Oct 16, 2013 ยท 2 minutes

Most people think that the "Boy Who Cried Wolf" is about the dangers of lying, mainly because a flock of sheep is devoured after shepherds tire of responding to false cries for help. Others might think that the fable is about the dangers of ignoring something as important as a sheep-eating wolf when keeping sheep alive is your only job. It's hard to investigate any little thing that happens, but it's harder to explain why you ignored something that might affect your business and livelihood.

Rajesh Ramanand hopes to help e-commerce companies figure out if they're working with a wolf or a figment of their imagination. That's where Signifyd, the fraud detection software provider he founded after leaving PayPal, comes in. The company's software examines a variety of factors -- physical location, purchase history, and the like -- to determine the legitimacy of a purchase. And it might just help these businesses make money in the process.

Signifyd checks a given address with official records associated with that address; tracks the devices used to make past purchases; and examines another 120 data points to determine a purchase's authenticity. Ramanand says that this allows e-commerce companies to accept purchases from people they would've denied in the past simply because they happen to live in a country they'd been burned by before.

The service also shares data between customers, allowing it to learn more about the differences between fraudsters and frustrated buyers who wish to purchase something but are often dismissed because of their location. It's a bit like tending to a flock of sheep: The more businesses can learn by swapping stories and sharing information the better they can defend themselves against potential predators.

The only problem, fraudsters can grow smarter too. That's why Ponzi schemes can seem intricate, and scam emails are no longer sent by illiterate Nigerian princes unfairly imprisoned without access to their many fortunes.

"This is a pretty big problem in the world, and if you've ever spent time in the information securities space with breaches and scams and accounts being hacked into, you always thought about this as a security problem that needs to be locked down," Ramanand says. "We've never thought about is the other side, which is a group of fraudsters who actually do this every day in order to make a living. We're going against someone's livelihood by building a business to protect against them."

Wolves need to eat, and sheep are delicious. Defending against them is a constant game of give-and-take, where companies like Signifyd become better at blocking fraudsters shortly before fraudsters employ new tricks and find a weakness they can exploit. Though Signifyd promises to help businesses by crying wolf less often, the company still needs to identify threats, and Ramanand recognizes that some fraudsters will continue to reach their goal.

That's where a feature Ramanand calls "guaranteed payments" comes in. The service, which is already being trialled by some Signifyd customers, promises to refund any costs associated with a fraudulent charge that Signifyd allowed to slip through its cracks. Fewer wolves will make their way to the flock, but those that do will have less of an impact -- as soon as these guaranteed payments are made available to Signifyd customers at an as-yet undetermined point in the future, anyway.

If only Aesop had thought to include something like that in his fable.