Nearly three-quarters of fraud specialists predict that in 2023, total fraud will expand even more since the COVID-19 pandemic started. ATM entities and merchant acquirers, including merchant fraud, lost $10.24 billion of the $28.58 billion globally to credit card theft in the payments industry in 2020.
Predictions For Merchant Fraud In 2023: A Rise Due To The Pandemic
Acquirers are reviewing their fraud detection tactics in light of expectations that fraud will increase in 2023.
There is always a chance of business fraud. Thus companies need merchant fraud prevention. 11.6 percent of acquirers report financial losses due to fraudulent merchant activity, according to PYMNTS.com. Vendors are having difficulty making payroll or paying suppliers.
Criminals are establishing false enterprises. While desperate business owners may engage in merchant fraud, a more dangerous class of criminals benefit from high-stakes fraud. Both increase the risk of acquiring banks and payment processors. Moreover, these modern thieves are becoming more internet savvy, are aware of current social and commercial trends, and are skilled at turning fraud schemes into successful illegal businesses.
There is a lot of room for improvement regarding merchant fraud. These scams succeed not because acquirers and processors don’t keep an eye out for suspicious merchant transactions but rather because of antiquated technology and methods. Unfortunately, many still rely on older, rules-based software in an era where cutting-edge AI technologies offer capabilities to identify fraud before it happens.
Surveyed in 2020, North American FIs reported that they had to deal with increased scrutiny over the previous 12 months, making detecting and preventing transaction laundering a critical issue. As a result, transaction monitoring was mentioned as one of the respondents’ main challenges.
With an estimated $155 billion in online purchases through transaction laundering in the United States in 2016, transaction laundering coexists with other types of merchant fraud. According to Infosys, six to ten percent of illicit e-Commerce sites, of which “approximately three percent are engaged in illegal operations,” are processed by U.S. banks.
Keep An Eye Out For These Typical Merchant Frauds:
Although there are many other types of merchant fraud, there are four basic kinds that law enforcement keeps an eye out for:
Abuse of Transaction Batches:
Merchants engage in batch fraud when they submit all transactions at once instead of doing so as they happen. The intention is to conceal fraudulent sales from legitimate sales. In addition, using a stolen identity to process a fake sale and letting the acquirer handle the chargeback is a popular practice.
When someone applies for a merchant account without the intention of running a real business, this is known as bust-out fraud. They may set up an e-commerce site but fail to fulfill paid orders, make transactions using stolen credit cards, or rack up bank debt.
When the acquirer receives notifications of chargebacks, the fraudulent merchant has already shut down. The acquirer is then forced to deal with consumer refunds and any additional expenses that may be incurred.
Identity Theft, Sometimes Known As Business-Based Money Laundering:
The chance to handle significant sums of cash that are either the proceeds of crime or intended to finance additional crimes, like terrorism, is known as money laundering. Extremists frequently set up online shopping shops using stolen or fraudulent identities to circumvent rules against money laundering. As a result, the products sold by the company are either undervalued or do not arrive in phantom shipments.
Acting Out Or Collaborating In Transaction Laundering:
When a merchant handles transactions on behalf of another company, a practice known as factoring, transaction laundering, occurs. Transactions may occasionally involve unlawful activity, with the merchant acting as a front for the criminal enterprise while collecting payment for the service. More frequently, a business is set up to offer legal goods, but the products sold are illicit or stolen.