5 Things to Look for in a Merchant Risk Solution

The threat of online seller fraud to acquirers, banks and payment service providers (PSPs) is at an all-time high as we enter 2023. Last year, $155 billion in online sales were fraudulent, according to Mastercard, which predicted a 70% increase in online merchant fraud this year. 

This global increase in fraud, along with rising violation rates, has reduced consumer trust, and intensified the regulatory landscape, where anyone playing a role in a fraudulent transaction may be subject to penalties.   

Why is managing risk important?

Fraud is very costly. A 2018 study from Juniper Research predicted that annual online payment fraud losses from ecommerce would reach $48 billion this year. Acquirers, banks, and payment providers will all be affected. In 2022, for example, nearly one in ten acquirers reported losses due to merchant fraud, according to statistics from Mastercard.  

In addition to financial losses from fraud, payment providers are susceptible to hefty fines and penalties from regulators for fraudulent activity, even if they weren’t aware of it. Increasingly, regulatory agencies are placing more burden on payment providers and even marketplace platforms to prove they are taking measures to prevent fraud, due to their role in enabling online transactions, often across multiple jurisdictions.

Reputational risk can be just as costly as financial risk 

The other risk, which is harder to put a price tag on, is reputational risk. It is the risk that negative things will be said about your brand and spread through word of mouth, mainstream media, or social media. For example, your brand would suffer if a news report broadcast a story that indicates your brand is connected with the sale of products from extremist organizations. But it could incur damage by someone telling their friends – or posting to a broader audience on social media – that they were scammed in a transaction when using your bank or payment service. 

Harm to your brand’s reputation from negative exposure can take a long time to repair. They can also result in enormous impact – including financial – across many different business areas.  

5 Things Your Merchant Risk Solution Should Do

Technology is an essential tool in managing large scale risk. Merchant risk solutions need to first and foremost identify risky merchants; however, the best solutions will do much more. Here are the five criteria to look for in a merchant risk solution: 

1. Identify transaction laundering and hidden risk – Thoroughly analyze the merchant using broad datasets and deep intelligence that go well beyond simply evaluating the provided URL, to enable the detection of more risks.
2. Uncover high-risk merchants early – Assess merchants early in the process, quickly providing evidence so you can make informed decisions whether to approve or decline merchants based on your risk tolerance.
3. Provide continuous monitoring as risks evolve – Continuously monitor merchant activity, flag changes, and assess fluctuating risk levels over time, providing the information you need to uncover transaction laundering and high-risk merchants.
4. Increase operational efficiency – Automated, scalable solutions help you stay on top of merchant risk, even during periods when your business experiences rapid growth. The best solutions will promote growth by enabling your organization to onboard and retain good merchants, without compromising security.
5. Ensure compliance and protect your brand - Meet the increasingly strict requirements of regulators and card schemes to avoid costly fines and penalties. At the same time,  protect your brand from negative media exposure, reduce reputational risk, and enable you to build confidence for sellers and buyers. 

Want to learn more about MerchantView? 

MerchantView can give your organization better visibility into your merchant risk portfolio and help your organization focus on ecommerce growth.