{"id":4563,"date":"2019-05-01T21:11:06","date_gmt":"2019-05-01T21:11:06","guid":{"rendered":"https:\/\/www.paymentfacilitator.com\/?p=4563"},"modified":"2022-05-05T10:57:12","modified_gmt":"2022-05-05T16:57:12","slug":"high-risk-trends-series-fraud-and-scams","status":"publish","type":"post","link":"http:\/\/infinicept.com\/payment-facilitator\/expert-perspectives\/underwriting-risk\/high-risk-trends-series-fraud-and-scams\/","title":{"rendered":"High-risk Trends Series: Fraud and Scams"},"content":{"rendered":"\n

David\nKhalaf, LegitScript<\/em><\/p>\n\n\n\n

By lowering the barriers to entry into the payments system for many legitimate merchants, the payment facilitator model potentially becomes attractive to bad actors as well. This means that payment facilitators have to stay well-informed about the biggest risks to their own portfolios, so they can remain vigilant in protecting them. <\/strong><\/em><\/p>\n\n\n\n

This week, we continue an occasional series on the high-risk trends that are facing payment facilitators with a look at recent frauds and scams. <\/strong><\/em><\/p>\n\n\n\n

The ease and relative anonymity\nof conducting business online makes the internet a perfect ecosystem for\ncybercriminals engaging in fraud and other scams. According to the most recent Internet Crime Report<\/a>, the\nFBI has received more than 1.4 million fraud complaints totaling more than $5.5\nbillion in reported losses. This doesn\u2019t even consider losses from fraud and\nscams that go unreported.<\/p>\n\n\n\n

Even as enforcement agencies\nattempt to crack down on scams online, cybercriminals are devising new and\ncreative ways to defraud the public using the processing power of payment\nfacilitators. While merchant fraud can take dozens of forms, below are some of\nthe most recent trends payment facilitators should watch out for.<\/p>\n\n\n\n

Get-rich-quick Schemes<\/strong><\/strong><\/p>\n\n\n\n

Get-rich-quick\nschemes are one of the oldest scams around, but new technology and changing\ntactics make them one of the recurring annual high-risk trends. These merchants offer an opportunity marketed with\nunrealistic promises of high financial returns in a short amount of time. They\ntypically require an upfront payment and often market their schemes as a\nlow-effort way to make money fast. Popular tactics include using unauthorized celebrity\nimages to imply an endorsement of the product or listing bogus glowing\ntestimonials. An increasingly popular scheme involves merchants offering\ncryptocurrency investment strategies that promise unreasonable returns. Any\nmerchant promoting an offer that sound too good to be true should raise a red\nflag. Get-rich-quick schemes are a common subject of regulatory scrutiny and\npresent elevated risk for chargebacks as consumers realize they are unlikely to\nreceive the monetary gains originally promised. <\/p>\n\n\n\n

Gambling Fraud<\/strong><\/strong><\/p>\n\n\n\n

Gambling\nmerchants offer a prize for participants in a game of chance that requires\npayment to enter. This includes merchants who are offering lotteries,\nsweepstakes, sports and fantasy sports betting, horse racing shares, and\nraffles if the prize or entry fee is significant. In addition to the legal\nissues surrounding online gambling, which vary by state, merchants engaged in\ngames of chance are at a higher risk of committing fraud or scams. For example,\nthe merchant may be manipulating the game to ensure players lose, or the\nmerchant may sell or illegally use customer data to commit credit card fraud or personal data theft.\nFurthermore, gambling is frequently used for transaction laundering and money\nlaundering. Most payment facilitators forbid gambling, but some gambling\nwebsites can fly under the radar by presenting themselves as online games.\nRecent trends include websites offering luxury raffles for exotic trips, new\ncars, and high-end electronics. <\/p>\n\n\n\n

