As financial crimes hit new heights, mitigating merchant risks is an ongoing struggle for Payment Service Providers (PSPs) and Payment Aggregators (PAs). With the complexity and variety of risks involved in merchant onboarding, financial institutions often seek advanced solutions to effectively mitigate risks, ensure compliance, and augment their overall security posture.

BANKiQ, recognising the sophisticated threat landscape for digital payments and addressing the challenges of merchant onboarding, presents its comprehensive Fraud Risk Compliance (FRC) Services. By leveraging advanced features like attribute linking, real-time transaction monitoring, merchant screening, and the capability to put merchants under vigilance, the BANKiQ solution assists financial institutions in effectively navigating the intricacies of the current payments landscape.

This blog discusses the role of attribute linking in mitigating merchant risks. It highlights the key aspects and functionalities of attribute linking and underscores its imperative in uncovering fraud networks. Finally, it presents practical applications and the benefits financial institutions can reap from deploying it.

Merchant Onboarding Solution

Understanding Merchant Risks

Failures in legacy fraud risk management have exacerbated the rise of payment frauds. One key aspect to focus on is the conventional handling of risks associated with the merchant onboarding process. Financial institutions have seen a proliferation of risks when they fail to effectively manage merchants and execute validations and background checks, resulting in identity frauds, transaction laundering, and compliance issues.

Some of the prevalent fraud risks linked to merchant risks are as follows:

  • Onboarding fraudulent merchants
  • Association with merchants who have a history of violations
  • Affiliation with fraudsters who create synthetic identities to pose as merchants
  • Illegal transactions disguised as legitimate ones and more

Without advanced tools and technologies, mitigating these risks becomes challenging, leading to significant financial, operational, and reputational damages.

Disguising Fraud and Layering in Modern-Age Frauds

Modern-day frauds aren’t simple. They are often meticulously planned to evade detection by traditional fraud detection methods. Fraudsters employ various techniques to obscure the true nature of these fraudulent activities, especially in the case of digital payment fraud and money laundering activities.

Let’s briefly address the standard methodologies used in modern-age frauds:

Disguising Fraud: Fraudsters’ main agenda is to mask illicit transactions and present them as legitimate payments to avoid detection. To achieve that, they use various techniques, including disguising. By hiding fraudulent activities, fraudsters employ tactics that camouflage illicit activities within normal payment operations, which aids them in exploiting the gaps in financial systems.

Here are some key strategies used by fraudsters:

  • Transaction Laundering: Fraudsters use this technique to route illegal transactions through legitimate business channels, concealing the origin of the money generated.
  • Mule Account Creation: Payment scammers use intermediaries’ accounts to hold illegal money for fraudulent activities. This tactic complicates the money trail and makes fraud detection harder.
  • Establishing Shell Companies: One of the most common strategies used for disguising is creating shell companies. Fraudsters create fake businesses and use them for illicit activities under the guise of legitimate companies.
  • Synthetic Identities: To deceive the financial regulatory authorities, fraudsters create fake identities comprising both real and fake information. These identities are later used for fraudulent purposes.
Merchant Onboarding Solution

Layering: Once the money is illegally placed, the next step is to complicate the trail so that its source is distanced and separated. Scammers use the technique of layering to separate illicit funds from their source. With a multifaceted approach, they create complex layers to avoid the direct ownership of illegal funds. This includes:

  • Combining legitimate transactions with fraudulent ones to avoid detection.
  • Leveraging valid business entities to launder money to avoid flagging.
  • Obstructing the trail by transferring funds to different accounts and changing its medium to make the investigation complex and convoluted.

Once the money is processed and layered, it is reintroduced into the financial system, where it is presented as “clean,” making it indistinguishable from legitimate sources.

The Role of Attribute Linking in Risk Management

Attribute linking, or real-time link analysis for fraud detection, plays a significant role in payment risk management. By connecting disparate data points to reveal disguised relationships and patterns, real-time attribute linking aids in effective risk assessment.

For instance, imagine a crime investigation where the investigator meticulously analyses the case with a board displaying suspect lists with connected strings that help him map out the entire case. Attribute linking is the virtual version of it for digital payment frauds.

By connecting data attributes such as:

  • IP addresses
  • Device IDs
  • Transaction histories and other attributes

Financial institutions can protect their operations, identify potential risks, and manage overall risks associated with fraudulent merchants.

