You have recently been selected as the 2016 Florin Awards Asia jury winner for the Best Fraud Prevention solution. What are the main takeaways from the Global Payments Summit 2016?
We were extremely honored to be recognized as the jury winner for the Best Fraud Prevention solution. The 2016 Global Payment Summit was an outstanding event to be a part of. The most valuable takeaway at the 2016 Global Payments Summit for us was the ability to network with payments professionals from more than 26 countries.
The payments industry is a global community, and it was interesting to hear perspectives on regulations from all over the world. In one of the keynote sessions, transaction regulations in the EU and the Americas were highlighted, and there was a discussion around how they affect APAC. The keynote session suggested the regulatory oversight in place now is just the beginning. More guidelines and regulations will be coming and transactions professionals need to pay attention to regulations in their home country and abroad.
Another takeaway from the 2016 Global Payments Summit was the buzz around the blockchain, alternative payment methods and crypto-currencies. Change is truly constant in transactions and as the use of these payment methods continues to grow, payments industry members must pay attention to how they affect their business and the risks associated with these types of payments.
What is the current state of card fraud and transaction laundering in Asia and what is your company’s solution to clients in Asia?
Global credit card fraud is growing rapidly and is showing no signs of slowing down. Card fraud now costs Asian financial institutions an estimated USD 420 million each year, and losses are growing at an annual rate of 20-25%.
A lesser known form of card fraud is transaction laundering, which has quickly evolved into one of the most prominent and difficult challenges to banks and processors in Asia. Transaction laundering occurs when a business unknown to the acquiring bank or processor transmits payments through an approved merchant’s payment credentials, leaving the payment provider exposed to substantial risk.
A recent example was an illegal pharmaceutical website in China. An unlawful website selling medications without prescription was using a cosmetic ecommerce retailer to process transactions. The violating website was selling pharmaceuticals including anti-depressants and asthma medication. G2 reported this activity to one of our Chinese bank clients, who in turn, shut down the operation.
Another recent example was a drug seller in South Asia. The fraudsters set up a website for a store that was purporting to sell athletic apparel, but this was just a front to process transactions through a shared IP address. The site was selling “spice,” slang for dried plant matter laced with synthetic cannabinoids. Spice is a global problem causing overdoses and deaths. In this case, G2 helped a client not only to revoke the payment access but to prevent further consumer harm.
G2 helps our clients in Asia eradicate transaction laundering through a “defense in depth” approach. G2 web crawling and processing technology is combined with data science and expert analysts to ensure safe, profitable commerce.
In an effort to protect consumers, Visa has released new regulations for global merchants and acquirers. How do these new compliance issues impact card-present or card-not-present merchants, as well as acquirers?
The card networks revise their guidelines each year. We encourage acquirers and merchants to stay abreast of the changes and contact the card networks directly with any questions. Our clients have shared concerns over the difficulties of managing merchant outlet information for card-not-present transactions.
When the merchant outlet location is included during the checkout process, the acquirer and cardholder can confirm the transaction is legal in their jurisdictions. And ultimately, they can follow any regional laws and guidelines. Any mismatches or missing information could indicate fraudulent behavior. By closely monitoring merchant outlet information, payment providers better manage their risk.
Ecommerce gives consumers the ability to make purchases anywhere and at any time. While this convenience is appealing to consumers, it makes tracking merchants difficult for acquirers. Knowing the basic location information for merchants allows acquirers to protect themselves while fulfilling card scheme guidelines, government regulations and regional laws.
How important is reputation monitoring in the onboarding process and for a KYC program?
Reputation monitoring is a critical part of the onboarding process. Financial institutions increasingly seek indications of past business misconduct and past consumer harm.
By gathering information from news and trade sources, FIs can review cases of prior wrongdoing during their screening processes. Secondarily, by analyzing reports on consumer complaints on business activities, banks can risk-rank the likelihood of unfair or deceptive practices by their customers. If red flags are found, banks can investigate to avoid inadvertently facilitating these bad activities.