Unauthorized Aggregation\n(Fundraising Scams)<\/strong><\/strong><\/p>\n\n\n\n

Aggregation\ntypically refers to merchants who are allowing other merchants\u2019 transactions to\nflow through their accounts, rather than requiring platform users to sign up\nfor their own merchant accounts. This type of relationship includes payment\nfacilitators, of course, and it can take many other legitimate forms, most\nfrequently crowdfunding websites (such as Kickstarter), services that\nfacilitate transactions between two parties via a website or an app (such as\nUber), and marketplaces where third-party merchants can post their merchandise\n(such as eBay). Any merchants engaged in aggregation may face elevated risk and\nmust avoid introducing high-risk merchants downstream. One of the greatest risks\nfor crowdfunding platforms, for example, is fundraising scams. As part of a fundraising scam in late 2018, three people were arrested on suspicion of defrauding\n14,000 donors out of more than $400,000 by launching a GoFundMe campaign based\nupon a fabricated story about a Good Samaritan helping a stranded motorist.\nThese scams are so common that there are websites devoted to tracking and\nstopping them. To combat any type of unauthorized aggregation, payment\nfacilitators should make sure they have strong Know Your Customer policies in\nplace.<\/p>\n\n\n\n

Negative Option Billing<\/strong><\/strong><\/p>\n\n\n\n

Negative-option\nbilling is a practice in which the customer\u2019s failure to reject an offer or\ncancel an agreement is used as confirmation that they want to be charged for\ngoods and\/or services. Negative-option billing merchants can exploit consumers\nby using deceptive business models to return a profit. Merchants engaged in\nnegative-option billing pose a risk for regulatory and card brand scrutiny, as\nwell as elevated risk for chargebacks. The problem is that their practice is\nrarely obvious. Red flags to watch out for include billing terms in small print\nthat are difficult to find on the website, complex and misleading billing\nterms, and contact information that is incomplete or difficult to locate,\nmaking it difficult for customers to cancel their orders.<\/p>\n\n\n\n

Nondelivery Schemes<\/strong><\/p>\n\n\n\n

Nondelivery schemes (also called 419 scams) occur\nwhen merchants accept payment for products they intentionally never send.\nMerchants engaged in high-risk industries, especially the marketing of illicit\npharmaceuticals or other illicit products, will almost always be at a higher\nrisk of nondelivery schemes. This is because customers are far less likely to\nfile complaints with enforcement agencies for fear of being prosecuted for\nparticipating in the sale of an illicit or high-risk product. Nondelivery also\nhappens frequently in the context of online auction fraud. According to the\nFBI, nondelivery auction fraud happens most frequently with high-end electronics\nand other luxury goods that are listed for prices significantly below their\nmarket value. Payment facilitators should watch out for merchants marketing in-demand\nor expensive products priced suspiciously low. In the context of drug merchants\nespecially, payment facilitators should be wary of merchants with suspiciously\ndiverse product catalogs, marketing everything but the kitchen sink (e.g.,\npharmaceuticals, designer drugs, steroids, and opioids all on one website).<\/p>\n\n\n\n

Tech Support Scams<\/strong><\/strong><\/p>\n\n\n\n

In\n2018, the FTC received nearly 143,000 reports<\/a> regarding tech support scams. These scammers send people pop-up windows,\nemail, or phone calls to supposedly warn them about viruses or other problems\non their computers. These tech support imposters then \u201cfix\u201d the problem for a\nfee, or sometimes get customers to download software that gives the scammers\naccess to their computers. These criminals often target more susceptible\npopulations, such as people over 60. Payment facilitators should be wary of\ntech support merchants with domain names that look suspiciously similar to\nlarge technology companies, such as Microsoft, Apple, or Google. Merchant\nwebsites that look \u201cscammy,\u201d with aggressive pop-up windows or alarmist\nlanguage, should also be a red flag.<\/p>\n\n\n\n

This is the second in PaymentFacilitator\u2019s series on high-risk trends. Our previous post discusses problematic products, and our final post explores merchants posing reputational risk. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By lowering the barriers to entry into the payments system for many legitimate merchants, the payment facilitator model potentially becomes attractive to bad actors as well. This means that payment facilitators have to stay well-informed about the biggest risks to their own portfolios, so they can remain vigilant in protecting them. <\/p>\n

This week, we continue an occasional series on the high-risk trends that are facing payment facilitators with a look at recent frauds and scams. <\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[1022],"tags":[322,380,479,646,764],"class_list":["post-4563","post","type-post","status-publish","format-standard","hentry","category-underwriting-risk","tag-fraud","tag-high-risk","tag-legitscript","tag-payment-facilitators","tag-risk-management"],"acf":[],"_links":{"self":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/4563","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/comments?post=4563"}],"version-history":[{"count":6,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/4563\/revisions"}],"predecessor-version":[{"id":8696,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/4563\/revisions\/8696"}],"wp:attachment":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/media?parent=4563"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/categories?post=4563"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/tags?post=4563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}