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Predicting Merchant Risk With Data Mapping

Post Categories: Blog, Merchant Boarding, Merchant Risk

Data mapping has increasingly become one o­­f the most important tools to identify and manage merchant risk in the rapidly shifting payments landscape. When reviewing a merchant application and its basic business information, there is much more than meets the eye. Often, there lies an entire network of connections between the merchant and existing domains, directors, IP addresses, third party providers, and risk history. Why does this matter? Well, if it is possible to identify relationships or connections between a new merchant on the web to current or previous entities, it’s possible to gather enough data to predict what risk they present to an acquirer or payment provider. Prediction rather than reaction is essential in mitigating merchant risk and fraud, both at boarding and throughout a merchant relationship.

So just how many connections can be made from one merchant? Here is one example that G2 mapped using the G2 Merchant Map®, the industry’s most extensive network of merchant risk and fraud history and connections:

  1. An acquirer client provided G2 with one merchant name, address, URL, MCC, director information and contact information that was provided by a merchant on its merchant application. At first glance, the merchant appeared to be a low risk merchant. G2 used this information, in this case the address, to look up connections in the database, with the goal of uncovering any relationships to merchants or URLs with past violations.
  2. The G2 Merchant Map found 26 additional merchants registered under the same address. At this point, more information and history about those 26 merchants was needed.  Did they have previous issues?  Were they related to the merchant in the application?  Finding connections between the prospective merchant and previous merchants or sites related to the application would help provide the insight needed to allow the acquirer to decide whether or not to board the merchant.
  3. As seen above, 26 other merchants were found with the same address as the prospective merchant. This could simply be because those merchants all reside in the same building or it could be something more risky – the prospective merchant might be operating under other merchant names.To find more concrete connections, G2 took the prospective merchant’s director’s email address as listed on the application and entered it into the G2 Merchant Map. Doing so, G2 found numerous websites with past violations registered with that same email address.
  4. These additional connections reaffirmed that the prospective merchant had connections to other high risk merchants online.When this merchant application was provided, the acquirer had no reason to suspect the prospective merchant was associated with high risk. The URL, merchant name, merchant location and even MCC were not considered risky. With the G2 Merchant Map, G2 was able to uncover connections between the prospective merchant and high risk merchants with past violations. This information helped the acquirer evaluate the true risk of that merchant, allowing them to make a completely informed decision on whether or not to board the merchant.

Identifying Risk with the G2 Merchant Map

G2 has built the G2 Merchant Map based on data gathered from nearly a decade of monitoring millions of merchants and their risk history, and mapping their relationships. The G2 Merchant Map is the industry’s most extensive mapped database of merchant history and relationships, and provides G2 with a unique industry view that no one else can offer. G2 uses the G2 Merchant Map to help acquirers and payment providers manage merchant risk in a variety of ways:

  1. Due Diligence – Using the G2 Merchant Map, G2 is able to provide clients with detailed information about their prospective merchants, specifically, how a particular merchant is related to other merchants in the G2 database. By seeing the connections a potential merchant has to risky merchants and URLs already in the system, G2 can give clients extra insight for them to identify and manage their prospective merchants’ future risk.  The G2 Merchant Map also powers the G2 Risk History Score, which is based on the behavior and data from the millions of merchants we have monitored. When it comes to due diligence, the more data and insight available to the acquirer at boarding, the better able they are to protect their portfolio and predict potential merchants’ risk.
  2. Compliance – G2 is able to use data to identify risk and drive registration and compliance of service providers. Since the map has identified more than 10,000 third-party service providers and their relationships with over 1.5MM merchants, each successful third-party registration helps protect dozens or even hundreds of merchants from risk. Not only do the merchants stay protected, but this data helps prevent risk for acquirers that are connected to these third parties and that are responsible for registering them with the card networks. G2’s years of monitoring experience, combined with the use of our extensive data, allows us to provide our clients and partners unique insight into emerging industry trends and compliance threats.
  3. Fraud – Merchant fraud manifests itself in a number of forms, including affiliate fraud, aggregation, load balanced fraud networks and bust-out merchants. With extensive data mapping, G2 has revolutionized the way we use data to identify, notify and prevent fraud. In the case of merchant fraud, G2 FraudFile compiles data on a reported fraudulent merchant, and notifies other acquirers in our database that are connected to that merchant of their potential fraud risk.  FraudFile enables payment providers to prevent fraud at boarding, receive fraud alerts on current merchants, and report global fraud loss data to a central, secure location. G2 FraudFile is just an example of how G2 uses data mapping to inform our clients, helping them to better assess their merchant risk.

The Power of Data Mapping

The exponential rate of growth in the payments industry makes it all the more difficult to mitigate merchant risk.  A dangerous approach to merchant risk is to simply react to issues as they arise, hoping that any consequences such as brand damage, legal penalties, card network assessments, and most importantly, financial loss, will be minimal. G2 continuously improves the approach to be more predictive and alerts you of risk before it results in loss. Through extensive data mapping, which includes in-depth analysis, relationship tracking and insights, G2 is helping clients use data to stay informed and better equipped to predict their merchant risk.

Learn more about the services G2 provides using our extensive data and the G2 Merchant Map.

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