A recent example that we saw with one of our clients was during the onboarding process of a consulting business. It was discovered that the consultant attempting to open an account had previously pleaded guilty to fraud and conspiracy during Afghanistan re-building efforts. The new business included a book and a speaking tour and professional services were profiting from the experiences and prior past crimes. The bank terminated the relationship.
Reputation monitoring is also an important part of any KYC program. On an ongoing basis, some aspects of reputation require real-time alerting, while others are better summarized and reviewed at less frequent intervals. For example, a criminal conviction is a reputation event that an FI would need to immediately act on. An increase in complaints is better reviewed at less frequent intervals, monthly or quarterly. Furthermore, banks’ own annual and semi-annual reviews must consider reputation signals in evaluating risk rankings.
In another example, G2 Complaints Monitoring identified a ticket seller with a pattern of rising complaints. The complaints spiked about two months before the business owner vanished with consumers’ money. Advance warning of trouble enabled some of the concert-goers to recover their deposits.
What were the main trends (including threats) in matters of risk and compliance for 2016 and what do you foresee for the upcoming year?
Transaction laundering has been the biggest headache this year for risk and compliance professionals. Illegal drugs and pharmaceuticals have driven a large portion of the violations in 2016 and we expect that trend to continue into the new year. We’ve seen several rings or syndicates this year that launder transactions through multiple sites and across borders. This trend makes working with a global vendor critical.
In 2016 we saw a nearly 300% increase in the number of sites offering crypto-currencies as a payment option. In 2017 we expect to see even more of a rise in transactions laundered through alternative payment methods. Criminal enterprises transitioned online to take advantage of ecommerce and this explosive growth indicates that the same trend is occurring with alternative payments.
This year we also observed more banks and processors moving to auto-boarding, particularly with micro-merchants. We certainly expect this to continue next year. Frictionless boarding, in general, creates a dilemma for FIs as they balance offsetting aims of customer experience and fraud prevention. Best practice account creation is impeded by best practice underwriting. The best way to bridge the difference is with risk information that keeps up with the pace of auto-onboarding.
On December 6th and 7th we’ll be hosting a webinar on this very topic and we’ll dive deeper into these trends and threats in a special overview of the best and worst in payments this year. Please consider joining G2 as we will connect the dots between these major pain points of 2016 such as new regulations, new types of violations, new criminal methods and more. We’ll end with a discussion of what to expect in 2017 as card payments surpass cash transactions.
G2 Web Services won Best Fraud Prevention solution Florin Award at the Global Payments Summit 2016, held in Singapore (12 – 13 October). You can meet the organizers at their upcoming event, European Payment Summit (EPS), 8- 9 March 2017 in Hague. EPS offers a unique 2-day program featuring key developments ‘for-by professionals’ in the payments/transaction space, combined with key sessions on international security & fraud.
Created in 2010, the Florin Awards aim at stimulating innovation in the transaction services industry by supporting innovative startups and assisting the promotion of their products and solutions.
About Dan Frechtling:
Dan Frechtling is the SVP of Marketing & Chief Product Officer at G2 Web Services. He oversees marketing, product management and innovation for diligence and monitoring solutions worldwide.Previously, Dan was VP of Global Website Products for hibu, VP Marketing and Client Solutions for DS-IQ’s Walmart Smart Network and re-launched DS-IQ’s digital couponing products for SUPERVALU. Dan earned his MBA with distinction from Harvard Business School, his BS in Journalism/Economics with High Honors from Northwestern University, and studied at Nankai University in Tianjin, China.
About G2 Web Services:
G2 Web Services is a global information company using technology and analyst expertise to help banks, processors and their partners ensure safer and more profitable commerce. Over half of merchant outlets globally use G2’s solutions to identify fraudsters and keep them out of the payments system. Banks, processors and their partners use G2’s data, tools and expertise to perform better due diligence and monitoring to grow their portfolios while taking on acceptable risk.
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