Basic mistakes when verifying merchants

Today, the ecommerce market is growing rapidly. The number of bank cards issued is increasing, as well as the number of Internet users, and all this fuels the development of online acquisition. The number of merchants offering their products and services online is growing as well.

Unfortunately, there are many fraudsters among them. If we consider the criteria for the control of websites, a lot of lawful activities are often prohibited, such as forex trading, consulting, and lotteries.

At the same time, such activities as charity, small retail sales of souvenirs and other seemingly harmless activities are often given free reign, and checks for their documents to combat the laundering of money obtained by criminal means and the financing of terrorism are rarely more than formalities. This attitude is wrong: there are no harmless or, conversely, extremely dangerous merchants working in the legitimate and legal sphere. Indeed, they are divided by their degree of risk, but with the right approach, this can be minimized to an acceptable level for business. Below, the diagram shows the basic mistakes made when examining online stores before connecting to them.

Let us look at them in more detail:

1. A lack of manual examination of the merchant. Many market participants rely on automatic scoring programs recommended by payment systems, as well as specialized companies. Every such solution certainly has its advantages, but weaknesses as well. As a rule, the program implements automatic scoring without manual human examination, and gives its recommendation as a percentage, and a certain amount of information in a more detailed report.

However, an expert will always see what a computer program does not. There are many examination criteria, but the most important process is comparison. You need to form a clear picture in your head about this online store and have all the parameters compete with each other: the merchants turnover, the websites recognition, ranking in search engines, presence of feedback, advertising, history, etc. It is impossible for a program to think in a human way, adding up all the factors into a single puzzle in order to be aware of the real risks and possible loopholes for fraud with a certain merchant. The perfect situation is the combination of these two types of inspection.

2. Excessive reliance on charitable merchants. One should not automatically sympathize with charitable foundations and give way to feelings and the desire to help those in need. Unfortunately, very often they are a cover for various kinds of fraudsters engaged in illegal activities, ranging from money laundering to the trivial embezzlement of donated money.

It is necessary to pay attention to their history, the foundations documents, the form of its legal representation, reports on activities, as well as the presence of appreciation links from other resources. Do not hesitate to ask for additional financial reports on the flow of funds and their transfer to their final destination. If possible, examine the responsible persons and the officials of the foundation as to their involvement in the nominal services, or the presence of other commercial companies registered in their name. Charitable foundations are only mentioned here as an example. There are many other activities that seem clean at first glance, but it can be just a showcase.

3. Lack of regular control of activities. If regular control is not maintained, then a website that meets all the requirements might get connected, wait for a while, then change its content and start illegal activity. Or add some forbidden content. A classic example: after examination, a pizza delivery website adds alcoholic beverages to the menu.

4. Visual examination. Oddly enough, you should not trust your eyes. When doing a visual examination, you see what the merchant wants to show you, and the whole picture can only be evaluated after it is processed. The major principle of any monitoring is gathering as much information as possible about the object and its subsequent analysis, mainly by comparison. You do not believe in its ambitious business plans? Take additional measures: monitor the transactions of the merchant round the clock, turn on a tighter set of antifraud filters for a certain period, re-examine the content, try replacing the technical parameters involved in the initial integration, set appropriate limits, etc.

There are other ways to commit fraud on the part of merchants, which are not directly related to their website content, when illegal activity is conducted on an entirely different third-party website, and the first one is only used as a payment instrument. We will not discuss this kind of situation here. It is also important to understand that there is no such thing as 100% protection against a fraudster merchant. From time to time you will encounter them and bear the losses from fraud, chargebacks or fines from the International Payment System. One can only prevent this from happening too often and decrease the impact on your business.

About Nikolay Bocharov

Nikolay Bocharov is head of risk control and anti-fraud Department at RBK Money. He has studied BA, electronics and systems engineering Moscow State Forest University. Since 2008 up until 2010 he held the position of senior expert of Department of control of risk at SB Bank and afterwards he was appointed senior expert and head of risk Department and AML compliance at Chronopay.

About RBK Money

RBK Money is one of the leading company of online payments in Russia and CIS. The company has wide experience in ecommerce area. RBK Money successfully passes annual PCI DSS (Payment Card Industry Data Security Standard) certifications and meets the highest requirements in the field of payment security.