Merchant Card Services

There are three types of trade fraud: An Acquirer Guide for Dealers

Despite all the buzz about identity thievery and other consumer-side electronic crime, it's easily overlooked that merchant scams are still one of the most frequent and expensive causes of buyer losses. Trade scams can be very difficult to spot, especially given the complexities of the e-commerce payment eco-system.

But the work invested in uncovering and eliminating merchant scams is nothing in comparison to the cost of handling chargesbacks, charges and penalties. Trader scams expose the acquirer to the responsibility of easing the burden of crime - exposing them to the danger of reversals, penalties, brand or reputation damages, penalties and even litigation.

In addressing the challenge of merchant malpractice, acquiring companies need to be mindful of the many different ways in which malpractice can occur. In particular, acquiring companies should be looking for these three kinds of merchant fraud: Pursuant to this scam schema, a merchant requests a merchant holding an account without the intent of actually running a legitimate company.

Such merchant bank balances are then used to settle frauds or purchase line of credit prior to the complete closure of the bankroll. This kind of scam's goal is simple: just handle as many scam deals as possible within a few minutes, and before you get busted, just leave the game.

In what is probably the largest system for man-made ID scams to date, for example, criminal fraudsters succeeded in creating 7,000 counterfeit IDs and applying for and obtaining 25,000 individual payment-cards. In addition, they set up counterfeit businesses that did little or no legal trading or collaborated with other businesses to carry out their card operations.

Scammers will be very cautious not to raise warnings during the on-boarding lifecycle, and most KYC legacy applications cannot continually check the health of current KYCs. As soon as the merchant has been authorized by an acquiring party, scammers immediately begin handling scam deals and will do so for as long as possible.

Below shows how simple it is to forge an ID or create fake shops on-line for the purposes of cheating and transactional linen. In order to track down rogue traders, acquiring parties must exercise increased due care during the trader's on-boarding processes and periodically supervise transactions. Bust-out trader account is associated with high charge-back ratios.

As soon as back postings accumulate, these dealers are usually closed quickly by the acquiring party. If the merchant escaped and left behind an empty shell of a company, the buyer was stranded with the invoice. Bust-out dealer-based scams is a mounting issue and despite attempts to combat this felony, the associated casualties are continuing to rise.

The absence of suitable KYC procedures based on electronic identity is one of the reasons why eliminating merchant scams remains an important topic. It is forbidden for certain persons, e.g. persons on the AML/ATF observation list, traders from sanctioned jurisdictions, or those from certain extreme groups, to open trader account balances with important buyers.

In order to bypass these bans, retailers often use a counterfeit or robbed ID or create a counterfeit store to protect a merchant balance. Supervisors, however, require the acquirer to exercise due vigilance and due process to prevent merchant bank statements from being fraudulently acquired through ID thievery. Even though many sector initiative focuses on scams and ID thieves, the fact is that a significant proportion of lost money is associated with transactional washing.

Washing transactions is an acute and increasing issue in the money transfer sector and arises when an unfamiliar company uses the financial details of an authorised trader to handle transactions for goods and services not known to the purchaser. The growth of micro-merchants and IMO, as well as the rise in various forms of billing, are adding to the flood of information and difficulties in managing merchant portfolio surveillance.

Felon traders can easily tell lies about the type of deal they are selling when they want to resell high-risk goods or services, or they can take on dubious deal sizes prohibited by the purchaser, such as multi-level advertising programs. It is estimated that, on aggregate, an acquiring company will execute trades for another 6% of its "known dealer base" without its approval or expertise.

It is a worrying thought, as it means that a considerable number of trades that are held in trading portfolios are ignorant and illegal. Deceptive dealers defraud KYC effort and prevent acquiring verification by setting up a store front website that belongs to a "low-risk" dealer group. Once they have passed the first KYC check and set up their merchant trading system, these delinquents just modify the website contents and begin to sell goods, regardless of the chosen method of doing so.

That means they often don't recognize dealers where the MCC codes don't match the real dealer action. In order to prevent the risks of deal washing and other types of merchant scams, acquiring companies need to rework processes and technologies to become as nimble and effective as the scammers themselves.

In particular, acquiring parties should give particular attention: Today's widespread programmes for preventing frauds focus mainly on transaction-level surveillance. While this is an important part of a riskmanagement programme, in order to detect sophisticated scams such as transactional linen, the acquirer must go beyond the transactional layer and give particular consideration to the environment.

There is a great deal of loss of focus at the transactions layer - what you see is just a merchant that interacts with major card transactions. A look at a broader on-line eco-system can help acquiring companies recognise a merchant's on-line fingerprint, such as personally identifiable information, links between different merchant outlets and societal information.

In order to stay one step ahead of the scammers, it is important to put each deal in a broader perspective and look at everything that happens before the deal even takes place. Several hundred or even thousand datapoints that can be abstract to identify deceptive activities are totally absent from transaction-level surveillance workflows.

Extensive and integral supervision and prophylaxis of transactions washing is an essential part of extensive acquiring riskmanagement in today's regulated environment. Checking traders during on-boarding is not enough to rule out the risks of washing transactions. It has been noted above that dealers can switch industries quickly after being approved for acquiring programmes.

Businesses need to use technologies that allow them to continually verify that each dealer is actually reselling what they are meant to sell. Traders must be closely supervised at both deal and eco-system levels to quickly identify and solve issues. An extensive riskmanagement programme calls for a specific trading platforms that can integrate transactions layer surveillance and eco-system analytics.

Mechanical Learners continually monitor tens of hundreds of thousands upon tens of thousands upon tens of millions of points of data points to help diagnose critical activities in inventory linked to a specific retailer. Monitor even micro-transactions at the grand scale and this enables the identification of abnormalities and enables the acquirer to reduce the risks of frauds. In order to combat scams on the basis of sophisticated merchants you need sophisticated detection tools.

It' s important to look at the full contexts of each deal, analyse the eco-system around it, continually track traders in your portfolios and analyse hundred thousand points of information. It' s just not possible to find concealed links between traders and actual identity without using Big Date.