The landscape has been changing for payments fraud thus far in 2021, and that change will continue.
Payoneer General Manager of Enterprise Adam Cohen told PYMNTS that advanced technologies and payments orchestration can help battle the bad actors, especially as they find new attack vectors such as online marketplaces.
At a high level, he said, “as new customers and new sellers are entering the markets, fraudsters take the opportunity to build their own businesses.”
As a result, risk is becoming increasingly hard to manage, when several touchpoints are involved in commerce, where the business of middlemen like drop shippers can be difficult to understand from a risk perspective as the identity of their suppliers and product selection changes rapidly.
Online marketplaces, especially, are dynamic business models, said Cohen, and it’s hard to understand, at times, whether customers are legitimate or not, or whether they may be “covers” for money launderers.
And cryptocurrency is making things more opaque than ever — given that it’s hard to track the digital offerings, who owns them, and who’s using them in transactions, he said. Fraudsters are also taking advantage of the trillions of dollars being invested by various governments in the U.S. and around the globe in various stimulus and grant programs.
When it comes to innovation, Cohen said, FinTechs are outpacing traditional financial institutions (FIs), and that’s a truism when defending against fraud. These tech-savvy upstarts are leveraging technologies like machine learning (ML), deep learning and biometrics, along with new protocols like open banking to construct new fraud management defenses. Thus, a selfie can become a standard part of know your customer (KYC). Payment service providers (PSPs) are leveraging their own proprietary data, networks and technologies to provide risk management offerings to clients.
Payment Orchestration
Payment orchestration can be a tool of particular effectiveness against fraudsters, he said.
As Cohen described it, “payment orchestration is a very broad concept that touches virtually all aspects of payments — from the availability of payment methods, [through] payment acceptance rates [to costs].”
In practice, merchants gain the advantage of using a range of acquirers, PSPs, payment methods and providers in order to ensure transactions are handled effectively and at low cost — without having to integrate with each and every one of those entities separately.
“One of the areas where payment orchestration has value is risk,” said Cohen, who added that merchants need not worry about selecting the “right” risk management tool across payment types or geographies as it is built directly into the payment orchestration platforms. The “holy grail” of risk management, via full payment orchestration, would be to use different data points that are generated from different acquirers, PSPs and risk management vendors — creating a consortium that can give a holistic view of risk.
Marketplaces And The Holistic View
Marketplaces in particular benefit from payment orchestration and that aforementioned holistic view, maintained Cohen.
“Marketplaces have some structural advantages over other types of merchant models because they get to leverage others to innovate, to manage the supply chain, to manufacture, to package, to deliver goods and services for them. They don’t need to have huge teams of product innovation.”
The risks inherent to the platforms are specific, too. No one wants to find out that the vacation listing they booked on a platform is not exactly as advertised, or the seller they sent funds to has never sent what was promised. Social media sites need to make sure that customers are “of age” and that the content that is being distributed conforms with regulations.
It’s a continual trade-off between risk and growth, he said, and some marketplaces are more “open” than others, which means they have to be hyper-vigilant about quality and risk control (or else they run the risk of failure).
As for Payoneer, “We’re using a [variety] of data points, including KYC, [financial] behaviors and other information we’re collecting to make sure that these are really good and high-quality sellers,” Cohen said. “And we’re using the same technology and the same data points to provide other financial services, including working capital [so we’re literally putting our money where our mouth is].”
Safeguarding The Path To Payout
There’s risk, too, right up until the payout itself — as Cohen noted that “fraudsters use different tactics to get away with the money and get paid.” One way is to buy existing online storefronts from existing sellers. And those stores are in good standing initially, but then are used as fronts for questionable merchandise or goods that are never sent.
Advanced technologies, he said, can help firms like Payoneer collect data at the setup that can help identify bad actors and remove them from platforms or prevent them from joining the platform in the first place.
“We KYC the users, we validate the documents and their identity in a number of ways,” he said. “We see where they’re getting paid from. We’re also seeing how they spend their money, which can be just as simple as withdrawing the funds to the bank accounts — but also paying suppliers, paying agencies [or using an ATM]. We have the advantage of seeing many, many different hundreds of thousands and millions of customers, which helps us establish patterns to identify fraud.”