Fraud has always kept pace with technological developments within the payments industry. The advent of the internet and the rapid rise of ecommerce have opened up a whole new host of possibilities for merchant based fraud.

Methods for perpetrating online fraud are evolving and becoming more and more sophisticated; constantly finding a way around even the most evolved fraud prevention and detection techniques.

The rise of content monitoring

In the early days of ecommerce, fraudsters quickly moved on to selling illegal goods openly on the web. Internet became flooded with vendors selling illegal goods and services, such as firearms and illicit drugs. Those vendors would accept credit cards, exposing payments processors to risks of financial penalties and fines.

To counter the onslaught of illegal ecommerce, content crawlers were created. As a result, payments industry started to monitor content online, using content crawlers to identify illegal goods and suspicious activity associated with registered merchant accounts, ensuring that the payment system was not abused.

Content Monitoring Era

Content crawlers were specifically implemented to minimize the risk to Merchant Service Providers (MSPs) stemming from processing credit card transactions for the sale of illegal goods such as illicit pornography, drugs, and weapons.

A content crawler is an automated program, or script, that methodically scans or “crawls” through web pages to create an index of the data it is set to look for. The websites will also be re-crawled at intervals and all the data will be analyzed offline.

Content crawlers would comb through a merchant website to ensure that it was compliant with regulations, laws, card association operating procedures, and the acquirer’s terms and agreements with merchant clients.

Content crawlers made it possible to identify merchants dealing with illegal goods, and disabling their accounts.

There are plenty of solutions on the market capable of content monitoring on known websites. However, they all fall short when it comes to detecting transaction laundering activities.

The rise of Transaction Laundering

As previous experience teaches us, criminals adapt quickly; they know the rules of the compliance game and the way the payments system works inside-out. They know exactly how to appear legitimate during the underwriting stage. They no longer put illegal goods on the websites that they use during underwriting proceedings- rather, they connect extended networks of unreported ecommerce websites to one complaint storefront that appears on merchant application documentation.

Although content monitoring on known websites is indispensable to banks, acquirers, and MSPs, it’s simply not enough anymore, as the rules have changed, with the rise of a new, sophisticated merchant based fraud – transaction laundering. The website listed on merchant application can indeed be compliant with laws and regulations, but it can easily be a front for transaction laundering activities.

Criminals can easily appear legitimate during the underwriting stage, while at the same time using legitimate payments networks to process payments originating from illegal transactions.

When an ecommerce website is connected to a payment processing network, it’s often linked to a number of associated online businesses. Standard content monitoring tools which payment processors widely use are incapable of detecting illegal content associated with those hidden associations and connections.

The extent of this fraud scheme is immense. According to our data, 600 to 1000 unknown and unauthorized merchants enter MSPs payment processing networks for every 10,000 known merchants registered with the MSP. .

Content Monitoring on Steroids

With the rise of transaction laundering, it is no longer enough to monitor the merchants themselves since they can so easily be linked to multiple hidden entities supplying illegal content. Merchant Service Providers need tools capable of discovering hidden associations and connections and then applying content crawling and monitoring for illegal content on those unreported websites as well.

Hiding illegal content behind storefront websites is the essence of transaction laundering. That is where the regular content monitoring methods fail – they are capable of monitoring content only on the websites that the merchant discloses in his application. In order to detect the entire hidden networks of illegal ecommerce websites that are often connected to registered merchant accounts we need “content monitoring on steroids.”

Such method would not only be capable of ongoing content monitoring on the merchant website beyond the underwriting and onboarding stage; it will also excel at detecting illegal content on associated websites and discover the hidden connections behind multiple websites by analyzing the entire merchant ecosystem.

The volume of data involved in such highly evolved fraud detection method is immense, requiring sophisticated machine learning and cyber intelligence techniques. Manual monitoring for suspicious activities and transactions, that is still widely used in the industry, is no longer enough to detect merchants dealing with illegal goods and content online.

Transaction launderer – Wolf in Sheep’s clothing

With transaction laundering, hidden entities can easily hide behind sleek looking storefront websites. That is why content crawling can only be effective in combination with uncovering hidden associations to unreported websites, coupled with a functionality to monitor content on those hidden web pages as well.

With the advent of transaction laundering, merchant based fraud prevention is no longer just a matter of content crawling on known website and strict KYC and underwriting procedures. The process needed now requires a lot more than searching through a merchant’s portfolio to uncover unusual transactional activity or content monitoring on known websites. It is all about uncovering the unreported transactional activities, unidentified online connections, hidden payment pages and even unreported mobile applications.

That is precisely why we have developed MerchantView, the only comprehensive solution capable of detecting transaction laundering activities. MerchantView concurrently engages in content crawling on known websites, while at the same time scanning for and identifying hidden associations and websites connected to the merchant account in question, and monitoring content on those hidden websites as well.

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