New Payments Risks Appear With The COVID-19 Outbreak – How Can You Protect Your Merchant Portfolio?

The global spread of COVID-19 has resulted in a new risk management environment for the payments industry. The world hasn’t faced a similar event since long before the advent of electronic payments.

Despite the lack of precedent, however, we can certainly anticipate likely threats to the payments ecosystem, and many risks are already clear.

During a health crisis, scammers are quick to exploit growing fears by offering fake cures and unproven treatments. They also take advantage of generosity and a common desire to help others by creating fake charities and fundraisers.

While these bad actors are looking for an advantage, this crisis is preventing many small businesses from operating their businesses. This sudden loss of income has the potential to lead some businesses with merchant accounts to consider selling products they might previously have rejected.

The potential for fraud, deception and consumer harm is enormous right now, which means that payment facilitators and others in the payments industry must be diligent in making sure that their customers are staying on the right side of the law.

With that in mind, here are some of the warning signs you should watch for when monitoring your merchants’ or submerchants’ transactions:

• Changes in transaction volume. Are you noticing an increase or decrease in transactions or types of transactions (swiped or keyed), and does that change make sense, given the business that client is in?For example, an increase in transaction volume might raise a red flag for a restaurant, because many have had to close their seating areas due to physical distancing. On the other hand, it’s possible that the restaurant in question is running a popular promotion encouraging to-go orders, which could account for the increased volume.

• Repeat credit card purchases. Are you noticing multiple transactions from the same card? Or, if it’s a business that typically sees recurring transactions, are those transactions happening at unusual times of the month or more often than usual? In times of economic distress, people with merchant accounts have been known to obtain cash by running transactions on their own cards or cards they have on file.

• Ecommerce volume surges. A surge in online volume could indicate that the business is conducting a virus-related scam of some kind.

As many businesses adjust their models to adapt to changing circumstances, there is no doubt that transaction patterns are likely to change. Small storefronts are switching to ecommerce. Service-based businesses such as salons are switching to selling products.

As a result, transaction volumes – and the nature of those transactions – are changing. Changes aren’t in and of themselves an indication of nefarious activity. The key for payment facilitators, however, is to understand those changes.

It’s important to keep up with current events and understand the environment in which your submerchants are operating. Know which locations are experiencing stay-at-home orders and which are not. Search business databases for association of your merchants with words related to the virus, such as COVID or corona, and update your automated underwriting tools to pend accounts associated with those words as well.

Follow up on concerns by checking out the merchant’s website. A review of the site can help you determine whether the activity makes sense. Is the merchant doing something special that could account for the changes you see? Does the average ticket size seem logical given the type of products they are selling? Does the time of day seem appropriate for the types of transactions?

You may also choose to call the merchant to ask for an explanation, asking for receipts and other proof of the transactions if necessary.

Now more than ever, it’s critical for payment facilitators to stay well-informed about their merchants and the world around them. For more information about risk management and merchant monitoring during this time, reach out to us to register for Infinicept’s Webinar on Tips for Mitigating Risk and Fraud During COVID-19, which is scheduled for Wednesday, April 15 at 11 a.m. PT.