Transaction laundering on mobile – new channel, new fraud

On: December 21, 2016

Mobile transactions are projected to reach $7,45 trillion by 2020. With the rapid growth in mobile payments comes the migration of transaction laundering to mobile as well.

Transaction laundering on mobile

Transaction Laundering  is an action whereby a merchant processes a transaction on behalf of another merchant.  This technique is used to bypass underwriting requirements in order to process payments for online sales of products and services that are either illegal or would not pass the card networks’ and MSPs policy checks. As the adoption of new payment technologies grows, more and more Merchant Service Providers (MSPs) are allowing merchants to accept transactions through mobile payments applications.

By funneling payments through registered merchant accounts, transaction launderers are able to link extended networks of unreported, hidden and often illegal ecommerce websites and mobile applications to MSPs’ payment networks without being detected. As a result, legitimate merchant websites and mobile apps are being used to process payments received from illicit sources, unbeknowingly to the MSPs.

Fraud loves complexity

Compared to the more direct online CNP credit and debit card transactions, mobile payment presents Merchant Service Providers with additional layer of complexity. The more complex the transaction environment is, the more conducive it becomes to exploitation by criminals and fraudulent merchants.

Also, the lack of technological standards makes content crawling on mobile apps especially challenging, and requires proprietary screen rendering techniques. Unlike web  standards, which include widely accepted set of standardized best practices , such as HTTP or  HTML display standard,  mobile apps have no standards to adhere to. Moreover, mobile apps cannot be simply “navigated to” – they need to be installed on a specific device one by one and accessed via dedicated links. 

Without a dedicated solution, the sheer number of mobile applications and payment solutions makes it nearly impossible to monitor where the money is coming from and where it is going.  

More data

Growth in the number of mobile transactions and applications, combined with the growth of Mcommerce, means that the volume of data that needs to be processed by the MSPs will also grow exponentially. The sheer volume of data makes it easier for criminals to hide illicit websites and applications, transaction laundering  and other fraudulent activities.

This renders manual fraud detection and prevention methods virtually obsolete. Fighting transaction laundering on mobile will require cyber intelligence and artificial intelligence tools.

The weak link

Choosing the path of least resistance, criminals will quickly find the channels with the weakest fraud mitigation solutions and will tend to attack them. Due to their novelty and complexity, newer channels and technologies are especially problematic in this regard.

This problem is compounded by the fact that appropriate detection mechanisms and accountability controls are not yet fully established and harmonized throughout the entire mobile payment ecosystem.

The lack of appropriate detection tools, know-how and a robust regulatory framework contributes to an environment where hidden entities are easily able to penetrate MSPs payment networks.

However, the fact that the regulators are yet to publish scripted regulations will not deter them from taking regulatory actions against MSPs that been caught processing illegal transactions. The MSPs who fall victim to mobile-based transaction laundering schemes  risk losing twice: they get a reputation hit as well as the financial one.  

Money laundering goes mobile

While online gambling websites, shell companies and online currency exchanges have become notorious in the recent years as vehicles for money laundering, another global money-laundering channel has been flying under the radar: mobile payments.  

The rapid spread of mobile payment solutions, has provided much-needed access to financial services in emerging markets. However, the places where m-payments are skyrocketing also happen to be the regions where international organized crime is flourishing; in large part due to a lack of sturdy government regulations, high levels of poverty and weak law enforcement institutions.

Transaction laundering on mobile gives international criminals easy access to global payment ecosystems and, as a result, contributes to a situation whereby MSPs end up unknowingly facilitating criminal activities, and suffer losses due to inaccurate risk assessments, fines and regulatory penalties.

Other facets of mobile technology, such as  in-app purchases are extremely difficult to monitor, especially if no physical exchange of goods is taking place. The popularity of gaming applications that allow in-game purchases creates a haven for money launderers.

Prevention of Transaction Laundering

Finding effective solutions to differentiate between legitimate and illicit transactions on all channels, including mobile payments, should be a top priority for Merchant Service Providers.

MerchantView is the only platform capable of detecting transaction laundering for mobile apps. It’s designed with proprietary cyber intelligence technology that is capable of monitoring every aspect of a merchant network to identify, detect, and prevent hidden illicit activities from infiltrating the payment ecosystem

Sign up to our blog to find out more about how transaction laundering affects the payments ecosystem.


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    • Sivaguru Krishnamoorthy
    • December 29, 2016
    • Reply

    Want to know more with few examples.

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    • February 08, 2017
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    • Manuel Moquete
    • February 20, 2017
    • Reply

    Credit card brands are aware of these mobile-related risks. As early as May 2016, MasterCard warned about watching out for products and services on mobile applications. They consider mobile apps to be increasingly relevant and prevalent and realize that they may need to be monitored just like merchants’ websites. They have also warned that Transaction Launderers may use mobile sites to circumvent their rules.

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