Wide-Scale Search Capability Emerges to Combat a Rising Risk of Merchant Fraud

With transaction laundering and false-front Web sites a growing problem for acquirers and independent sales organizations, technology vendors are beginning to respond. The latest example is Reno, Nev.-based Conformance Technologies LLC, which this week introduced more powerful tools to combat this growing fraud threat.

Conformance has broadened the data elements scanned by its InConRadar Web-site-monitoring application to ensure the application scans every word, piece of data, and link on a merchant’s site to search for clues of transaction laundering or signs that the merchant is selling illicit goods, such as drugs, through affiliated Web sites or social-media pages.

Transaction laundering, which is also known as factoring or undisclosed aggregation, is a form of fraud in which criminals process fraudulent transactions using the account of an approved merchant without the acquirer’s or ISO’s knowledge.

False-front merchants set up multiple affiliate Web sites to hide the sale of illicit goods and services, such as prostitution. Typically, these merchants mislead the acquirer or ISO during the underwriting process about the types of products and services they sell. False-front merchants will then sell illicit goods and services through affiliated sites unknown to the acquirer or ISO, often by including coded words or phrases on the approved site that direct buyers to the affiliated site.

“The enhancements to InConRadar help acquirers and ISOs find where transaction laundering and false-front Web sites are hiding through continuous end-to-end scanning of merchant sites, so bad merchants can be removed from the system or blocked from entering it during the underwriting process,” says Darrel Anderson, president of Conformance Technologies.

A recent report from Boston-based Aite Group lists transaction laundering as one of four primary areas of focus for fraud management among acquirers and ISOs. “Transaction laundering means that merchants with legitimate credentials act as a front, willingly or unwillingly, for malicious transactions,” says Ron van Wezel, a senior analyst for Aite Group. “Acquirers can be exposed to serious financial and reputational risk if they don’t manage this well enough.”

The enhancements to InConRadar for detecting false-front merchant sites were developed using search-engine technology that enables the application to find all the known variations of words and phrases used to describe illicit products being sold on the Web, such as slang words for drugs, and identify suspect words and phrases, such as misspelled words, that can be cause for concern, Anderson says.

“We look for thousands of words and terms, and once we get through searching a merchant’s Web site, we immediately start over,” says Anderson. “That’s something no risk manager has the wherewithal to do manually.”

More than 300,000 small and midsize businesses in 19 countries use Conformance Technologies’ solutions. Conformance declined to reveal the pricing of InConRadar to acquirers and ISOs.

As the threat of transaction laundering grows, merchants are increasingly turning to Web-site monitoring solutions as a preventive measure during the underwritingprocess. “Screening of merchants during onboarding is very important to make sure only legitimate merchants come through the door,” says van Wezel.

But the job isn’t over when the underwriting is done, experts say. They recommend that merchants continually screen merchant sites after onboarding. “Because the occasional fraudster may slip through, or a legitimate merchant is hacked by fraudsters, it is important to scan for transaction fraud after the onboarding process is complete,” van Wezel says.