Voice of the Industry

Eight ways to protect your business from a con

Thursday 19 September 2019 09:40 CET | Editor: Melisande Mual | Voice of the industry

Christian Chmiel, CEO of Web Shield, offers advice to merchant underwriters on recognising the signs of a con

Con artists are master manipulators. They use various well-honed tactics and tailor them to defraud their victims. However, if unscrupulous merchants are conning their customers, they are also conning their acquirers and payment service providers (PSPs).


According to card scheme rules, transactions must be legal in the country of both the buyer and seller. So, the behaviour and practices of merchants, especially those selling cross-border online, may make sales for legal goods and services illegal. This increases the risk for acquirers, who guarantee their merchant sales at the time of transaction and into the future. Forewarned is forearmed, so here are eight tell-tale signs of a con.

1. Loss aversion

People dislike losses more than they like gains of an equivalent amount. They may put more effort into avoiding the loss of something they already have than gaining something new. When reviewing a merchant’s sales and marketing materials, think twice about offers framed in terms of potential losses rather than potential gains.

2. Scarcity

Be suspicious if salespeople create a false sense of urgency by claiming limited supply. For example, offers only until midnight, members-only sales, or limited editions. The same principle applies if merchants put acquirers under time pressure or exploit the fear of missing out to conclude an agreement quickly.

3. Social norms

Social conformity or consensus is strong in most cultures. Pyramid schemes targeting religious, ethnic or professional groups exploit these norms. They recruit leaders within the group first, who in turn promote the scheme within their communities. Offers that seem to be exploiting a customer’s social network should raise a red flag.

4. Not understanding the offer

Unscrupulous merchants may try to disguise well-worn scams, such as advance fee frauds, as genuine opportunities. Never be too frightened to ask or too mean to take proper advice. Even experienced investors and merchant underwriters can be conned. They may overestimate their own experience and may be less likely to ask questions for fear of looking foolish.

5. Positivity bias

We are almost hard-wired to think too positively about how things will turn out, including things outside our control. It’s not optimism about the world or people in general, but about oneself. Even the most cynical underwriter thinks that his company’s well-honed methodologies and experience will help identify problematic merchants more than average.

6. It started off so well…

Conmen often feed the positivity or optimism bias by convincing the victim that everything is going well. Investors in financial scams invariably see some good initial returns before their accounts are locked and their contact disappears. Merchant bust-out frauds are the same. All scams work, until they don’t. That’s part of the con.

For merchant underwriters, this highlights the importance of monitoring. For every high-risk website submitted to us, we report two previously unknown URLs on average to clients. So, acquirers only know about one-third of the websites they process. (Source Web Shield Internal research 2016). Merchants do not disclose all their websites to their acquirers. They simply create new ones or sell new products without informing their acquirer. Or aggregate transactions from different merchants or websites under their own account, without their acquirer’s knowledge or permission.

7. The gambler’s fallacy

We tend to believe (or hope) that chance has a way of evening things out. Probability doesn’t care about timing, what we think or what came before. The probability of a coin toss being heads is 1-in-2. Only a gambler insists that the next one will be the lucky winner. Merchant underwriters can also get caught up in the gambler’s fallacy, if they have had a losing streak in a particular sector or country. Unless your underwriting policies and procedures have significantly changed, don’t think that your luck will suddenly turn.

8. Sunk-cost effect

In theory, we should only care about new, incremental costs. What we’ve already invested in time, money or effort shouldn’t matter because it’s already gone. We should only persevere if it still seems worthwhile in light of new evidence. But in practice, the sunk-cost effect gives us a continued, strong motivation to believe in something, even when the landscape has changed. Acquirers should consider this when devising their monitoring, termination and off-boarding procedures.

The con is an exercise in soft skills and art of persuasion as much as the tactics described above. Cons always seem very obvious when they happen to someone else. If underwriters are aware of the types, approaches, methods and techniques, they can improve their powers of recognition and avoid becoming a victim.

Deceptive marketing practices will be the subject of the fifth book in the Web Shield ‘Fundamentals of Card-Not-Present Merchant Acceptance’ series launched at the RiskConnect  conference, 19-20 November 2019.

About Christian Chmiel

Christian A. Chmiel, CEO and founder, Web Shield is responsible for the development and implementation of investigation techniques to identify fraudulent or brand-damaging online merchants. He is also a lecturer at the Web Shield Academy and has published several books about fraud, investigations and accounting.

About Web Shield

vspace=2Web Shield has been equipping the payments industry with tools to protect businesses from merchants involved in illegal or non-compliant activities since 2011. Our highly precise solutions enable acquirers, PSPs and other financial organisations to evaluate new merchants and monitor existing ones, thereby saving both time and money. There is a high correlation between merchants who use deceptive marketing practices and those who deceptively generate website traffic, which is where the Web Shield Deceptive Traffic Detection module can help. This is available as an optional module for our InvestiGate onboarding platform and for notifications around suspicious developments within our Monitor platform.

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Keywords: Web Shield, merchants, CNP transactions, merchant underwriting
Categories: Fraud & Financial Crime
Countries: World
This article is part of category

Fraud & Financial Crime

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