The global proliferation of advanced payment systems creates new and complex challenges for acquirers and payment processors. The rapid growth in the number of micro merchants combined with the exponential growth in the volume of ecommerce payments passing through Merchant Service Providers (MSPs) creates massive data overload.
In addition, as the number of payment service providers grows, merchants increasingly demand instant signup. As a result of rushed onboarding procedures, merchant service providers are increasingly struggling to understand the true origin of the transactions passing through their systems.
The inability to detect illicit transaction activity represents a serious business risk. Specifically, transaction laundering is an urgent and growing problem in the payment industry. Transaction laundering occurs when an unknown business uses an approved legitimate merchant’s payment credentials to process payments for products and services that the acquirer does not know about.
To avoid the risk of transaction laundering, today’s MSPs need to revise procedures to become as agile and efficient as the fraudsters themselves. In this article, we’ll examine five recommendations for MSPs and online marketplaces looking to more effectively detect and prevent transaction laundering.
Recommendation #1: Leverage technology to expose actual merchant risk
The transaction laundering threat requires a fundamental change in how acquirers vet and monitor online merchants. Merchant Service Providers need to look beyond known merchant websites to detect and monitor the elaborate online ecosystems that were previously invisible.
Solutions that rely on manual monitoring simply can’t keep up ー they need to be automated to effectively scale. Along with their scalability, these automated technologies are ideal for discovering repeatable patterns and reporting them in near-real time. This speeds up the decision-making process for merchant onboarding.
Recommendation #2: Focus on ongoing monitoring of the merchant portfolio
Merchant Service Providers need to shift their focus from the underwriting process and include ongoing monitoring of the merchant portfolio. This can be accomplished by applying the same scrutiny after onboarding as during initial merchant checks.
The reason? Bad guys know how to circumvent and compromise onboarding safeguards, and make sure they look 100% legitimate during underwriting. They pass KYC and credit checks, and seem to be in compliance with all requirements as they hide any associations with illegal content. These links can be detected only when transaction laundering begins.
Recommendation #3: View the merchant as an ecosystem
The notion of a merchant as a single entity needs to be revisited. A more realistic paradigm sees the merchant as an ecosystem. Onboarding a new merchant also brings in, potentially, a large number of associated parties. All compliance and underwriting procedures should be updated to work on the ecosystem paradigm, rather than the outdated single merchant conception.
Recommendation #4: Pay attention to mobile
Mobile is a significant channel in North America, Europe and especially in Asia, where over 50% of online commercial activity is conducted via mobile apps. At the same time, from a technical standpoint, it is a very different challenge to monitor mobile applications. Mobile should be considered a major source of concern for the next generation of fraud programs.
Recommendation #5: Share knowledge and collaborate with industry stakeholders
Shared intelligence stops fraudsters from just going somewhere else when discovered. As a community, payments industry players must work together to help each other to combat scammers and criminal abuse of online merchant accounts.
Mastercard MATCH and Visa VMAS have helped industry stakeholders join forces to share information about problematic merchants. Payments associations and conferences, online fraud groups and ongoing conversations with risk management partners offer additional opportunities to share information about merchants conducting illegal activity and how to detect them. Fraudsters have a sophisticated network and rarely operate independently. They interact with their like minded counterparts in an effort to stay ahead of industry detection methods. Knowledge sharing and collaboration beats them at their own game.
The Bottom Line
By eliminating transaction laundering, Merchant Service Providers can grow trust and confidence in payment networks and facilitate the integrity of the digital economy. Today, advanced cyber intelligence technology can uncover hidden ecommerce networks and merchants – accurately, transparently, and with time to market that can be measured in just days. These technological solutions enable a new level of response to the serious threat of transaction laundering.
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