands behind the merchant in the chain of liability if the merchant goes under."

He continues, "We are a net gain. Each ISO and each processor has thousands of clients, and each has different risk profiles and exposures. We can provide our product to each one of them. And we don't have to get all of their authentication. They can do their own risk management, and we can get those that fall in other categories."

iShopSecure is servicing about 200 merchants nationwide and expects that figure to dramatically increase with the help of the independent sales channel. According to Kane, the reaction to iShopSecure at the recent ETA show and the Retail Federation show in Austin, Texas, was superb.

"We generated new clients, new leads and have pending agreements with every major processor in the industry," says Kane. "We are in negotiations with a number of gateway providers, call center providers and even a number of competitors who would like to resell our product."

How many ISOs are joining forces with iShopSecure? Kane says a large number of individual ISOs work with iShopSecure and hopes more will see the benefits, which include a recurring residual stream of commissions on transactional revenue for online, MO/TO and e-checks. Don't forget the guarantee of authenticated transactions with charge-back losses up to $5,000 per transaction by Lloyd's of London.

Another obvious plus is the opportunity for ISOs to earn additional revenue by marketing iShopSecure's cost-saving security products to existing merchants as well as new accounts. Of those new accounts, ISOs can now call upon higher risk merchants and sell this product without fear of underwriting declination, according to iShopSecure. Also included in that message is the fact that iShopSecure doesn't see a conflict between ISOs and its in-house sales force. iShopSecure's approach is to have a small, limited direct sales force geared toward the top 100 Internet and MO/TO merchants as well as large financial institutions and telecom companies for original authorization services.

"Big-ticket clients require more customization, consultation and integration," says Kane. "We don't see our direct sales force having any conflict with the ISO channel, which typically isn't focused on that space."

Rather than competing, iShopSecure sees itself as broadening the ISO community's ability for contacts and sales.

"We are a great product for ISOs focusing on high risk," says Kane. "We eliminate the negative associated with that business - namely, higher charge-back exposures. This is another brand of gum in the ISO sales kit. They can go out, contact merchants who are happy with their credit card processing arrangement and offer a fraud-prevention product that is clearly the hottest and newest and creates a savings for the merchant. With this product, an ISO can endear himself to the merchant."

iShopSecure endears itself to ISOs with a residual program that is competitive and has no variables. It's patterned after what is normally seen in the ISO community. Support is another integral part of the iShopSecure solution. Merchants receive 365-days-a-year, 24/7 customer service from real people. iShopSecure also provides for real-time log reports and related documentation.

Training is also a serious strategy of iShopSecure's support services. Both teleconferencing and on-site training are available to ISOs and processors.

Partnering with the right people is a key component to iShopSecure solutions. While all of its Web-based services are in-house, iShopSecure does outsource some of its database activity. It has strong alliances with all of the major database providers and credit companies. What does iShopSecure look for in an ISO? "We're really looking for larger players who are more likely to have Internet and MO/TO clients and who can benefit the most from our service," says Kane. "We're looking for established track records, a large portfolio. We don't want to come across inappropriately, but we know who benefits from our services. The mom-and-pop stores in a brick-and-mortar space probably don't have a big problem with Internet fraud."

Kane predicts wide use of the iShopSecure product within the next two to three years, with more than 50% of all Internet and MO/TO transactions in the U.S. being protected by iShopSecure. Fraudsters, watch out!