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Could You Be Facilitating Fraud?

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[vc_row][vc_column][vc_column_text]By: Allison Guidette, Chief Executive Officer


Last week we had the opportunity to attend the Merchant Acquirer Committee’s regional conference in Los Angeles, where I was impressed by the quality and depth of the information presented.


First lesson of the day: acquirers should register their third-party service providers asap, as it is required by the card brands. Some acquirers are not in compliance, e.g., if they haven’t registered certain types of service providers, such as web hosts, or all players in the value chain, due to cost. As one speaker stated, the question is not IF they will start enforcing with vigor, but rather WHEN.


We also had an interesting discussion about the US government’s increased focus on payment providers. Staying on the right side of government regulators is, needless to say, very important for acquirers. First, you don’t want to be facilitating payments for illegal activity. Second, is the time required to address potential missteps with regulatory authorities? Which ones? The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the federal government regulate banks, while the Federal Trade Commission (FTC) is the active regulator for non-banks (e.g., payment processors), and the Consumer Financial Protection Bureau (CFPB) acts as the watchdog for consumers.


Speakers also discussed the challenges of regulating fraud in e-commerce. By the year 2020, it is estimated that Cyberfraud will reach a $300 trillion category. Speakers noted that cyberspace expands every moment and that cyberwar is as scary as it sounds!


Merchant fraud and misdeeds of many types can potentially be identified through best in class underwriting and risk assessment processes. Following underwriting best practices requires a thorough understanding of what your merchants are selling, such as (in the nutraceuticals category) ordering their product and looking at what you receive. Does the packaging list product ingredients? Are the products returnable?


MasterCard said that Q414 was the highest fraud quarter on record. Card not present fraud is greatest in direct marketing, followed by business services, travel and vending. 2014 set the record for Account Data Compromise incidents.


Finally, my team presented on the pernicious challenge of transaction laundering detection. We explained that according to G2 analysis, half of all violating sites are exploiting the payment system without registering for merchant accounts. We also reviewed examples of TL that we have uncovered for clients and reviewed the many different ways laundering occurs. Together with Deana Rich, G2 Web Services also offered several useful lessons on protecting your portfolio.


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