When creating a fraud strategy, the top concern for many organizations accepting online payments is preventing payment fraud. This makes sense, but failing to consider other types of illicit activity can be costly.  In fact, most marketplace fraud spending is not related to payment fraud, but rather other forms of illicit activity that includes collusion, trade base laundering, and transaction laundering. These result in economic losses, and worse in negative reputation impact.

There is a wide margin for organizations to address other types of risk before it becomes fraud on the payments side, yet many fall short in managing non-payment related threats. Bank Secrecy Act (BSA) compliance is the needed counterpart to payment fraud for a holistic risk strategy approach that effectively addresses digital marketplace threats.

To talk about how risk goes beyond payment fraud and how BSA compliance can bolster organizations’ risk strategy approach in digital marketplaces, PaymentsJournal sat down with Jose Caldera, Chief Products Officer at IdentityMind, an Acuant company, and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.

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Fraud Encompasses Much More than Just Payments

Companies usually assess their losses based on payments fraud, highlighting why it’s so important to prevent and reduce such attacks. But payments related illicit activity makes up just a fraction of common crimes. In the United States alone, there are over 200 types of specified unlawful activity (SUA) in Title 18, including financial fraud, identity theft, and other common fraud.       

The chart below, provided by Mercator Advisory Group, identifies the top 15 fraud categories reported by consumers to the Federal Trade Commission (FTC) in 2018. It starts with impostor scams and debt collection and trickles down to foreign money offers and counterfeit check scams.

Certain types of fraud are often precursors to payments fraud. “There is such a wide margin to assess risk before it actually becomes fraud on the payments side,” explained Caldera. “While many organizations are already thinking about payments fraud, there are multiple other aspects relevant to address every component of risk and fraud.”

The second chart provided by Mercator Advisory Group, shown below, reveals the payment methods used to perpetrate fraud. Unsurprisingly, credit cards are at the top of that list, but are not as high as wire transfer fraud in terms of dollar volume.