ThreatMetrix raises $12.1M to verify your identity without personal information

ThreatMetrix, an online service that helps businesses verify a person’s identity and cut down on fraud, announced today that is has raised an additional $12.1 million in its third round of funding.

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ThreatMetrix gathers non-personal information from visitors to various e-commerce and financial institution websites and builds a profile over time. The information can include country of origin, what kind of fonts are on the device and whether users are behind proxy servers. But ThreatMetrix does not gather or use sensitive data like social security numbers and driver license numbers, which consumers have become increasingly hesitant to give out.

A good profile — meaning it regularly comes from the same source and behaves consistently — receives a positive grade. At the same time, a profile that rapidly registers for e-mail accounts or credit cards, or comes from multiple countries and has clearly been compromised, is graded negatively. ThreatMetrix profiles around 12 million devices every day, said president and CEO Reed Taussig.

The funding is pegged for further development of its fraud detection algorithms and marketing strategies. ThreatMetrix was actually over-subscribed, raising an additional $100,000 beyond its original goal of $10 – $12 million.

There’s a lot of space to grow in fraud-detection, which Taussig said is a roughly $1 billion market. Sophisticated attacks on financial institutions grew by around 500 percent last year, and money transfer fraud grew by around 1,400 percent, Taussig said.

“What’s different about it is it used to be that the strategic air command protected us against the bad guys,” Taussig said. “Nowadays, every individual that does business is a potential victim of this whole thing, and it’s become very personalized.”

All the analytics and processing occurs on an in-house database that registers around 200 million matches in around a half-second, he said. The data processing isn’t outsourced to other cloud infrastructures like Rackspace or Amazon’s EC2 because it’s too intense for the on-demand computing that those companies offer.

Primarily e-commerce companies, financial institutions and Web 2.0 companies like social networks currently use the software. ThreatMetrix is also seeing some traction in the mobile space, particularly because of the proliferation of the iPad, which behaves like a mobile device because it uses Apple’s iPhone operating system, Taussig said. Around 5 percent of users profiled by ThreatMetrix use mobile devices, and the share is growing, he said.

ThreatMetrix has raised about $24.1 million to date, with $6 million from its first and second rounds of funding. The second round, led by US Venture Partners, closed last year. The Los Altos, Calif.-based company has 38 employees and around 300 business customers, including 3 of the top 5 e-commerce sites — though Taussig wouldn’t disclose which ones.

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[Photo: Don Hankins]