While merchants are constantly facing the risk of consumer fraud, every payment service provider with many merchants in his portfolio is exposed to the threat of merchant fraud. As payment service providers bear financial liability for merchants in their portfolios, merchant fraud can result in substantial financial losses. In order to avoid such losses, PSPs need to utilize merchant fraud protection tools.
The majority of merchant fraud protection tools are based on specific indicators. Significant deviations from typical values (or ranges) of these indicators are, generally, uncommon. Consequently, if such deviations are witnessed, their reasons need to be carefully analyzed, respective incidents must be traced to particular (potentially, fraudulent) merchants and transactions, and, if necessary, some preventive steps should be taken.
Quantitative indicators and criteria providing the basis for specific merchant fraud protection tools include minimal and maximal transaction processing volumes, average transaction amounts and volumes, allowed volumes of even-amount transactions and micro-transactions, and others. If some patterns are typical for a given merchant, deviations from these patterns might also seem suspicious and signify potential fraud. For example, a merchant usually process transactions during a certain time during a day or during a month; some card entry mode or transaction type may be typical for a given merchant. If these patterns are broken, deviations must be carefully analyzed. A separate group of merchant fraud protection tools is designed to trace unusually large numbers of transactions with same card number or same transaction amount, which are submitted during a short time period.
A more detailed description of different merchant fraud protection tools can be found in the respective article “Merchant Fraud Protection Tools” on Paylosophy.com web-site.