Fraud prevention firm Arkose Labs raises $70M

Arkose Labs, a startup developing a platform to detect and mitigate online fraud, today announced that it raised $60 million in a funding round led by SoftBank Vision Fund 2. The company says that the fresh capital will go toward platform development, new hires, and global expansion.

Javelin Strategy reported that 6.64% of consumers — or about 16.7 million people — fell victim to identity fraud in 2017, up 1 million from 2016. In 2018, over 2.6 billion records were stolen or exposed in more than 1,100 data breaches around the world. And the pandemic has only made things worse — security firm Socure’s first official fraud report this year shows a 134% increase in attempts from March 2020 to August 2020.

Arkose’s platform aims to protect customers from account takeover, fake account abuse, scraping, spam, gift card abuse, and other scammy digital activities. According to founder and CEO Kevin Gosschalk, the company’s products analyze data from user sessions to determine the context, behavior, and past reputation of requests and either pass traffic on to the enterprise or gatekeep it. Depending on the risk score, users are presented with challenges that attempt to differentiate between true users and fraudsters.

“My cofounder [Matthew Ford] and I started Arkose Labs with the idea of taking our experience in interactive software design (video games) and applying it to a common security challenge in the digital world — deterring bad actors from abusing the internet,” Gosschalk told VentureBeat via email. “Coming from outside the security industry, the approach we take is unique in how we go about stopping fraudsters. Ultimately, Arkose Labs today is designed around this idea of applying friction dynamically — the riskier you look, the more friction we provide.”

Arkose Detect, Arkose’s risk engine, unearths behavioral patterns across devices and networks for behavioral analytics and anomaly detection. It profiles traffic and triages it based on underlying intent, which informs dynamic authentication challenges. And it looks for hidden signs of fraud in data from sessions and patterns over time.

Arkose Enforce is a challenge-response system that works in conjunction with Arkose Detect to authenticate requests in over 30 languages. Responses are generated from proprietary visual data that ostensibly can’t be recognized or classified by AI algorithms, which prevents attackers from anticipating how Enforce will behave in the future and helps improve the system with assessments.

Growth year

Over the last 12 months, Arkose rolled out enhanced detection and monitoring systems and a protocol to deal with attacks from net new fingerprints. It also introduced machine learning capabilities to proactively identify threats and leverage customer truth data. Beyond this, Arkose expanded its device support to Android TV, printers, and gaming consoles such as the Xbox. It also debuted improved data insights and reporting dashboards via its customer portal and launched sign-on support for major identity providers including Okta, Microsoft, and Ping Identity.

Arkose claims to have analyzed more than 15 billion online sessions in 2020, stopped 4.6 billion attacks, and wasted 40 million hours of fraudsters’ time. Annual recurring revenue doubled in the last year, the company says, as brands like Honey, CES, and Minecraft joined a customer base with existing clients Roblox, EA, Dropbox, Microsoft, PayPal, and Sony Interactive Entertainment. (Sony recently became a strategic investor in Arkose.)

“We’re busier than ever. The business of fraud touches nearly every corner of everyday lives: online shopping, elearning, financial services, travel/tourism and gaming,” Gosschalk said. “The pandemic kept more people online and more businesses and consumers vulnerable to fraud and abuse. As a result, we’ve had to stay ahead of fraudsters at every turn and have done so by doubling headcount, opening new offices, and, like everyone else, adjusting to what was a new normal than anyone predicted.”

Arkose, which doubled its headcount last year to over 150 employees, is based in San Francisco with offices in Brisbane, Australia and London, U.K. Wells Fargo and previous investors M12 and PayPal Ventures also participated in the company’s newest financing round, bringing Arkose’s total raised to $114 million.

Fraud detection and prevention is a profitable market some estimate will be worth $43 billion by 2023. Barcelona, Spain-based Red Points, which provides online infringement detection and removal tools for brands in beauty, apparel, luxury, sports, toys, and homeware, recently raised $38 million. In March 2018, fraud detection startup Sift Science snagged $53 million, taking its total funding to $107 million. Not to be outdone, Mountain View-based DataVisor, which develops fraud detection software based on machine learning algorithms, nabbed $40 million that same year.

Other online fraud detection companies that have raised big bucks include CashShield, Forter, Shift Technology, Featurespace, Pindrop, Simility, and RedMarlin.