Fraud is an ever-present and costly issue that plagues the payments industry. The sheer number of transactions being processed through payment networks makes it virtually impossible for industry stakeholders to trace where the money is coming from and where it is going.

Technological developments have simplified the process of establishing online businesses, virtually eliminating barriers to entry and leading to proliferation of ecommerce merchants to unprecedented levels. New payment systems and channels add another layer of complexity to fraud and risk management strategies.

Unfortunately, sophisticated fraud methods are also developing at a rate that makes them increasingly hard to detect. Transaction laundering is one of those emerging methods. It is a merchant-based fraud scheme whereby a presumably legitimate merchant processes transactions on behalf of unknown and unidentified online entities.

Industry stakeholders are taking decisive action to minimize the risk of fraud. However, an increase in strict security measures leads to another problem; false positives. These are instances where legitimate transactions are declined because they have been mistakenly flagged as fraudulent.

Overwhelmed by the constant influx of data, Merchant Service Providers(MSPs) often fail to appropriately categorize transactions, which often leads to loss of legitimate business. MSPs often adopt “industry standard” risk mitigation procedures, failing to optimize their strategy to fit unique risk profiles specific to their business. Those shortcomings often lead to extremely high false positive rates.

False positives – the numbers

It is reported that on the issuing side of the industry, false positives result in an annual decline of a whopping $118 billion: an amount of lost revenue that dwarfs the annual cost of fraud.

On the acquiring side, the regulatory environment is getting more and more sophisticated and difficult to navigate, leading to a wave of “mass de-risking” where entire industries are excluded from access to payments processing because they are deemed as being “overly risky”.

These all-encompassing measures lead to massive losses in terms of missed business opportunities that are difficult to calculate. So while legitimate businesses are being denied access to payment processing, fraudulent merchants are thriving as they are able to infiltrate payment networks through transaction laundering. There is a need for a more balanced approach.

Emerging forms of fraud, such as transaction laundering, are notoriously difficult to detect and consequently efforts to eliminate merchant-based risk are all too often extremely inaccurate and lead to very high false positives rates. The payments industry is stuck between a rock and a hard place – they either risk losing revenue to fraud, or implement low-threshold fraud detection methods that risk denying legitimate business transactions that damage their bottom-line.

A balanced solution is required to address both of these issues simultaneously in order to create a secure and efficient global payments ecosystem.

The consequences of false positives

Loss of business opportunities and revenue

Blocking legitimate transactions results in a direct financial loss as legitimate business opportunities are being falsely declined. Faced with ever stricter regulations many MSPs have employed extreme de-risking strategies, whereby they exclude entire industries from their processing networks in order to avoid fraud.

Brand and reputational damage

Merchant acquirer can come under fire for denying entirely legal businesses and labeling them as “high risk” based on inaccurate assessments. As the legitimate businesses are turned away in large numbers, brand and reputation can suffer serious damage.

Needle in a haystack

EverCompliant discovered that only 0.09% of all ecommerce transactions involve transaction laundering. Low density makes detection extremely difficult, requiring a tool with a high level of precision and accuracy

Tools Available

In order to reduce risks associated with merchant-based fraud on one hand, and minimize losses associated with false positives on the other, the ideal transaction laundering detection and prevention tool must be highly accurate. To tackle this challenge MSPs need a dedicated tool built specifically for this purpose.

That is precisely why EverCompliant developed MerchantView: the first and only dedicated solution on the market designed from its core to detect and prevent transaction laundering. It applies proprietary cyber intelligence technology to identify unknown and hidden merchants funneling transactions through seemingly legitimate storefront websites.

Its accuracy, transparency and ability to uncover hidden ecommerce networks and merchants sets it apart from any competing platforms and ensures the lowest false positive rate.

Request your free trial of MerchantView today.