Key Aspects Of Attribute Linking

Now that we have discerned the role of attribute linking, let’s briefly look at the key aspects of attribute linking in merchant onboarding solution

Merchant Onboarding Solution
  • Identifying Suspicious Patterns: The strategic advantage of implementing fraud risk solutions that are embedded with attribute linking is that it allows financial institutions to detect anomalies that legacy solutions miss. By integrating advanced technologies like cognitive AI and ML, solutions with attribute linking can help analyse the nuanced patterns that modern fraudsters deploy.
  • Augmenting Risk Assessments: Financial institutions can enhance their risk management capabilities by monitoring merchants’ prior relationships and analysing their transaction histories. With attribute linking, PAs and PSPs will get a comprehensive view of data points about the merchants they are onboarding. This, in turn, helps them with effective risk assessment.
  • Enhancing KYC Process: With background checks and other data-driven insights, financial institutions can proactively check merchants’ legitimacy. This feature not only improves the Know Your Customer (KYC) validation process but also assists financial institutions with insights about merchants, such as their previous violations, penalty histories, etc.
  • Improving Transaction Monitoring: By constantly evaluating linked attributes, financial institutions can identify and detect fraudulent transactions in real time. This supports the constant oversight of merchant operations, leading to the immediate detection and prevention of fraud.

Using Attribute Linking To Spot Fraud Networks

Often, fraudsters do not operate single-handedly. They are regularly part of underground communities that share lucrative data with one another and are intertwined in their operations. This network association is known as a fraud network. Fraud networks’ interconnectedness unintentionally leaves clues that can be later unearthed through attribute linking.

For example, if a series of fraudulent activities are traced back to different merchants, but these activities share commonalities such as IP address, device IDs, etc. By linking these attributes, investigators can easily uncover the network of frauds.

Moreover, the insights facilitated by solutions that are embedded with attribute linking also help financial institutions in the investigation process revealing details such as geographical locations, transaction time frame, etc.

Ready to leverage attribute linking for mitigating merchant risks? Contact BANKiQ experts to explore possibilities.

Fraud Risk Management

What Fraud Connections Can Attribute Linking Uncover

Now that we’ve recognised the significance of attribute linking in merchant onboarding and fraud risk mitigation, let’s briefly discuss its applications:

  • Identifying Fraud Rings: Fraud rings are groups of criminals working together for a targeted objective. By deploying Fraud Risk Management solutions with real-time attribute linking features, financial institutions can pin down fraud rings and secure their operations promptly.
  • Decoding Synthetic Identities: Attribute linking effectively identifies fraudsters who operate under fictitious identities. By analysing transaction details and verifying their identity, financial institutions can protect themselves and their customers. By uncovering accounts that use synthetic identities, financial institutions can also report them to regulators for further investigation.
  • Detecting Account Takeover: Account takeover occurs when a fraudster takes over the account of a genuine customer. Fraudsters use the customer’s track record to conduct illicit activities. By using Fraud Risk Management solutions integrated with attribute linking, financial institutions can identify the timeline for deviations and spot anomalies, thus enhancing their risk posture, which protects them from future attacks.

Managing Merchant Risks with BANKiQ FRC

BANKiQ understands the importance of having a safe and secure merchant assessment. Considering this necessity, BANKiQ has tailored its out-of-the-box Fraud Risk Compliance (FRC) solution. With the core capabilities of:

  • Real-time merchant monitoring
  • Transaction payment monitoring
  • Suspicious transaction reporting
  • Complete fraud management
  • Attribute linking
  • Case management
  • Behaviour profiling and more

BANKiQ empowers acquiring banks, PAs and PSPs with effective solutions to mitigate merchant risks, manage regulatory compliance, monitor transactions and protect financial operations. As a guardian against modern digital payment frauds, BANKiQ is here to secure the future of digital payments.

The Final Word

Managing merchant risks presents a complex challenge in the current financial landscape. Fleeting payment trends, coupled with sophisticated fraud techniques, demand a multifaceted approach to combat frauds. Traditional methods are often reactive, leaving financial institutions vulnerable to fraud risks. However, there’s hope. Advanced Fraud risk management solutions such as BANKiQ FRC are embedded with transaction monitoring, attribute linking and other advanced features that not only protect financial entities from fraud risks but also equip them with tools to stay ahead of the threat landscape.

If you are interested in deploying BANKiQ’s solutions or learning more, schedule a consultation with BANKiQ.