Dive Brief:

• Pinch AI, a fraud prevention and customer loyalty software company, has raised $5 million in seed funding to kickstart its product development, the startup said Thursday.
• In 2023, three former PayPal execs co-founded the San Jose, California-based company: Arthi Rajan Makhija, Chirag Vaya and Jayan Tharayil. Dynamo Ventures and Infinity Ventures led the round, with Defined Capital and PayPal Ventures also participating, a news release posted online Thursday noted.
• Pinch AI is focused on protection models; warehouse intelligence systems; and its adaptive return engine, which uses AI to spot risks and incentivize trustworthy customers. The company also aims to accelerate its go-to-market efforts and integrate into more retail technologies, including order, returns, warehouse and customer experience software, per the release.

Dive Insight:

After ascending to various leadership positions at PayPal, Makhija, Vaya and Tharayil are drawing on their risk and fraud systems expertise to grow Pinch AI. Its software uses artificial intelligence to assess customers’ intent, detect abuse patterns, and automatically make return and refund decisions across retailers’ checkout, return initiation and warehouse operations, the release said. 

In its announcement, the company cited an unnamed “North American premium apparel brand” that saw its returns decline by 8% and its important group of customers jump by 20%. With its technology, the startup aims to help retailers slash bad returns, strengthen customer relationships and improve their margins, the company said. 

“Traditional return systems rely on blunt policies, manual investigations, and guesswork that treat every shopper the same by rewarding bad actors and frustrating loyal customers,” Makhija, Pinch AI’s CEO, said in the statement. “We built Pinch to give retailers an intelligent operating system that continuously learns, adapts, and intervenes in real-time.”

While Pinch AI is trying its hand at combating return fraud, major payments players have shifted their approach to addressing the problem in recent years. 

After acquiring Returnly for $300 million, buy now, pay later provider Affirm said it would close down the returns platform in October 2023. That same month, PayPal sold off Happy Returns, a software subsidiary, to UPS for an undisclosed sum. A month later, the payments giant alerted users of its plans to change its policies to curb chargeback fraud.